Unprecedented
Never was so much owed by so many to so few”—Winston Churchill, United Kingdom Prime Minister, 1940—never in the annals of private business sector advocacy have so many responded in so short a time to back a joint statement on a vital national issue associated with the draft federal constitution, particularly to support the state economic managers, led by Secretary Carlos G. Dominguez III of the Department of Finance (DOF) and Secretary Ernesto DM. Pernia of the National Economic and Development Authority (Neda), in their call for fiscal prudence, measured approach and inclusiveness in the campaign for a shift to a federal form of government.
Avalanche of support
Thanks to the wonders of modern communication, seven of the largest national and regional business organizations approved the joint statement within hours, and on a Sunday at that. Such unity of purpose and unprecedented swiftness of action are, in no small measure, indicative of the great concern over the risks and possible dire fiscal consequences associated with the shift in the form of government, if executed imprudently. Arguably, an important factor was the high esteem the business sector has for the economic team. These seven organizations are—Cebu Business Club, Employers Confederation of the Philippines, Financial Executives Institute of the Philippines (Finex), Makati Business Club, Management Association of the Philippines (MAP), Philippine Chamber of Commerce & Industry and Philippine Exporters Confederation, Inc.
Second avalanche
Remarkably, a second avalanche of support poured in after the release of the joint statement. Within a few hours on Aug. 14, 19 other organizations joined as co-signatories and a follow up news release was issued. By cut-off time, 26 co-signatory organizations had signed up, with more still wanting to join after the cutoff. A rarity, indeed.
Entire spectrum of private sector
These organizations span the whole spectrum of the private sector—business and professional practitioners in various fields—traders, manufacturers, exporters, economists, tax experts and accountants, builders, employers, utilities operators, management consultants, scholars and members of the academe, among others. Some will be winners in the ongoing tax reform spearheaded by Sec. Dominguez, in the form of lower taxes, while others will see their taxes rise when privileges are rationalized. Regardless, with national interest clearly front and center on the issue, all joined the show of support.
The message
In urging Congress to carefully weigh the cost, risks and uncertainty associated with the proposed monumental shift to a federal system of government, these groups expressed alarm at the high cost to the would-be multilevel government estimated at P72 billion by the Philippine Institute for Development Studies and P130 billion by Neda. They also commended the economic managers for their candor and transparency in disclosing their analysis and opinion at the Senate public hearing and their call for more dialogues and inclusiveness in the process of amending the Charter. To this end, the private groups encouraged full, open and dispassionate discussions on this proposed shift in the form of government, keeping in mind its long-term impact on future generations of Filipinos.
Prudential fiscal deficit ceiling
The groups noted that the estimated fiscal deficit of 6.7 percent of the gross domestic product is more than two times the sustainable 3 percent target of our fiscal managers—a prudential limit also observed internationally, particularly by the European Union for its member countries. The dire consequences of such gross fiscal imbalance is worrisome as the economy could be adversely impacted, and with it, the much needed “Build, Build, Build” program placed in jeopardy.
10-year market crash cycle
There appears to be a 10-year capital market crash cycle. 2018 is seeing the ongoing turbulence and risk-off mood in emerging markets with the Argentinian peso, Turkish lira and Indian rupee being sold off. 2018 is the 10th anniversary of the great 2007/2008 global financial crisis that brought the financial system of the United States on the verge of collapse and, if not for the aggressive and unprecedented degree of intervention of the United States Federal Reserve Board, its economy to its worst recession. The 2008 financial crisis, in turn, came 10 years after the US capital market tumult in 1998 when the US Fed had to intervene to avoid systemic risk from the collapse of Long-Term Capital Management, the high-flying giant hedge fund, following the Russian ruble debt default. And before that was the 1987 global stock market crash. With many markets and risk assets at lofty valuations, will these, plus normalization of monetary policy from historic lows, be the ingredients for a repeat of the 10-year crash cycle in 2018?
Ongoing emergency markets tumult
The group, in the Aug. 14 follow up statement, took cognizance of the precarious situation in the financial markets in developing countries currently being roiled following the difficulties of Venezuela, Argentina and Turkey. It stated that all sectors must be seen as solidly behind the call of our economic managers for fiscal prudence and, seeing how the financial markets are so sensitive, both the private and public sector cannot be perceived as lacking in resolve on the fiscal front. The tumult has seen the Turkish lira drop by as much as 18 percent intraday, following remarks by its finance minister that were not well received by the market. Year-to-date, the lira has plunged by a whopping 40 percent. Contagion hit the Indian rupee, bringing it to a historic low of 70 to the dollar.
Admirable candor and transparency
It is for this reason the private sector cheered when DOF secretary Dominguez and Neda director-general Pernia came out strongly in defense of fiscal prudence. This, no doubt, sent a strong message to the market that the fiscal health of the country is being zealously guarded by the economic managers. Without fiscal health, all bets will be off. Gross fiscal imbalance of as high as the estimated 6.7 percent fiscal deficit could bring on a financial crisis and send the economy into a tailspin.
Series of forums on charter change
At this point, the prevailing sentiment in the private sector is to listen and learn more from the experts, the better to have an informed basis for a decision on this most fundamental issue—charter change. Accordingly, a series of forums are being organized. On Aug. 28, MAP will be listening to former Supreme Court chief justice, Reynato Puno and chair of the Consultative Committee studying the Constitution, make a presentation on the “Bayanihan Federalism.” Next, on Sept. 11, former 1987 Constitutional Commission member, Atty. Christian Monsod, will present his arguments against constitutional change, while former DOF secretary Gary Teves will speak on “Amending the Economic Provisions: A Headstart in the Shift to Federalism.”
Constructive engagement
President Duterte admirably and appropriately responded to the joint private sector statement by welcoming inputs for his consideration. In answer to this call, private sector task forces will be formed to study and produce papers on the following aspects of charter change—political system, including the rationale for charter change; fiscal and economic aspects; and public institutional governance capacity and judicial reform. Eminent experts and scholars will be invited as resource persons to present their views and studies. MAP and Finex are the co-convenors.
To change or not to change? It is time for constructive engagement and action.
