Credibility or the utter lack of it

Last Tuesday, at the official commemoration of the EDSA I "people power" uprising, President Gloria Macapagal Arroyo chose to renew her pledge to end graft and corruption in government. This paper thought the story merited only a brief news item in the inside pages entitled "Same old vow." The title pithily summarizes the news of GMA's grand production at EDSA and handily dismisses it.

Of course, the huge problem with all this talk by the President about fighting corruption is credibility. The automatic reaction of the woman on the street is, "Look who's talking," or "She can't be serious." You see, once you've sullied your reputation by your own doing, no amount of preaching and pouting and stomping of one's feet is going to clean it up.

Earlier, GMA announced that the fiscal crisis was over even when, by her own allies' reckoning, Congress had passed only two revenue bills, with one, the so-called sin taxes, in a watered-down form, thanks to the irresistible lobby of cigarette and alcoholic beverage companies.

As it turned out, the unusual forthrightness of the President in initially acknowledging the fiscal crisis was merely a calculated ploy to bring public opinion behind her as she pressed Congress to pass her unpopular tax measures. This led some quarters to suspect, others to conclude, that the GMA administration was never serious about undertaking reforms, such as debt relief, that would address the more fundamental causes of the fiscal crisis.

Government then crowed about the 2004 GDP growth being the highest since '97. GMA's economic managers and spin masters pointed to this, along with the slight appreciation of the peso, the lower-than-target budget deficit, improved investor confidence as supposedly shown by a bullish stock market, etc. as proof that the economy is on an upturn, if not definitely on the road to recovery.

However, the credit rating agencies' uniform verdict -- downgrade -- paints an all together different picture that does not jibe with government's rosy interpretation of statistics and upbeat forecasts. These hard-nosed, cold-blooded creatures of the realm of The Market, that GMA and her Wharton Bright Boys try so hard to satisfy, are obviously not satisfied. Despite government's declarations and the actual measures it has undertaken to deal with the fiscal crisis, Moody's and Standard and Poor's assessment of the situation was stinging but closer to reality. For it was not their concern to face-save for the government.

Truth to tell, the Arroyo administration is not at odds with the credit rating agencies. They're on the same side: they see things the same way and agree on the solutions. They chorus that the people, a majority of whom can hardly make ends meet, must be made to carry the burden of new revenue-enhancing measures coupled with decreased government services due to the premium given to debt servicing and military and police expenditure. (Certainly, when 85% of total government revenue goes to paying debts, an insecure government would see the logic in spending scarce funds spying on and repressing its own citizens.)

The Arroyo administration keeps harping on the same line regarding the VAT hike: It is a small price to pay in exchange for preventing the fiscal collapse of government, including the inability to render vital social services.

But again, it's a question of credibility. Unfortunately, most people nowadays are convinced, by their own painful experience, that one can't expect any help from government especially when you most need it. On the other hand, a growing number appear not to be averse to seeing this particular government collapse, and not just in the fiscal sense.

For sure, no amount of government media blitz can stop the stomach rumblings of the hungry. And it doesn't take much arithmetic to conclude that the proposed increase of two percentage points, or 20%, of the VAT's current rate will trigger widespread price increases affecting the most basic commodities and services. The increase is indeed significant since a large portion of daily consumption and expenditures are covered by VAT. Opponents of the VAT increase are one in denouncing it precisely because the VAT is a regressive form of taxation which, when increased, will impact most heavily on the poor.

According to Bayan Muna party-list:

"VAT is regressive because people are taxed not based on their ability to pay, but based on a fixed rate. Rich and poor pay the same VAT for a particular product, but the rich actually pay less relative to his or her income. With minimum wage nailed to the floor and with inflation at a six-year high of 7.9%, the VAT hike could not come at a worse time."

Further, Bayan Muna lambasts government for penalizing honest taxpayers by passing to them the burden of shortfalls in VAT collections.

Bayan Muna sees the VAT hike as a long-overdue imposition of the International Monetary Fund so that the country can raise revenues and continue paying odious foreign debt. According to them:

"As early as 1999, the IMF had recommended an increase in VAT rates as outlined in its Memorandum of Economic and Financial Policies. The proposal was revived last year in the aftermath of government's declaration that the nation was facing a fiscal crisis. It is safe to assume that the revenues that will be generated by the VAT hike, like the revenues generated from other new tax measures, will be intended to pay for maturing foreign loans. The new revenue measures are not intended to increase the budget for social service which will benefit the people."

Indeed, government has painted itself into a corner because it allows itself to be limited by conditions and prescriptions imposed by the IMF-World Bank, no matter that these translate into intolerable burdens on the people and bring the economy deeper into the quagmire of debt, destruction of productive capacity and loss of economic sovereignty.

That's something Mrs. Arroyo's solemn vows to stamp out corruption in her term just can't quite cover up.

BusinessWorld
February 25-26, 2005