Given the rare convergence of a sustained economic expansion and unmatched popular support behind a newly elected president, the Philippines is blessed with the "elbowroom" to undertake the institutional reforms needed for it to finally lick poverty and evolve from the region's laggard to its economic powerhouse, according to Finance Secretary Carlos Dominguez III said.
Dominguez said the new government's medium-term plan is to transform the Philippines into an upper middle-income state in six years' time, and the unparalleled popular support-plus political will-of President Duterte equips him with "more than sufficient political capital" to carry out the profound reforms in Government and the economy necessary to achieve this ambitious goal.
He told International Monetary Fund (IMF) and World Bank officials during a recent meeting in Washington DC that the new government will never "shirk from the challenges of this vital conjuncture," Dominguez said it fully intends to transform the economy from a consumption- to an investment-driven one by implementing the tough reforms ranging from the upgrade of its law enforcement capabilities to the long-overdue overhaul of its tax system.
"We have the elbowroom to undertake the institutional reforms necessary to bring our country to the high-middle income level over the next six years," Dominguez told the IMF-World Bank Board of Governors.
Over the medium term, the government intends to sustain a growth rate of 7 percent or better, which, he said, is "the key to bringing down the country's poverty rate from 26 percent to only 17 percent by 2022."
"The more important 'war' the Duterte administration is waging is that against poverty. It is a war we intend to win resoundingly," Dominguez said.
He said, "The new administration that took power three months ago fully intends to do the difficult reforms ranging from upgrading law enforcement capabilities to modernizing our tax administration," he said.
Dominguez said the government does "not intend to shirk from the challenges of this vital conjuncture. As the mature industrial economies slow down, we intend to pick up the slack and contribute our fair share in driving growth for the global economy."
For the DOF chief, "The great political support and unprecedented popularity ratings President Duterte currently enjoys arms him with more than sufficient political capital to invest in profound reforms of government and the economy. That immense political capital will be deployed judiciously."
He said that President Duterte has put in place a 10-point socioeconomic agenda, the "arguably ambitious" goals of which include "breaking the stranglehold of the oligarchy," improving education and health services, and laying down the needed infrastructure to open new business opportunities and properly disperse economic activity in all regions.
Dominguez said that in the three decades since the country was buffeted by a debt crisis, the Philippines worked hard to put its economic house in order by effecting the prescribed structural adjustments and maintaining exemplary fiscal discipline.
Such sustained efforts paid off with continued high growth, he said, but the government unfortunately postponed spending on vital infrastructure and on the poor, so much so that the recent economic gains failed to trickle down to the majority.
"That made our recent economic accomplishments less inclusive than we might desire," he said. "Now with the beneficial conjuncture, it is time to undertake the economic investments we long postponed. These investments will allow us to move to a higher growth plane and make the Philippines a regional economic leader instead of the region's laggard."
Dominguez said the Duterte administration is thus committed to undertaking long-postponed economic investments that will let the Philippines win its war against poverty and transform itself into "a regional economic leader instead of its laggard."
He said "now is the moment to break from the past of low growth. Now is the moment to do what past austerity programs prevented us from doing: investing in the young, building the bridges that will connect our communities, building up our energy supplies, improving domestic transport and mass transit in our cities, using information technologies to open new business opportunities."
Dominguez said such an economic breakthrough can be attained, given that the country's economic fundamentals are at their strongest, interest rates are at their lowest, inflation rates remain at benign levels, banks are teeming with excess liquidity and millions of young Filipinos will enter the workforce over the next few years.
Moreover, he said, the hard work of previous administrations has reduced the country's debt to 43 percent of GDP as of June 2016, allowing the government to free revenues to spend on its programs for inclusive growth. The country's domestic debt as of that date was 28 percent of GDP, while foreign borrowings accounted for 15 percent of GDP.
The Philippines has also kept its investment-grade credit ratings that will help accomplish the goal of shifting from consumption- to investment-led growth, which, in turn, "will ensure our economic expansion will pace the rest of Asia," Dominguez said.
Tracing poverty largely to uneven development among the country's regions, he said the government that took over barely three months ago will open access to the economic mainstream, end the armed insurgencies that are most active in the poorest regions, rapidly modernize the nationwide logistics backbone, and modernize agriculture so that farm production ceases to be the "poverty trap" for millions of Filipinos in the countryside.
Dominguez said that to do all of these imperatives, the government will raise deficit spending from 2 percent to 3 percent of the Gross Domestic Product (GDP) and pursue tax reforms so it can undertake massive investments in infrastructure, human capital and social protection for vulnerable sectors.
The Duterte administration is also seeking political settlements with armed insurgent groups as part of its efforts to attain these imperatives.
"Peace will allow progress for the excluded among our people," he said.
He said the new administration has submitted to the Philippine Congress a tax reform package that "seeks to lower the oppressive individual and corporate rates now prevailing."
"Notwithstanding the revenue loss that goes with lowering rate, we intend to compensate for that with a broader tax base enabled by making our tax system fairer, simpler and more efficient," he said. "A number of specific taxes targeting the rich and supporting public health will result in higher revenue despite the rate reductions."
In line with the government's war on poverty, he said, "a full 40 percent of public spending will be devoted to poverty reduction programs and investments in our human capital. That provides the context that allows us to call the tax reform package 'pro-poor.'"
"We are confident the Philippines will move forward quickly through the medium term," he said. "There is newfound optimism among our people. There is uncharacteristic determination on the part of our nation's leaders."
Noting that the Philippines is entering "a period of vigor and vibrancy, of new opportunities and new challenges," he said the government is thus "seeking your support at this important turning point for our nation. Change has indeed come to our archipelago."
Source: Philippine Information Agency