Macapagal unveils plans to boost growth

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Philippine President Gloria Macapagal Arroyo on Monday unveiled plans to boost economic growth and create more jobs, encouraged by modest gains in public finances following the implementation of new taxes last year.

In her annual state of the nation address before Congress, Mrs Macapagal said higher tax revenues would enable her to focus on investing in infrastructures and social services in her last three and half years in office.

“Now, we have the money to pay down our debt and build our country. We now have funds to address social inequity and economic disparity,” she said.

Tax collections rose by more than a fifth in the first six months of the year from a year ago, allowing the government to post a budget deficit of only 31.5bn pesos, the lowest in eight years and two-thirds below the target. This puts the government on track to wipe out budget shortfalls by 2008 and alleviates investors’ concerns that the country might default on its huge foreign currency debts.

For Mrs Macapagal, the main challenge now is to spread the fiscal benefits by creating jobs and reducing poverty in areas outside Manila, the capital. Although only a third of the country’s total population are considered poor, earning less than the government’s poverty threshold of 60 US cents a day, poverty rate is at least 50 per cent or higher in 20 of the country’s 79 provinces.

To accelerate economic growth in the country’s poorest areas, Mrs Macapagal is regrouping 16 regions into four enlarged sub-economies to improve links between poor towns and prosperous areas. The strategy is also aimed at maximising the benefits of government spending by giving priority to projects that will enhance each region’s competitive strengths.

She said the northern part of the country’s main island of Luzon will be developed into an “agribusiness quadrangle” that would export food to China and other east Asian countries, while central and southern Luzon will be an “urban and industrial beltway” hosting export-oriented factories and business process outsourcing (BPO) facilities. The central region of Visayas will become a tourism hub while the southern island of Mindanao will focus on production of food and mineral ores.

Mrs Macapagal’s focus on economic programmes in her closely-watched annual address signals she might have weathered renewed challenges to her leadership by her political opponents. Last month the opposition filed a fresh impeachment complaint against the president, accusing her of exercising dictatorial powers to stifle dissent and engaging in corruption, only months after she survived a similar attempt.

But analysts said Mrs Macapagal’s plans could be easily undermined by political conflicts, especially if she failed to win over the majority of the Senate, the upper legislative assembly that has been critical of Mrs Macapagal’ policies. Political bickering between the president and the Senate has held up approval of the 2006 budget, forcing the government to spend no more than last year’s levels. 

There were also doubts on Monday about whether the government could afford all the projects proposed by the president. Benjamin Diokno, a former budget secretary, estimated the projects would cost around 500bn pesos but money from new taxes would likely reach only half of that in the next three years.

Furthermore, the government is cutting import tariffs while seeking to balance the budget in 2008, two years earlier than the original target of 2010. “It doesn’t quite add up,” he said.

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