Yet gov’t continues to implement RVAT

Since the oil deregulation law was first implemented, much of the of the oil price increases happened under the Arroyo administration, and this is not only because of the length of the president’s term but because of her continued implementation of the oil deregulation law amid public outcry, and her imposition of the reformed value-added tax (RVAT) on oil.

Oil price increases under Pres. Arroyo’s term comprise almost 42% of total increases since the first oil deregulation law in 1996.

The Arroyo administration has done little to avert rising prices of petroleum products. Since Pres. Arroyo became president, the price of premium gasoline has increased by 147%, while that of unleaded gasoline has jumped by 151 percent. Regular gasoline has increased its price by 150 percent.

Socially-sensitive oil products, meanwhile, have posted sharper increases. The price of diesel grew by 168% while that of kerosene jumped by 196 percent.

With the unrelenting oil price increases, independent think-tank IBON calls for the immediate removal of the 12% VAT on oil to mitigate the effects of skyrocketing prices on poor Filipinos.

From 2005 when the Arroyo government imposed the value-added tax on petroleum products, gasoline products have increased their price by 20 percent. Diesel and kerosene prices have increased by 17% and 19%, respectively. LPG posted the sharpest increase in price since the VAT was imposed with a 36%-hike. Fuel oil, on the other hand, has increased its price by 31 percent.

“Removing the 12% VAT on oil is urgent because of falling incomes of Filipino families, and rising prices of basic goods like rice and utility rates such as electricity,” said IBON executive editor Rosario Bella Guzman.

Removing the VAT on oil, she added, would stimulate economic activity through savings by consumers on their fuel bills, while lowering operating costs of fuel-intensive business establishments.

However, a long-term solution to the uncontainable price increases of oil is the repeal of Republic Act (RA) 8479 or the Downstream Oil Industry Deregulation Act of 1998.

“Unfortunately the Arroyo government, under whose watch oil price hikes soared tremendously, continues to implement this flawed law,” Guzman said.


Amid current political noise brought about by the Arroyo government’s questionable deals with China, Malacañang remains aggressive in its campaign to ratify the Japan-Philippines Economic Partnership Agreement (JPEPA). As the Senate sets the date to vote on the agreement, independent think-tank IBON Foundation urged the senators to heed the experience of other countries that have undertaken free-trade agreements (FTAs) with Japan.

IBON cited Malaysian Prime Minister Mahathir Mohamad who said that the Japan-Malaysia Economic Partnership Agreement which was signed in 2005, was “not beneficial to Malaysia”. In June 2006 the Malaysian government announced that it would review the agreement.

Meanwhile, even Indonesian business groups said that bringing Japanese investment and production materials to Indonesia under the Japan-Indonesia Economic Partnership Agreement only meant that “Japan is maintaining its supporting industries back home while eating out of the Indonesian market.”

Activists in Thailand also condemned the government for signing the Japan-Thailand Economic Partnership Agreement (JTEPA) in June 2007 without the approval of parliament, especially since the deal will have “an enormous impact on the country’s economic security” and will turn Thailand into a dumping ground for Japan’s electronic and hazardous waste.

According to IBON, if the Philippines would be “left out” without a JPEPA ratification, it would only be left out of Japan’s plans to build an economic empire in Asia.

Japan, the think-tank said, aims to consolidate and expand its region-wide production base, particularly in the electronics and automotive industries. Tariff cuts and liberal investment rules negotiated by Japan under free trade agreements with East Asian countries make this fragmenting of production processes across the region easier, greatly benefiting Japanese corporations.

Senators studying JPEPA should consider the experience of other East Asian countries that have already undertaken free-trade pacts with Japan before deciding on an agreement that may condemn the Philippines to continued poverty and underdevelopment.


A significant factor of the growing poverty, despite the much-hyped 28 quarters of economic growth, is the poor quality of jobs created during the first six years of Arroyo’s term.

Data from the National Statistics Office Labor Force Survey showed that the most number of jobs created from 2001 to 2006 were in agriculture, wholesale and retail trade and private households with employed persons. “These are among the lowest paying and most insecure jobs in the country,” said IBON research head Sonny Africa.

For example, the informal sector of wholesale and retail trade created 1.02 million jobs during the period. The average daily wage for those working in the sector in 2006 was P228.72 even as the legislated minimum wage in Metro Manila as of July 2006 was P300.

Meanwhile, the agriculture, hunting and forestry sector created 681,000 jobs but were mainly unpaid family workers. Private households with employed persons or household help, accounted for 409,000 of the new jobs. Household help would be lucky to earn P2,500 to P3,500 a month, Africa pointed out.

Meanwhile, the growth of the agriculture and manufacturing sectors from 2001 to 2006 was tepid, averaging 3.6% and 4.3%, respectively, thus unable to create regular and productive jobs. The number of new manufacturing jobs from 2001 to 2006 was just 153,000 and the sector even lost 18,000 jobs in 2006.

This is significant given that these sectors constitute the base of any genuinely developing economy, he said.

The sectors with the biggest annual average growth over the period, and thus the biggest contribution to overall economic growth, were mining and quarrying, transportation, communication and storage, and finance. These sectors however have low and short-term job generating capacity.

Economic growth is valued not for its own sake but for the improvement in people’s livelihoods and welfare,” said Africa. “In this sense, Arroyo’s 28 continuous quarters of growth are worthless as tens of millions of Filipinos are as poor as ever.”


The clearest signs of economic failure under the Arroyo administration are in the poor conditions of millions of Filipinos.

By Sonny Africa
IBON research head

IBON Features–
The administration has made much noise of its economic performance in 2007. Most of all it crows about rapid growth in gross domestic product (GDP), the peso’s appreciation against the dollar, and reining in the national government deficit. Unfortunately these are not the whole story. There is a barrage of hype but the reality is of a weak economy and, absent fundamental economic reforms, millions of Filipinos consigned to joblessness and poverty.

A more complete descent into economic turmoil was averted last year by record overseas remittances, debt-driven spending, an upsurge in “hot money”, the fortuitous weakening of the United States (US) dollar, and a US economy that had yet to fall into recession. There was also an unmatched privatization spree with the P91 billion worth of public assets sold equivalent to nearly as much as had been sold in the previous 15 years spanning three administrations. These conditions are unlikely to recur in 2008– and the downward pull of accumulated economic problems is unavoidable.

Crisis times

The clearest signs of economic failure are in the poor conditions of millions of Filipinos. The 11.3 percent average annual unemployment rate over the period 2001-2007 is the worst 7-year period recorded in the country’s history. There were 4.1 million jobless Filipinos and 6.8 million underemployed last year, or almost 11 million Filipinos looking for work.

The government uses statistical sleight of hand to give the illusion of an improved jobs situation. Its definition of unemployment since April 2005 cuts the number of jobless not by giving them jobs but by classifying long-discouraged jobseekers and those not available/willing to immediately take up work as “not in the labor force”. This had the effect of reducing the “official” unemployment by around 3.5% and the number of jobless by 1.4 million in 2007.

Yet job creation is far short of the targeted million jobs a year and also of poor quality. Despite supposedly record growth the 861,000 net additional jobs created in 2007 is only a 2.6% increase in employment from the year before and is the fourth slowest rate of job creation in the last seven years.

The sources of jobs also betray economic backwardness. The leading sector in job creation is domestic household help with an additional 142, 000 jobs, followed by 116,000 jobs in transport, storage and communication, and 111,000 jobs in wholesale and retail trade. These are among the lowest-paying, most temporary and insecure jobs in the country. In stark contrast only 72,000 agriculture jobs and 4,000 manufacturing jobs were added yet these sectors constitute the internal productive base of the national economy.

The latest Family Income and Expenditure Survey (FIES) noted average family income dropping between 2000 and 2006 with nominal incomes not keeping up with inflation. The incomes of the poorest four-fifths of Filipino families – or some 13.9 million families – fell between five and almost 13 percent. These 70 million or so Filipinos each struggle to survive on P110 or even much less a day.

Critical times

Things can only get worse in 2008 with the US recession and a generalized slowdown in the world economy. The domestic situation is made worse than it should be by internal weaknesses resulting from “globalization”, the erosion of domestic productive sectors and over-dependence on trade, foreign loans and capital.

As it is, manufacturing sector growth slowed to 3.3% in 2006 and its 23.1 percent share in GDP is as low as in the late 1950s. Agriculture grew at a faster 5.1% clip but then wide year-to-year variances are the norm for the sector and the its 18.4% share in GDP is the smallest in the country’s history. This internal domestic weakness makes the country unduly vulnerable.

The country has significant links to the US economy which remains our top investment and exports partner (accounting for 20 percent of the country’s respective totals). Drops in US consumption and investments will be deeply felt. This effect is magnified by “globalization” where much of Philippine exports to East Asian countries like China, South Korea, Taiwan and Malaysia are actually intra-firm trade with the US still the ultimate destination. Slower growth in third party countries that depend on US and which Philippines deals with will also cause problems.

Even the vaunted local information technology (IT)-enabled industry will likely be hit hard because of its considerable dependence on the US market, further aggravated by the continued peso appreciation. The US is an overwhelming presence in the business process outsourcing (BPO) sector and accounted for nearly nine-tenths of total BPO exports revenue and over two-thirds of foreign equity in 2005. Nearly nine-tenths of BPO service exports were to the US market. The impact will be most felt in the National Capital Region (NCR) where an estimated 80% of BPO employees are located.

There are also other sources of problems. Slow global growth could restrain OFW deployments and slow down remittances which will reduce domestic consumption. The administration’s inability to even let revenues keep up with nominal GDP growth, compounded by the dearth of remaining assets to sell, could lead to an uncontrolled intensification of its fiscal crisis in 2008.

The rumbling political instability stemming from unresolved issues of legitimacy, graft, corruption and political violence are also taking their toll. If these are amplified by a drop in local business sentiment then this year or the next might even see the beginning of a steep downward economic spiral.

All this highlights the folly of government economic strategies which unduly rely on external factors instead of creating jobs and producing goods by building domestic agriculture and industry. The country’s economic prospects are unfortunately made even worse by the crying need for credible leadership underpinned by a broad-based democracy.


In the wake of a new wave of price hikes of petroleum products and basic goods, the removal of the 12% value-added tax (VAT) on oil products is urgent in order to give immediate relief to millions of poor Filipinos, according to independent think-tank IBON Foundation.

IBON executive editor Rosario Bella Guzman pointed out that the recent round of oil price hikes is more than enough reason to remove the VAT on oil products, particularly in the wake of the recently released official poverty figures showing that the number of poor Filipinos is increasing.

It has been estimated that if the 12% VAT on oil products were removed, pump prices could go down by P4 a liter and liquefied petroleum gas (LPG) by P60 per 11-kg cylinder. “These could help the millions of poor Filipinos through savings on their fuel bills,” Guzman pointed out. “Fuel-intensive local establishments would also benefit through lower production costs.”

In 2006, the government earned P49.15 billion from VAT on crude and petroleum products. This could easily be offset through revenue measures that are less burdensome to Filipinos, such as plugging tax leakages. In 2006, government lost P82 billion in uncollected corporate income taxes and an average of P57 billion annually in uncollected VAT.

“In the wake of the worsening poverty problem, such measures that would give the quickest relief to a greater number of Filipinos are important,” said Guzman.


The trend of worsening poverty in the country noted by the FIES confirms how the majority of Filipinos in the country don’t benefit from economic growth. Independent think-tank IBON Foundation issued this statement in response to the paid advertisement published by Malacañang allies saying that the economy enjoyed 28 quarters of economic growth under the Arroyo administration.

According to IBON research head Sonny Africa, growth in gross domestic product (GDP) averaged 5.4% in the period 2003-2006, yet the number of poor Filipinos even increased by 3.8 million.

“In contrast to the government’s underestimated poverty levels, IBON notes that some 70%-80% of Filipinos try to live off around P100 or less every day,” said Africa.

The problem lies most of all in government neglect of the manufacturing and agricultural sectors, which are at their smallest shares of the economy since the 1950s, added Africa. This decline in the country’s economic foundations drove the unemployment rate to an average of 11.4% in the 2003-2006, which is the worst four-year period of unemployment in the country’s history. There were 11.6 million Filipinos jobless or otherwise underemployed and looking for additional income in 2006.

Backward industry and agriculture cannot create jobs and the labor force is being forced into low-paying, irregular and insecure jobs in the service sector.

For instance while the government hyped 2007 as seeing the fastest economic growth in three decades, the most jobs created last year were in the additional 142,000 working as domestic household help.

The trend of worsening poverty also exposes the folly of relying on overseas Filipino workers (OFWs) and remittances to support domestic household incomes. Poverty has increased despite ever-increasing number of OFWs going abroad and record remittances. By last year, nearly 3,000 Filipinos were going abroad to find work every day and the stock of some nine million overseas Filipinos remitted a record US$14.5 billion. Yet the government is continuing with this retrogressive cheap labor export policy.

The government also continues to promote economic activities that profit foreign corporations rather than benefit the domestic economy. It is promoting foreign investment-intensive call centers and business process outsourcing (BPO), mining, and manufacturing in export enclaves. Unfortunately these are sectors of weak job creation, little multiplier effect, no technological spillover, and poor contributions to the domestic capital stock. It is also pushing free trade policies such as the JPEPA and through ASEAN even if such trade and investment liberalization has been among the main factors that have undermined the domestic economy.

“Without fundamental changes in economic policies, the country’s joblessness and poverty situation can only get worse, and the so-called sustained growth will only benefit foreign and big local business,” said Africa.


Independent think-tank IBON Foundation said that a recent international study which showed that the Philippines lacks transparency and accountability in aid disbursement only confirmed what broadband scandal whistleblower Rodolfo Noel Lozada Jr. described as a “dysfunctional” official development assistance (ODA) system.

The Baseline Study and Survey of the Government of the Philippines’ Compliance with the Paris Declaration Commitments was made by the Harmonization Committee on Aid Effectiveness, which includes the NEDA. The Paris Declaration is a set of reforms aimed at improving the effectiveness of aid in reducing poverty and inequality in recipient countries.

IBON said that the anomalous infrastructure projects such as the national broadband network (NBN), funded by Chinese loans and is now under Senate inquiry, is an example of how the country’s foreign aid system is easily subverted by political influence-peddling.

Another example is the North Luzon Railways Project (NorthRail) deal whose two components are meant to be financed largely with US$960 million in concessional loans from China allegedly involved some US$50-100 million in “commissions” to high-ranking government officials. The ZTE-NBN fiasco in turn allegedly involved US$130 million in kickbacks out of a US$329 million deal.

Anomalies like these are ultimately shouldered by the Filipino people through illegitimate debt service burdens for projects with unjustifiably low or even negative social and economic returns. Political influence over loan decisions has been aggravated by procedural changes in early 2007 which weakened the control of the NEDA-led Investment Coordination Committee (ICC) over foreign-assisted infrastructure projects.

The Paris Declaration was adopted by the Development Assistance Committee (DAC), a group of bilateral donors, under the Organization for Economic Cooperation and Development (OECD) in 2005.

According to the research think-tank, the country needs to institute deeper reforms beyond the Paris Declaration to correct flaws in the ODA system.

For one, aid remains oriented towards furthering donor foreign policy interests more than the country’s considerable development needs, as in the case of Japan and the US. Aid from multilateral agencies has also continued to have attached explicit and implicit conditionalities inimical to the interests of the Filipino people.

Donors have also used aid to advance their foreign policy interests at the expense of the country. Japan, overwhelmingly the country’s largest donor, has effectively been using its past and current yen loan packages as leverage for the ratification of the Japan-Philippines Economic Partnership Agreement (JPEPA). Government economic managers themselves have argued that non-ratification of the JPEPA could antagonize the country’s biggest aid source. The 27th and 28th yen loan packages have been reported to be worth at least P67 billion.

The US, in turn, has been taking advantage of its being the country’s largest source of grant aid to revive, expand and deepen its military presence especially in Mindanao but also in conflict-affected areas across the country. There has been US$460 million in US aid over the 2004-2007 period, not yet including some US$20 million yearly in P.L. 480 loans to purchase US food surpluses.

The biggest loans of the World Bank and Asian Development Bank (ADB) have had “free market” policy conditionalities attached to them since at least the 1980s. These have required changes in overall macroeconomic and sectoral policy frameworks, as well as gone into very specific implementation details.

The World Bank’s US$250-million Development Policy Loan (DPL) in 2006 for instance was essentially given because of the government’s harsh fiscal austerity including cutbacks on social services, the imposition of new taxes, and continued power sector privatization.

IBON believes that the Paris Declaration also has its basic flaws, among these is its narrow focus on aid delivery and management outside of a development, human rights, gender and social justice framework. A broader conception of aid accountability and demand for results is needed.

There are also key developmental issues not in the Paris Declaration. This includes the removal of policy conditionalities, measures to address debt burdens, the need to increase grant aid, de-linking aid from donor foreign policy interests, and sanctioning donors for aid projects that violate human rights and have other adverse impacts.

The inclusion of important concerns such as tied aid and the accountability of donors is welcome in principle, but according to IBON, the commitments here are unclear with time frames and targets conspicuously ambiguous

2006 Official Poverty Statistics: Worse Than It Looks

Poverty in the Philippines has become so prevalent that it can no longer be hidden, only downplayed through the statistical manipulation that has become an Arroyo hallmark

By Joseph Yu

IBON Features– With the recent release of 2006 poverty statistics, the Arroyo administration was finally forced to admit that its much-hyped “28 quarters of continuous growth” has failed to benefit the ordinary Filipino.

According to the official figures by the National Statistical Coordination Board (NSCB), some 32.9% of the population, or 27.6 million Filipinos are poor. This was a reversal of the trend experienced in 2003, when the poverty incidence fell to 30% from 33% in 2000. It should also be noted that there were actually more Filipinos in 2006 than in 2000 (when some 25.5 million Filipinos were poor).

But despite the admission that poverty has risen despite high economic growth, the official poverty figures may actually be understated and obscure how widespread poverty is in the Philippines. This is because of the low poverty threshold the NSCB uses to estimate the extent of poverty.

For 2006, the NSCB pegged the per capita annual poverty threshold at P15,057, or P75,285 for a family of five members. The poverty threshold is defined as the minimum income/expenditure required for an individual to meet its basic food and non-food requirements. The poor are thus considered as those individuals or families whose incomes fall below the official poverty threshold and cannot afford to provide in a sustained manner for their minimum basic needs for food, health, education, housing and other social amenities of life.

The use of the term minimum basic needs highlights the limitations of the government’s definition of poverty. The government considers only minimum survival standards to measure poverty, thus capturing only those who are desperately poor and cannot meet even their most basic needs. But those individuals and families who fail to meet decent living standards should also be considered poor. For example, a family with one or two minimum wage earners whose incomes fail to meet their needs are also poor, even if their income is above government’s poverty line.

In fact, the government’s own National Wages and Productivity Commission (NWPC) accepts this reasoning. Thus, the NWPC releases regular estimates of family living wages; such figures measure what is needed for a decent standard of living plus a 10% allowance of total expenses for savings or investments.

As of 2005 (to ensure compatibility with the 2006 poverty threshold since the next estimate was as of December 2006), a family of five needs P16,218 for decent living, or 258% of the P6,274 that the NSCB claims that a Filipino family needs to stay out of poverty in 2006. If only the NWPC’s food and non-food expenses estimates are considered, then the poverty incidence is 42.5% of NWPC’s estimates.

Thus, it is clear that the actual extent of poverty in the country is grossly understated. In IBON’s January 2008 nationwide survey, 7 out of 10 Filipinos rated themselves as poor.

Poverty Despite Growth

The increased poverty incidence also raises the question of why the number of poor increased even as government figures showed increasing economic growth. Gross domestic product (GDP) grew an average of 4.6% from 2001 to 2006, while gross national product (GNP) grew by 5.1% over the same period. From 2004 to 2006, when the poverty increase was recorded, GDP and GNP grew by 5.5% and 6.1%, respectively; this was substantially higher than the 3.7% and 4.1% recorded from 2001 to 2003.

The NSCB attributed the higher poverty incidence to the insufficient rise in personal incomes coupled with higher prices, thus making it difficult for poor Filipinos to meet their basic needs. NSCB also admitted that the implementation of the reformed value-added tax (RVAT) increased prices.

But what economic planners failed to point out was that government itself is responsible for low wages prevailing in the country. Government actually uses the poverty threshold as the basis for setting the minimum wage– thus, a low poverty line justifies low subsistence-level wages as part of government’s foreign income-driven development strategy. Despite this, the NSCB still said that a worker in the National Capital Region earning the minimum daily wage of P362 (or P9,412 a month) can support a family of five based on a monthly poverty threshold of P8,569.

Also contributing to the rise in poverty figures was record-high unemployment rates. From 2001 to 2006 the country suffered from an average of 11.3% unemployment and 18.5% underemployment, the worst such six-year period recorded in the country’s history.

If jobs were created during the period, these were mostly poor quality, low-paying jobs. According to the NSO Labor Force Survey, from 2001 to 2006 the most number of jobs created were in agriculture, wholesale and retail trade, and private households with employed persons. These were among the lowest paying and most insecure jobs in the country.

Thus, majority of Filipinos did not enjoy the benefits of growth. And what growth there was did not result in an improvement in income inequality. According to the 2006 Family Income and Expenditures Survey (FIES), which is used to compute poverty, the richest 20% of families (accounting for some 3.5 million families) account for 52.8% of total family income. Further, the income of the richest 10% was nineteen times that of the poorest 10 percent.

Not surprising

It should not really be surprising that the numbers of poor Filipinos increased. Agriculture and manufacturing, which should experience growth in order to generate jobs and contribute to overall national development, continue to experience moribund growth. In fact, the number of new manufacturing jobs from 2001 to 2006 was just 153,000 and the sector even lost 18,000 jobs in 2006. Sectors driven by speculation and with uncertain contributions to real development, on the other hand, were the ones that drove the increased GDP growth.

What is surprising is how the Arroyo administration finally owned up to this growing problem. But then again, poverty in the Philippines has become so prevalent that it can no longer be hidden, only downplayed through the statistical manipulation that has become an Arroyo hallmark.

In typical fashion, Malacañang spokespersons brushed aside the poverty figures, simply saying that with the additional money from collections of the RVAT would be used as “payback” for the poor and that poverty would undoubtedly decrease again by 2009 when the next FIES would be conducted. But sans any resolute change in fundamental economic policies, the poverty problem in the Philippines can only get worse.