Cesar Purisima has steered the Philippine economy to a stellar performance in 2012 – but can he continue to propel the country forward in the long term?
By Sacha Passi
As the Eurozone continued to set records in the last quarter of 2012 for all the wrong reasons, with unemployment rates hitting a high of 11.6% in a weakening economy that has left 18.5 million Europeans jobless, the Philippines was basking in fiscal glory after a year of exceptional growth, despite the challenging global economic backdrop.
Flash floods devastated the country in 2011, but by the first quarter of 2012 the Philippine economy recorded 6.4% growth, up from a sluggish 3.7% the previous year. By the second quarter, growth remained steady at 5.9% to mark the Philippines as one of the strongest performing Southeast Asian economies in the first half of this year.
“Confidence in the Philippines is building worldwide,” said John Nye, a political economy expert at George Mason University. “The administration has done a lot by its commitment to fiscal soundness and low corruption and this clearly shows in its improved macro indicators.”
There is no question President Benigno Aquino has championed change since he was voted into power two years ago, to the benefit of nearly 95 million people living under his governance. But behind every good leader is a great team, and at the forefront of Aquino’s administration is Cesar Purisima, the country’s secretary of finance.
“I credit Secretary Purisima with instilling stronger discipline within the government to reduce deficit, improving governance within the department of finance to tighten up on spending, with greater accountability, and a relentless focus on medium-term fiscal consolidation,” said Michael Spencer, chief economist for Asia at Deutsche Bank.
Guided by his mantra ‘good governance is good economics’, Purisima has applied economic prudence to cut public debt as a percentage of the economy from 79% in 2005 – when the previous government led by Gloria Macapagal-Arroyo was in the midst of a scandalous leadership crisis – to just over 55%.
It was during Arroyo’s presidency that Purisima chose to step down from his first post as secretary of finance in 2005 – a move that served to establish his reputation as a politician who would not pander to a corrupt administration.
“His integrity and public service are at the core of his government principle, which is a critical part of economic governance of the Philippines,” said Victor Andres Manhit, CEO and managing director of Stratbase Group, a political and policy consultancy firm.
Purisima’s efforts have not gone unnoticed. A personal accolade came in October when he was named Euromoney’s Finance Minister of the Year 2012, for his steady and considered efforts to reform the Philippine economy in just over two years. On a larger scale, the country also received a credit rating upgrade from Moody’s – the last of the big three investors services to increase the Philippines’ credit rating to one notch below investment grade.
The upgrade moves the country a step closer to enticing major foreign investment, but if the Philippines is to continue pushing forward in the mid- to long-term, Purisima will need to look beyond reigning in spending and move towards increasing revenue.
Aquino vowed during the 2010 presidential campaign that no new taxes would be introduced or current taxes increased under his presidency; but as the eye of the country remains focused on becoming Asia’s next tiger economy, political rhetoric has taken a backseat to revenue-raising.
The 2013 national budget includes a ‘sin tax’ that raises levies on liquor and cigarette products, which would provide revenue to invest in the country’s health sector. It is a risky but necessary step if the Philippines is to drive further growth in the future.
“Fiscal consolidation through expenditure cuts alone is probably not sustainable. The Philippines has one of the lowest revenue/GDP ratios in Asia and future fiscal consolidation will have to rely both on cutting spending and raising taxes,” said Deutsche Bank’s Spencer. “The recent improvements… can be extended into 2013 providing the Secretary maintains the discipline introduced by new budgetary procedures, [but] ultimately revenues need to rise.”
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