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Risks of Aquino’s straight path

(Jack The Scribbler is pleased to announce its first contribution: An analysis piece published in the Manila Times by its business editor, Arnold S. Tenorio. Arnold, an MBA graduate of the University of the Philippines’ College of Business Administration, deserves a wider audience since he’s one of the Philippines’ lesser-known but intelligent business journalists. And I say that because he’s not charging me anything for this piece, save probably for a few beers.)


In a press conference held shortly after Congress proclaimed him the Philippines’ 15th president, Benigno Aquino 3rd made a slip-up that would haunt his leadership for the next six years.

President Aquino said that unemployment data understated reality because they excluded people not seeking work.

Anyone familiar with the National Statistics Office lexicon — which adopts the International Labor Organization standard — knows that people not seeking work have been counted among the unemployed for the past five years.

Granted an economics degree hardly makes one an expert.

But unlike his mother — the late Corazon “Cory” Aquino who was thrust onto the political stage after the assassination of her husband — the President has opted to lead the life of a professional politician for the past 12 years.

During his nine years in Congress and three years in the Senate, Mr. Aquino served in the committees of trade and industry, and of banks and financial institutions — giving him ample opportunity to learn the country’s official statistics.

Beset by bickering

The President’s gaffe showed that like his mother, the presidency under him would likely be beset by bickering, as key allies entertain the idea of knowing better than their accidental leader.

Like his mother, Mr. Aquino was pushed to seek the highest office in the land largely because of the strong marketing appeal of a political symbol: Cory as the unimposing wife of a martyred opposition leader back in 1986; the 15th President as the unblemished son of two icons of democracy.

Like his mother, Noynoy won the presidency by tapping the majority’s disgust with the perceived corruption of the Arroyo government.

Beyond this criticism of the status quo, Mr. Aquino, as Cory back then, stood for little else.

His diverse political support — running from left to right of the ideological spectrum — indicates his allies also have nothing more binding them beyond their revulsion toward the Arroyo government.

That he secured the support of Big Business and a section of the country’s intelligentsia is owed partly to running mate Sen. Manuel Roxas 2nd, an Ivy League graduate and advocate of economic orthodoxy.

During the campaign, Mr. Aquino made no secret of his deference to Roxas when it comes to the economy.

Break rank
But Roxas’ defeat to former Mayor Jejomar Binay of Makati City, who enjoyed the support of a section of the Aquino family, has emboldened the latter group to break rank from erstwhile allies.

As key supporters wash their dirty linen in public, Mr. Aquino’s presidency risks becoming a parody of his mother’s administration, which was plagued by struggles between left and right-wing supporters.

To be sure, a string of coups similar to those that rocked Cory’s presidency does not loom on the horizon, especially since the ringleaders of military misadventures during the former administration have all but embraced the electoral process, including one faction that threw its lot with the incumbent President.

Popular disenchantment with the polls does not exist, with the huge voter turnout showing that elections remain the preferred mode of replacing leaders.

Economy in better shape

The economy also is in better shape now than when Cory assumed the presidency.

The economic conditions facing her son are far from dire, with the Philippines faring better than its neighbors after narrowly escaping a recession last year.

The impact of the global crisis had been alleviated by government and election-related spending, with the domestic economy rebounding strongly in the first quarter of this year.

Recent official data — rising money supply, resilient remittances, and growing exports — point to the Philippines sustaining its growth momentum in the second quarter.

Bangko Sentral ng Pilipinas (BSP) officials have reveled in the absence of external payments crises over the past six years, with the country’s balance of payments intact despite the recent global financial turmoil.

Catch-all remedy

Beyond the absence of the political and economic bases for extra-constitutional dissent, many Filipinos saw their hopes raised by the victory of a candidate for president who proffered a catch — all remedy to their misery: Without corruption, poverty would end.

For a low-key scion of a wealthy family to enjoy a wide margin of votes over a popular second-runner such as former President Joseph Estrada is owed to more than just the moral overtones of Mr. Aquino’s campaign.

His campaign’s deft appeal to the deep religiosity of Filipinos was most evident in the then candidate for president’s final TV ad urging voters to opt for his straight path, not the crooked one laid down ostensibly by the former administration.

Expectations consequently ran high that the new government would improve the people’s condition. Whether the new President can deliver is another matter.

Uneasy alliance

During his inaugural speech, Mr. Aquino admitted that the road ahead is difficult.

His first year in office will indicate which faction in the President’s support base would have to go.

Given the diametrically opposed views on economic reform held by key allies, the new administration would likely suffer its first blood-letting when it takes on the urgent task of ensuring the country’s recovery from the global crisis.

For underneath the very public wrangling for credit on who brought the most to Mr. Aquino’s successful campaign is a more fundamental policy difference among supporters.

His straightforward campaign slogan hides an uneasy alliance between those who opt for huge social spending to eliminate poverty, and those who fear that such tack would unsettle the sound macroeconomic fundamentals already laid down by the former government.

Cracks to grow bigger
The President’s insistent refusal to raise taxes despite the contrary view held by the country’s foremost economists may please both strong-state and neo-liberal supporters in the near term.

But when the time comes to foot the bill, the cracks in the Aquino administration are likely to grow bigger.

The challenge of rebuilding the economy after the worst global financial crisis in decades, two deadly typhoons, and a prolonged dry spell point to the need to keep the public tap flowing.

In a symbolic break from the previous administration, the new government announced it was ditching its predecessor’s balanced-budget goal in favor of “managing” the fiscal deficit by raising the tax effort.

Having sworn against additional levies, the Aquino government is anchoring its revenue generation on pursuing smugglers and tax cheats, on top of administrative measures aimed at tightening collection.

Estimates of any windfall from these initiatives, however, come close to meeting only half of the expected budget deficit for this year.

Zero-base budgeting
The new government is also toying with the idea of instituting zero-base budgeting in a veiled attempt to reduce overall spending by limiting expenditures to priority programs and projects.

This entails redoing the budget proposal drafted during the previous administration, and risks a clash with a legislature that is used to dispensing the national spending bill as largesse.

A more dangerous proposal is to rechannel the proceeds of state asset sales to profit-making sectors. This is a roundabout way of enlarging the state’s presence in the market, and would undo more than two decades of privatization.

Financing the huge social spending requirements through borrowings also has its limits.

On the international front, Europe’s own debt crisis has unsettled financial markets worldwide, threatening another credit crunch.

In the domestic market, it remains to be seen whether liquidity would be ample, especially as businesses crank up borrowing to take advantage of record-low interest rates and to build up capacity.

This early, the private sector is asking the Bangko Sentral ng Pilipinas to lift its single-borrowers’ limit on banks, thus signaling robust business appetite for funds.

Serious loss of face

The resilience of remittance-led consumer spending points to this pillar of growth as a source of additional funds for pump priming.

Raising taxes is the path of least resistance as far as revenue generation is concerned, but doing this would result in a serious loss of face for the President, eroding the goodwill that he earned during the electoral campaign.

This brings us to a second key issue his government must face: What to do with the former administration’s perceived corruption, given Mr. Aquino’s campaign promise to go after graft starting at the top.

Recent history is replete with lessons on how not to pursue one’s predecessor.

The previous administration sowed social strife when it prosecuted Estrada, while Cory’s attempt to deliver justice to martial-aw victims also ended in failure.

Distaste for corruption

Mr. Aquino’s key supporters may share a distaste for the perceived corruption of the previous administration.

But not everyone who backed him may agree on how and when to deal with this matter.

Unlike Estrada who was driven out of power, former President Gloria Arroyo has secured a seat in the House of Representatives — a toehold on power that she can use to parry the new government.

A policy of vindictiveness would roil Congress, distracting it from the task of securing economic recovery.

This in turn risks eroding business confidence, and wasting the country’s rare opportunity to have emerged from the global crisis relatively unscathed and ahead of its neighbors.

Equivocation on the issue of corruption, however, is equally fraught with risks.

Inaction would derail the President from his avowed straight path and dash the people’s newfound hope for meaningful change.

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