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THE
departure from office of National Treasurer Omar Cruz,
though couched as having been made “for family reasons”
(they said he wants to join his family abroad) marks yet
another dent on the fiscal armor that the administration
has so carefully burnished.
Hours
after the first news bulletins came out, quoting Finance
Secretary Gary Teves telling reporters he got a letter
from Cruz offering to resign, hundreds of thumbs were
busy texting various spins to the matter. The most
pungent speculation was that he refused to fund the
campaign of the Team Unity (TU).
Most
reporters were inclined to believe that it was over his
policy differences with some officials in the economic
team, considering how Omar Cruz had taken a hard-line
stance on his don’t-blink strategy in the sale of
government IOUs, allowing domestic interest rates to
move down to all-time lows.
That
salutary effect, though, did not come without its own
complications, as it discouraged banks from buying
government securities, especially the shorter-dated
ones. Initially, analysts were saying, as reported by
this paper, that something had got to give as the
Treasury had to have the money somehow, with the
national coffers still in deficit.
But
whatever the reason for Mr. Cruz’s departure, the
government doesn’t just have to deal with its impact on
investors’ confidence. It must attend to the further
deepening of the fiscal gap as the government’s cost of
borrowing rises, leaving it scrambling even harder for
funds for its avowed “payback” agenda in terms of more
infrastructure and social services this year.
Already,
a shadow has been cast on that promise by the
government’s failure to meet its first-quarter deficit
target by P7 billion; and with Cruz leaving, the signal
becomes even stronger to the public and the markets that
the government’s fiscal house is in peril,
notwithstanding how much it trumpets recent positive
“fundamentals”.
The
fragile state of such fiscal condition started to become
apparent even before the first-quarter deficit data came
out this week. Recall how finance officials tried to
play down an exclusive story in this paper about how
internal discussions among experts in the agencies
comprising the Development Budget Coordination Committee
(DBCC) had led to a downscaling of the revenue
assumptions of the national government by a whopping
P110 billion.
Finance
people said they had not changed their “revenue
targets,” yet in two separate occasions, the former
national treasurer, Leonor Briones, told BusinessMirror
and ANC that DBCC’s technical people normally would not
scale down assumptions on such a huge scale (P110
billion) unless they were seriously concerned that there
was no place where that money could be found—or
collected, assuming it was available but people would
not pay the right taxes.
Weeks
before the DBCC decision to cut by nearly P100 billion
the revenue assumptions, data had shown that collections
in recent quarters owed more to such built-in
“advantages” as the E-VAT and the sale of government
assets, notably the P25-billion share in the PITC,
rather than to real hard work and greater, more creative
collection efforts.
In fact,
all three agencies whose contributions to the state
coffers make or break the deficit targets—BIR, Customs
and Treasury—have problematic issues hounding them.
In the
first quarter, only BIR met its target, but even then,
analysts keep attributing this to the E-VAT windfall.
Customs, Teves reiterated in an interview with DWIZ’s
Karambola, was affected by declining oil imports, which
meant lower taxes to collect. And of course, BTr had
cancelled the sale of T-bills and T-bonds on several
occasions, refusing to raise money that way if it meant
calling the rates offered by banks.
Customs
is doubly complicated because of the deadlock between
its top brass and the 15 port collectors over the
interpretation of the lateral attrition law, which
rewards overperformers but punishes with dismissal those
who repeatedly fail to deliver on targets.
As
Professor Briones noted, citing a landmark study on
fiscal administration, the periods in the country’s
fiscal history that were rocked by disputes over
reforms, also coincidentally, were those when
collections were poor. In short, reforms may improve
collections over time, if successfully pursued—but when
they bog down on implementation, there could be
short-term disruptions in collection.
All
these simply indicate that the fiscal landscape remains
very much at risk, more so with Mr. Cruz’s departure. It
is good he agreed to stay on until June 1, but his
successor—and the entire finance team for that
matter—will have a tough hurdle ahead. They can’t even
have the luxury of waiting after the elections,
especially when one considers that fiscal problems may
worsen after May 14, if fresh allegations of funds
misuse and overspending surface.
The
well-thought-out suggestions of the Consumer and Oil
Price Watch, as detailed in its full-page ads on
Wednesday, may present a good starting point for
crafting the post-election agenda. To be sure, they call
for some hard reforms too, but this is a case where not
doing anything—or denying a problem exists—would be a
much worse option. |
