Gloria Arroyo is no Margaret Thatcher

Economics are the method; the object is to change the soul.—Margaret Thatcher, British prime minister, 1979-1990

IS President Arroyo a Margaret Thatcher? That’s what she hopes she’s turning out to be, as she herself stated in an interview with Bloomberg published in this paper Wednesday. “She [Thatcher] was an icon, the Iron Lady, very strong, very focused, and fasten-your-seatbelts-and-never-mind-the-air-pockets. I’m very similar to that as far as my focus on the economy is concerned,” she said.

If her fight to raise the VAT from 10 percent to 12 percent is the only gauge, then her resolute decision to go all the way despite strong opposition until it was passed was certainly Thatcherite. In her disdain for direct income taxes, Thatcher indeed raised the VAT to 15 percent and had to summon her iron will to battle popular opposition.

But the comparison ends there. For most of her reign so far, the President’s actions have really been pure Arroyoite, a mishmash of survivalist politics and flip-flopping economic policy management.

In short, President Arroyo is no Prime Minister Thatcher, although one actually hopes she is so she could push for crucial reforms that the country needs to move forward.

Thatcher came to power in Britain in the late ’70s in a world that thought the best ways to solve society’s problems was government intervention. Does society need better schools, improved health care, greater farm productivity and dynamic factories? The answer is simple: impose higher taxes, increase government spending and allocate more public money for state-owned corporations.

Thatcher and her economic advisers thought that approach was bankrupt. So she imposed drastic measures that reduced the role of government in the economy through privatization of losing and inefficient state-owned enterprises, market-oriented policies to enhance the efficiency and competitiveness of the British economy, and the promotion of entrepreneurship, to promote what she calls a “moral society.”

“We want a society where people are free to make choices, to make mistakes, to be generous and compassionate. This is what we mean by a moral society; not a society where the state is responsible for everything, and no one is responsible for the state,” Thatcher said.

And the reforms she doggedly implemented, many of them quite successfully, incurred the ire of vested interests in British society that resisted change, including labor unions, local government executives, bureaucrats, fat cats in state-owned enterprises. Thatcher persevered until 1990, when, realizing she no longer had broad support in the parliament after committing the mistakes of isolating her very own support base, resigned.

Nevertheless, the British economy these days has firmer foundations, courtesy of her legacy that is being pursued by future prime ministers, including Tony Blair who belongs to the Labor Party.

In contrast, President Arroyo came to power in 2001 at a time of increasing acceptance of market-oriented policies. Many of those policies were well in place since the time of President Corazon Aquino and were strengthened during the Ramos and Estrada administrations. When President Arroyo came to power, the issue therefore was how to sustain the momentum of reforms.

And—surprise! surprise!—Arroyo actually reversed some of these essentially Thatcherite policies.

Of course, one should grant her achievement in terms of raising the VAT rates that supposedly explains the improvement in government finances. But, on second thought, that itself is not necessarily Thatcherite. Thatcher reduced income and corporate income taxes to stimulate entrepreneurship and recovered revenue collections lost by raising the VAT.

In contrast, Arroyo raised the VAT while at the same time raising corporate income taxes to 35 percent, thus making the Philippines a country with the highest corporate income tax rates in Asia. This high corporate income tax could be one of the reasons we can’t seem to attract foreign direct investments as much as our neighbors in the Asia-Pacific.

A few months ago, President Arroyo issued Executive Order 558 allowing government nonfinancial institutions and government-owned and -controlled corporations to once again engage in direct lending. After the Edsa Revolution, the government economic policymakers did away with this credit policy, and the new policy was institutionalized during the Estrada administration. Before this, government bureaucrats didn’t know anything about credit provision, hence, most of the money for this purpose ended up lost to graft and corruption. Some of those who got the loans simply collected the money without paying their loans.

Private organizations, including the Makati Business Club, the Management Association of the Philippines and the Rural Bankers Association of the Philippines called EO 558 a “setback of monumental proportions” but Malacañang simply ignored them, thus raising fears about the government using public money for the coming mid-term elections.

On January 27, the government issued Executive Order 500-A restricting the operations of budget airlines from the rest of Asia, thus constraining the growth potentials of the Diosdado Macapagal International Airport. The government apparently caved in to pressure from some local airlines experiencing competitive pressures from these budget airlines.

And soon, those who will build houses and repair their homes will be hit by higher prices of steel products as the government has committed to raise the tariff of steel products from 3 percent to 7 percent as a way to protect the National Steel Corp.

And of course, the entire Philippine economy continues to suffer from a lack of competitiveness as the government continues to hold on to the one-port, one-operator rule, thus ensuring the continuing monopolies in port operations and shipping industries. Now, the government is bent on privatizing North Harbor and it seems the Philippine Ports Authority is bent on giving it away to a monopoly.

Of course, it was the President herself who turned her back on the fiscal rationalization bill that should have reformed the grant of fiscal incentives in the Philippines. Each year, the country loses P300 billion in forgone revenues, but Malacañang has simply lost its resolve to plug the huge hole that’s draining government coffers.

The list of policy flip-flops is endless and we fear that we might yet wake up one day realizing that the policy reforms achieved after the 1986 Edsa Revolution are gone. The irony is that we are losing these gains under a president who claims to idolize Margaret Thatcher. (Note: I wrote this piece yesterday as editorial for BusinessMirror, 22 March 2007).