New Philippine President Promises to Fight Corruption, Poverty and Insurgencies

Aquino Becomes 15th Philippine President

Benigno Aquino III, at the age of 50, has been sworn in today as the 15th president of the Philippines, taking over the widely unpopular administration of Gloria Macapagal-Arroyo after her nine years in power. During his inauguration ceremony, held in Rizal Park near Manila Bay, Aquino outlined his sweeping reform agenda, reaffirming his plans to tackle entrenched corruption within the government offices, particularly in the graft-ridden bureau of customs and internal revenues. He also pledged to improve the investment climate and reduce widespread poverty—the country's single most important policy challenge—with stable economic policies and to seek a just resolution to the long-running Muslim insurgency in the impoverished southern Philippines.

An estimated half a million people, many wearing the Aquino family's trademark yellow, had gathered at the swearing-in ceremony, which comes 24 years after the new president's mother—the Philippines' democracy icon and widely popular late-president Corazon Aquino—took the oath after leading the successful People Power revolution in 1986 that ousted dictator Ferdinand Marcos from office. "My parents sought nothing less, and died for nothing less, than democracy, peace and prosperity", Aquino said in his first presidential speech, vowing to "carry the torch forward". Aquino won the Philippines first-ever nationwide automated elections, held on 10 May, with the largest ever popular mandate of any Philippine president, having campaigned in his mother's footsteps for more accountable and transparent government after receiving a mass outpouring of sympathy and support following her death last year. The widely expected election results were confirmed earlier this month (see Philippines: 9 June 2010: Election 2010: Benigno Aquino Formally Declared President of Philippines and Philippines: 11 May 2010: Election 2010: Liberal Party’s Aquino Set for Convincing Victory in Philippines).

Outlook and Implications

Development Challenges

Benigno Aquino comes to power with a decisive six years ahead of him. It is apparent that during the Aquino administration's term, the Philippines—which has until now underperformed in terms of its own potential and its economic success in relation to South-East Asian neighbours—needs to up its game and increase the pace and depth of the country's reform programme in order to improve its standing in the region, where the development gaps are widening and disparities growing. Although recent years have seen unprecedented economic gains, with average GDP growth of 5.5% over 2004–08 (Asian Development Bank data), the Philippines lags behind Thailand, Indonesia, and Malaysia economically and faces a growing challenge from Vietnam, which is increasingly considered an attractive foreign investment destination. To better its performance, the Philippines needs to improve its investment climate by tackling political and social instability, poor governance, frequent macro-economic instability, lack of infrastructure, as well as a lack of employment opportunities, healthcare problems, or higher education. As Aquino's speech indicates, the new president recognises the key issues requiring his attention, but it is another matter whether he can deliver on his pledges.

Old Faces in the Cabinet

While Aquino did not indicate how he will tackle the multiple policy challenges and finance his drive against poverty, corruption, and insurgency, Aquino's cabinet appointments, announced yesterday, are a positive sign. The appointments include mainly familiar, but also some new faces, all of whom clearly supported his presidential campaign and share his reform views (see Philippines: 29 June 2010: Philippine President-Elect Names New Cabinet Members). Particularly important, regarding Aquino's drive to tackle pervasive corruption, is Leila de Lima, Chair of the Commission on Human Rights, who was appointed as Secretary of the Department of Justice, and will be involved in any future investigation into alleged corruption against outgoing president Gloria Macapagal-Arroyo and the investigation of the election-related Maguindanao massacre in November last year, which brought back into focus the systematic insecurity that plagues the Mindanao region, as well as the prevalent culture of impunity and extensive gun-culture. While no-one can question the massive challenges that Aquino has ahead of him, the pragmatic appointments could be what is needed to boost the country's economic performance and implementation of reformist policies.

Focus on Fiscal Deficit and Economic Reform

As President Aquino and his administration start their work, particular focus is expected to be quickly given to addressing fiscal consolidation. Options include the fiscal incentives bill and an excise tax on sin products. More important are efforts on structural reforms to increases revenues and improve tax governance. The fiscal deficit rose to 3.9% of GDP in 2009 from 0.8% of GDP in 2008. The new president expects the deficit to reach 349 billion pesos (US$7.5 billion), about 4.2% of GDP, in 2010, markedly overshooting the government's 3.5% target. Proposals to boost revenues include increasing the VAT from 12% to 15%, which would significantly boost public finances, particularly given the Philippines' low tax collection rates.

The formation of the new cabinet and the dynamics with existing members of the Congress will be critical for pushing through these reforms. The cabinet appointees include experienced politicians who were instrumental in former president Arroyo's fiscal reform initiative launched in 2004. Cesar Purisima is the new finance secretary; Purisima had been Arroyo's finance secretary and trade secretary until 2005, when he stepped down to protest election-rigging allegations surrounding the 2004 Arroyo victory. Purisima's comprehensive fiscal reforms package, along with the implementation of a landmark value-added-tax (VAT) reorganisation in 2005, had greatly reduced fiscal pressures, and helped shrink the budget deficit. His revenue-enhancing reforms strengthened public finances and lifted investor sentiment until the global recession. He is also known for this commitment to go after tax evaders and smugglers, which Aquino has pledged to pursue. Kim Henares will be the commissioner of the Bureau of Internal Revenue (BIR), the tax collection agency; Cayetano Paderanga, the economic planning secretary, and Gregory Doming, trade and industry secretary. President Aquino has not yet appointed the chief of the Customs Bureau, which, in conjunction with the BIR, is mandated with revenue collection.

The Philippines had made considerable progress in narrowing the budget deficit until the 2008–09 global recession hit, when the government implemented counter-cyclical fiscal stimulus to support the economy. But domestic public debt and external debt remain high, constraining the government's fiscal flexibility and creditworthiness. In any case, the Philippines' growth recovery is now on a firm footing in the near term following the slowdown during the global recession, and is expected to expand 4.7% in 2010 and 4.5% in 2011. Reprioritising fiscal discipline and a new balanced budget would allow resources to be allocated for investment in infrastructure, education, training, and institutions that would boost the country's potential growth rate over the medium and longer terms.

While Aquino's clear mandate and the experienced government appointees give a promising start for the next administration, numerous challenges lie ahead of Aquino during his six-year term in office. Without a legislative majority in either house of congress, Aquino faces a difficult struggle to push through his reform programme, and will need to use all his skills to get his cabinet and legislature to co-operate.