The Philippine Political and Economic Assessment & Trends

IBON Foundation, Inc.

January 21,2005

Andres Bonifacio Integrated School

10 Prominent Issues

(1) OIL

* local oil prices increased more than once a month in 2004

gas – 13x by P7.45/liter

diesel – 15x by P7/liter

kerosene, LPG – steep increases recorded

What the people demanded:

• Rollback fuel prices• Scrap Oil

Deregulation Law

What the government granted:

Delay the implementation of increased taxes on petroleum products

Promise to study Oil Deregulation Law

P. 50 discount on diesel

(2) POWER

• Napocor increased rates 4x in ’04 (+ 1 in the offing)

• Meralco increased rates 3x (+1 this Jan.’05)

> to refinance its debts

10 Prominent Issues

Cost of the Sweetheart Deals between Napocor and the IPPs, 2001-2002 (in billion pesos)

Take or pay 37Forex guarantee 17Fuel cost guarantee (2002) 29 Total 83

* 42% went to Mirant Sual Corp

Source: National Power Corporation.

10 Prominent Issues

(3) WATER

MWSS privatized in 1997

East: Manila Water (Ayala, US,UK, Japan)

West: Maynilad (Lopez, Suez) Water rates increased by 226% (Maynilad) &

350% (Manila Water)

Water rates

Jan 2004 Jan 2005 IncreaseMaynilad 19.92 30.19 10.27 52%

Manila Water 13.99 16.17 2.18 15.58%

ConcessionaireAmount (in PhP / cu. m.)

% Increase

10 Prominent Issues

(4) FISCAL CRISIS

Budget deficit reached P141.9 B by Sept. 04

Consolidated Public Sector Deficit (CPSD) reached P167.31 B – 25% higher than in 2003

Bayan Muna estimates of govt. losses annually

Tariff reduction P170.8 Billion Incentives to foreign investors P100 B Tax evasion P 54 B Corruption P160 B

______________

TOTAL P484.8 B

Expenditure Program by Sector, 2002-2004percentage share

2002 2003 2004 2005

Economic Services 20.39 20.22 18.03 17.50 Social Services 31.06 29.15 28.73 28.00 Defense 5.24 5.01 4.99 4.90 General Public Services 17.91 16.61 16.21 15.50 Net Lending 0.35 0.68 0.64 0.84 Debt Service (interest payments) 25.05 28.43 31.40 33.20

Grand Total 100.00 100.00 100.00 100.00

10 Prominent Issues

(5) TAXES

1. Sin taxes on tobacco and alcoholic drinks2. Increase in EVAT rate from 10% to 12%3. P2 specific tax on petroleum products4. Shift to gross from net income taxation5. Franchise tax for telecommunications companies6. Lateral attrition – system of rewards and penalties on

BIR & BOC7. Amnesty for tax evaders8. Rationalization of fiscal incentives

10 Prominent Issues

(6) PRICES

Inflation rate of 7.6% highest in 5 years

Peso plunged to historic low of P56.56:$1 in Sept.

Daily cost of living in NCR: P602.31

10 Prominent IssuesLabor Force Population(population in thousands, rate in %)

2004 2003Total 15 years old and over53,563 52,305

Labor Force 35,619 35,120

Employed 31,733 31,553

Unemployed 3,886 3,567

Underemployed 5,357 4,989

Participation Rate 66.5 67.1

Employment Rate 89.1 89.8

Unemployment Rate 10.9 10.2

Underemployment Rate 16.9 15.8

Source: National Statistics Office

October

10 Prominent Issues

(8) WAGES

Wage levels stagnant for past 5 years Minimum wage accounts for only 42% of DCOL Clamor for P125 across the board ongoing for 5

years now

10 Prominent Issues

(9) POVERTY

Poverty incidence increased to 88% of Filipino families

PGMA allotted P6 B worth of food coupons to 5 M “qualified” families

10 Prominent Issues

(10) MINING

Supreme Court decision to uphold 1995 Phil. Mining Law

To make the country the world’s 5th mining power again

“The price for me will be stiff. My popularity ratings will continue to slump as we suffer transient constraints and take the bitter pill to cure structural poverty and clean up the fiscal, economic and political mess we inherited.”

-PGMA statement before the FOCAP

Some Doable Policy Proposals

1. Rollback oil prices by P2 per liter

2. Repeal the Oil Deregulation Law

3. Rollback power rates

4. Stop Napocor privatization

5. Cancel onerous IPP contracts

6. Cancel fuel cost guarantees of IPP plants

7. Write off debts due to onerous IPP contracts

Some Doable Policy Proposals

8. Rescind the EPIRA Law9. Rollback water rates10. Take over Maynilad & kick out Suez, Benpres11. Draw entire $120 M performance bond12. Get from Maynilad $180 M in unpaid concession

fees13. Refund P7.5 Billion to consumers14. Stop collection of foreign currency differential

adjustments & extraordinary price adjustments

Some Doable Policy Proposals

15. Increase tariff levels16. Crack down on corruption17. Reduce incentives given to foreign and

big local corporations18. Institute debt cap policy19. Repeal Automatic Appropriation Law20. Cancel Marcos debt & restructure foreign

debt

Some Doable Policy Proposals

21. Re-allocate budget for social services

22. Institute price controls

23. Increase wages by P125

24. Junk the Mining Law