The Business of Governance

Leonor Magtolis Briones

The death by suicide of a twelve-year old girl from Davao due to extreme poverty has touched the collective conscience of the country. People of consequence, from the President down to bureaucrats, social anthropologists, civil society organizations, and media personalities have endeavored to explain why a child would commit suicide.

For a young girl,twelve years is a time of magic and dreaming. It is the magical time oftransition from childhood to womanhood, from fifth grade to sixth grade. It isthe time for dreaming of parties, of clothes, and yes of boys.

When a girl is twelve years old, she should not be scrounging for fare, baon,and funds for school projects. She should be sighing over her crushes, shoppingfor geegaws and dreaming of going on to high school and college.

What were the items in the child’s wish list? A bicycle, a bag and a pair ofnew shoes. Well-off twelve year olds have closets overflowing with bags andshoes. They can ask for a bicycle any time. A poor child literally gave up herlife because she could not have them.

People commit suicide out of despair and frustration. In a country which adoresand worships children, even one child driven to self-destruction is anindictment on our economy and society.

For years, civil society organizations like Social Watch Philippines have beenchallenging official statistics about poverty. They produced tons of literature,power point presentations and statistical tables. They have engaged thegovernment in public debates.

However, it took one child, one statistic to prove in the most brutal and starkterms that poverty does exist. Anti-poverty activists say that poverty has theface of a woman. In the Philippines, poverty has the face of a desperate,despondent child.

The 2008 budget and macroeconomic assumptions

The P1,227 trillion 2008 budget is currently under consideration by theSenate. Things have changed since Congress approved it last October.

The proposals are based on macroeconomic assumptions of what will happen nextyear. Changes in these assumptions will, of course, impact on the 2008 budget.

Take the projected debt service for interest expense. It is calculated atP295.751 billion. This does not include principal payments. There have beensignificant movements in the exchange rate. The strengthening of the peso andthe subsequent lowering of the exchange rate will of course reduce the debtservice. This is because less pesos will be needed to pay interest on theforeign debt.

However, we need to be reminded that if the peso continues to grow stronger, itwill mean lower revenues from imported goods. Again, this is because the pesoequivalent of imported goods will go down. Therefore, taxes on imported goodswill correspondingly go down. Lesser revenue will translate into less fundsavailable for payment of the debt service.

At the same time, the debt service will also be affected by movements ininterest rates. If these go up, then the interest expense will also go up.

Still another important consideration in the macroeconomic assumptions is theprice of oil. The 2008 budget is premised on oil prices at $62 to $70 perbarrel. Last Wednesday, it shot up to $97 per barrel. At the rate it is going,it will not be long before it hits $100! Obviously, oil prices will impact notonly on government expenditures which use up a great deal of oil, but also onrevenues because of oil taxes.

At present, there is already pressure to cut or even eliminate petroleum taxes.When this happens, government revenues will surely go down.

How about dividends from Bangko Sentral? One of the major sources of governmentrevenues is dividends from government owned and controlled corporations andfinancial institutions. They are required by law to remit 50% of their netincome to the government. The BSP is one of the largest contributors ofdividends to government coffers.

Currently, projections show that the BSP might suffer a deficit in 2007.government revenues for 2008 will certainly be negatively affected. This isbecause BSP has been suffering from huge foreign exchange losses in its effortto stabilize the exchange rate of the peso.

If BSP losses continue, recapitalization might be required. And where will thefunds come from? From the national government of course!

Whither the macroeconomic assumptions? At the rate the macroeconomy is going,the proposed 2008 budget might be based on less than realistic macroeconomicassumptions. The task of the government at present is to prepare a series ofsensitivity analyses on the possible impacts of the exchange rate, interestrate, oil prices, and even balance of trade on the proposed 2008 budget—debtservice, government expenditures and revenues. Unless this is done, thegovernment runs the risk of implementing a budget premised on a balanced budget.It might turn out to be a big fat deficit.

As usual.

(Ms. Leonor Briones is a former National Treasurer ofthe Republic of the Philippines. She is currently teaching at the University ofthe Philippines' National College of Public Administration and Governance. Sheis also a co-convenor of Social Watch Philippines. She also writes a column forthe BusinessMirror)