POLITICAL TROUBLES OF JOSEPH ESTRADA

In 1998, Joseph Estrada was elected president. Even with its strong economic team,
the Estrada administration failed to capitalize on the gains of the previous administration. His
administration was severely criticized for cronyism, incompetence, and corruption, causing it
to lose the confidence of foreign investors. Foreign investors' confidence was further
damaged when, in his second year, Estrada was accused of exerting influence in an
investigation of a friend's involvement in stock market manipulation. Social unrest brought
about by numerous bombing threats, actual bombings, kidnappings, and other criminal
activities contributed to the economy's troubles. Economic performance was also hurt by
climatic disturbance that caused extremes of dry and wet weather. Toward the end of
Estrada's administration, the fiscal deficit had doubled to more than P100 billion from a low
of P49 billion in 1998. Despite such setbacks, the rate of GNP in 1999 increased to 3.6
percent from 0.1 percent in 1998, and the GDP posted a 3.2 percent growth rate, up from a
low of-0.5 percent in 1998. Debt reached P2.1 trillion in 1999. Domestic debt amounted to
P986.7 billion while foreign debt stood at US$52.2 billion. During the time of Estrada, the
Philippines ranked the 6th LEAST corrupt in the region in 1998 and the 4th LEAST corrupt
in 1999. The Political Risk and Economic Consultancy (PERC) also noted in its 2007 report
that due to the corruption in the Arroyo administration, the Philippines consequently received
the least amount of foreign direct investment, and the level of foreign capital flowing to its
stock market was also one of the worst in the region.
In January 2001 Estrada was removed from office by a second peaceful "People
Power" revolution engineered primarily by youth, non-governmental organizations, and the
business sector. President Estrada was the first Philippine president to be impeached by
Congress, and his vice-president, Gloria Macapagal-Arroyo, became the fourteenth President
of the Republic. In a series of gestures, Mrs. Arroyo is already trying to cleanse the stains of
the Estrada years. To rekindle the economy, the Philippines must lure back foreign
investment. Companies like Texas Instruments, which operates a semiconductor plant north
of Manila, have helped the nation develop a thriving technology industry. Foreign investors
were not coming. It took the Arroyo administration six years to replicate the Foreign Direct
Investment (FDI) level in 2000. Foreign investors found the Philippines as an unattractive
destination because of its poor governance. While Singapore was getting $24 billion in FDIs,
the Philippines were getting a measly $2.3 billion in FDIs. This disappointment was also true
for domestic investments. The domestic investment rate of the Philippines dropped from 19%
in 2001 to a record low of 14.8% in 2006 while those of its neighbours like Singapore
continued to rate from 20% to 40%. The economy grew at an average of 4.09% during the
period of Arroyo (from 2001 to 2009). That is much less than Estrada’s performance of 4.7%
(3.4% GDP growth in 1999 and 6.0% in 2000), although slightly better than Ramos’s average
of 3.6% or Aquino’s average of 3.34%.

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ECONOMY.html?
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 FISCAL DEFICIT: TAX REVENUES (2005)

The ratio of total government revenues to GDP was 17.4 percent in 1999. This was the
highest level during the next six years. The ratio fell by 3 percentage points to 14.5 percent in
2005. The tax effort (total taxes as percent of GDP) was of course even lower, because total
government revenues are the sum of tax revenues and all forms of non- tax revenues – fees,
profits of government entities, and revenues derived from the sale of services rendered and
property owned by the government. Tax revenue effort in 1999 was 15.6 percent. Between
2000 and 2006, the tax revenue effort fell from 14.5 percent in the beginning year and fell
even further to 12.4 percent by 2005. Such numbers as found for revenue and tax efforts are
comparable for similar fiscal efforts of governments in East Asia. The Philippine numbers are
on the low side of the distribution among these observations. One big reason for the relatively
low tax efforts in other countries, too, is the prevalence of investment and tax incentives that
form a feature of the investment climates everywhere. Tax incentives competition especially
among ASEAN countries has led to some kind of race to the bottom among the countries. Of
course, foreign investment attraction program is keyed along other criteria.

In early 2006, a substantial set of fiscal measures restored the country’s fiscal
fortunes. The government raised the 10 percent VAT to 12 percent and removed many
exemptions and adjusted zero rates. Of the major fiscal measures taken, this one effectively
stemmed the decline of the tax effort. At once a number of improvements in the country’s
macroeconomic outlook were reinforced. Fiscal fundamentals improved, with revenues rising
significantly and the fiscal constraint being relaxed somewhat more. The economy’s outlook
in the short run turned positive. The decline of the peso exchange rate stabilized. The reform
of the VAT produced a change in expectations about tax revenue growth and the
improvement of the fiscal position. With this, together with other favorable factors
concerning payments inflows to the country, the impact on perceptions about the economy’s
position changed. The peso exchange rate, which had depreciated badly as a result of fiscal
woes from 1997 to 2005, began to appreciably improve. This appreciation reached a point
that the level of appreciation became a concern for exporters. From a low of 55 pesos to a US
dollar, the rate today (October, 2006) has improved to 50 pesos to the US dollar. The
assessment of sovereign credit rating agencies improved in tone: downgrades that were made
because of the worsening fiscal position

https://www.econstor.eu/obitstream/10419/46631/1/525843620