FACTBOX-Major policy challenges for Philippines’ Aquino

By Manny Mogato

July 26 (BestGrowthStock) -Philippine President Benigno Aquino III
will set out his political agenda for the next 12 months when
he delivers his first State-of-the-Nation Address on Monday.

Aquino promised during the May election campaign to
eliminate corruption and expand the economy. [ID:nSGE65T06E].
He is expected to outline to Congress plans for a 14 percent
increase in budget spending in 2001.[ID:nSGE66M0CA]

Here are some of the policy challenges Aquino will face in
his six-year term:

BUDGET DEFICIT

The Philippines, Asia’s largest sovereign issuer of
offshore debt, is expected to post a second successive record
budget deficit in nominal terms this year, largely due to its
failure to substantially lift revenues despite a sales tax
reform in 2005.

The administration of Gloria Macapagal Arroyo ended 2009
with a budget deficit of 3.9 percent of GDP, or 298.5 billion
pesos ($6.4 billion), a record in peso terms, and it forecast a
deficit of 3.6 percent of GDP or around 300 billion pesos this
year.

Aquino’s government has revised the 2010 deficit forecast
up to 325 billion pesos, 3.9 percent of GDP. His team wants to
cut it to 3.3 percent of GDP next year and 2 percent in three
years.

His finance secretary, Cesar Purisima, said the deficit
needs to be cut, but does not have to eliminated.
[ID:nSGE65S0E0]

While the deficit is comparatively far smaller than those
of major economies, a narrow tax base and chronic evasion and
corruption limit the government’s ability to lift revenues and
spend more on social services and infrastructure upgrades.

Aquino has said he will improve collection by enforcing tax
laws, but markets are waiting to see if he raises tax rates to
support state spending. The cost of funding the deficit hampers
the government’s ability to improve poor infrastructure.

CORRUPTION

Aquino has vowed to run after smugglers and tax evaders but
that campaign is unlikely to raise state revenues immediately.
He also promised clean and honest government, punishment for
corrupt officials and a better investment environment.

The finance department has started charging tax cheats and
smugglers as well as corrupt staff at the two main revenue
agencies, Bureau of Internal Revenue and Bureau of Customs.

The president has set up a “Truth Commission” to
investigate allegations of corruption, poll fraud and rights
abuses by the Arroyo administration. [ID:nSGE65S0F3]

Arroyo was hounded during 9

Investment Tools