CalPERS decision to lead to sustained economic reforms

After getting a favorable rating from the California Public Employees Retirement Systems (CalPERS), government officials vowed to continue the ongoing financial and economic reforms to ensure that the economy would not backslide.

Finance Secretary Margarito B. Teves said over the weekend that while the expanded value-added tax (EVAT) reform has been completed, other fiscal measures would be put in place to prevent another fiscal crisis that nearly precipitated a debt crisis.

Teves welcomed the improvement in the country’s investment score by Cal- PERS consultant Wilshire Associates, which had been largely unimpressed with the government’s fiscal reform efforts until recently.

"The new score is the highest ever achieved by the country," Teves noted. "It does not only maintain the Philippines in the CalPERS list of permissible investment destinations but also improves our standing compared to other emerging markets."

On the other hand, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. told reporters that efforts to strengthen the country’s fiscal position should not end with the increase in the EVAT rate but continue on to complete the financial reform program.

The government’s financial reform measures include the amendments to the charter of the BSP to put it in a better position in dealing with problem banks.

This particular reform has been facing resistance in Congress as legislators fear a powerful BSP. Tetangco said, however, that the entire package contains checks and balances that would ensure the protection of banks, depositors and regulators alike.

The government also has to renew its commitment of protecting its revenues from being eroded by graft and corruption, a program that has thus far taken a backseat since July 2005.

Fiscal slippage, however, will not be taken lightly by the country’s creditors and investors including CalPERS, with its $194-billion investment portfolio that made the pension fund the biggest and most influential in the US.

In its latest ratings report, the Philippines was given a total score of 2.13 points, up from 2 points in 2005. This score increased the country’s ranking among 26 other emerging markets and moved it from the 18th position in 2005 to 14th in 2006.

Based on the Wilshire report, the Philippines surpassed its peers Malaysia, China, Russia and India.

Officials said Wilshire’s rating was based on improvements in the country’s fiscal deficit as well as the passage of the expanded value-added tax law which was considered a major step in increasing the government’s revenue base.

The increase in the VAT rate from 10 percent to 12 percent also assured the Arroyo administration that it would have some headroom in its fiscal balance this year when the deficit is expected to drop to P125 billion.

After the controversy over its removal from CalPERS’ list of "permissive emerging equity markets" in 2003, the Philippines was reinstated in 2004 and placed on a one-year cure period before finally being fully reinstated in 2005.

Despite the optimism over the increase in taxation, however, analysts have been pointing out that the other end of the government’s revenue reform agenda has so far been neglected, specifically the crackdown on prominent tax evaders.

The finance department has been adamant about making an example of prominent personalities found evading their tax payments but since the resignation of former Finance Secretary Cesar Purisima, the program has taken the back seat.

Late last year, Finance Undersecretary Noel Bonoan finally resigned from the department, leaving behind the Run After Tax Evaders (RATE) program and the Revenue Integrity Protection Service (RIPS) which has been repeatedly praised by investors and creditors alike.