Bayani, Dahzle Kaye

Gibas, Mark
Lat, Oscar
Pelegrina. Jim Davis
Villegas, Joe Michael

Philippine Economy under Estrada Administration

Background

Joseph "Erap" Ejercito is a Filipino politician who served as the 13th President of the
Philippines from 1998 to 2001 and as the 9th Vice President of the Philippines from 1992 to 1998. He has
been Mayor of the City of Manila, the country's capital, since 2013.

In late 1999, Estrada waged an all-out war against the separatist Moro Islamic Liberation Front in
Central Mindanao, which displaced half a million people. In March 2000, the bandit group Abu Sayyaf
kidnapped to Basilan 21 hostages, including 10 foreign tourists, from the Sipadan Island resort in neighboring
Sabah, Malaysia. They were freed in batches after over $20 million ransom were reportedly paid by the Libyan
government.

In October 2000, Estrada was charged of receiving millions of dollars in illegal gambling payoffs. He
was impeached by the House of Representatives, but his impeachment trial in the Senate broke down when the
senate voted to block examination of the president's bank records. In response, masses of people protested and
demanded Estrada's resignation. Estrada's cabinet resigned en masse and the military and police withdrew their
support. On January 20, 2001, the Supreme Court declared the presidency vacant and swore in Vice President
Gloria Macapagal-Arroyo as the country's fourteenth President.

What is Fiscal Policy?

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor
and influence a nation's economy. It is the sister strategy to monetary policy through which a central
bank influences a nation's money supply. These two policies are used in various combinations to direct a
country's economic goals.

Fiscal policy is based on the theories of British economist John Maynard Keynes. Also known
as Keynesian economics, this theory basically states that governments can influence macroeconomic
productivity levels by increasing or decreasing tax levels and public spending. This influence, in turn, curbs
inflation (generally considered to be healthy when between 2-3%), increases employment and maintains a
healthy value of money. Fiscal policy is very important to the economy.

History of Philippine Fiscal Policy

Fiscal policy during the Marcos administration was primarily focused on indirect tax collection and on
government spending on economic services and infrastructure development. The Aquino administration
inherited a large fiscal deficit from the previous administration but managed to reduce fiscal imbalance and
improve tax collection through the introduction in the 1986 Tax Reform Program and the Value Added Tax.
The Ramos administration experienced budget surpluses due to substantial gains from the massive sale of
government assets and strong foreign investment in its early years. However, the implementation of the 1997
Comprehensive Tax Reform Program and the onset of the Asian Financial Crisis resulted to a deteriorating
fiscal position in the succeeding years and administrations. The Estrada administration faced a large fiscal
deficit due to the decrease in tax effort the repayment of the Ramos administration's debt to contractors and
suppliers. During the Arroyo administration, the Expanded Value Added Tax Law was enacted, national debt-
to-GDP ratio peaked, and under-spending on public infrastructure and other capital expenditure were observed.

Vital Signs under Estrada Administration

Philippine Fiscal Behavior (1998-2000)

The Philippine national government had large and unsustainable budget deficits in the 1980s. But after a
brief period of near-balanced budget in the mid-1990s, large deficits have reemerged in recent years. The large
public-sector deficits in the early 1980s and those in recent years have similarities and differences. Both
episodes of deficits occurred during periods of soaring oil prices, high interest rates, and volatile foreign
exchange rates. Both episodes were also associated with low tax effort. The gains from the 1986 tax reform
program during the middle years were lost in recent years because of discretionary changes. Over time,
spending priorities changed. Marcos focused on infrastructure spending, while Aquino and Estrada focused on
social services. Investment in physical infrastructure has a positive effect on fiscal balance. It makes private
investment more productive, reduces transactions costs, increases the profitability of private-sector businesses,
and thus expands economic output.

Overall revenue effort decreased to 15.7 percent during the truncated Estrada administration with tax
effort decreasing to 14.1 percent. The share of direct taxes to total taxes rose to 43.5 percent while the share of
indirect taxes was practically unchanged. The share of trade taxes, however, dropped sharply (see Table 2). Tax
buoyancy, which measures the point elasticity of taxes with respect to changes in GDP, stagnated in 1999 and
2000 [Paderanga 2004]. The decrease in overall tax effort and tax buoyancy can be partly attributed to the new
and revised tax laws during the Ramos administration. The decrease in international trade taxes as percent of
GDP, from an average of 4.5 percent to 2.9 percent, was not surprising, being a consequence of the trade
liberalization and globalization efforts in the 1990s. This began with the growth of trade cooperation in the
Association of Southeast Asian Nations (ASEAN) with the ASEAN Free Trade Agreement (AFTA) in 1992.
Furthermore, the Philippines joined the World Trade Organization (WTO) in 1994 and the Asia Pacific
Economic Cooperation (APEC). During the Estrada administration, Congress passed RA 8761, which imposed
value-added tax on some services that were previously exempt from VAT. This was passed in February 2000,
prior to the impeachment proceedings of President Estrada. This expansion of the VAT tax base was
subsequently deferred by Congress, pursuant to RA 9010, exactly one year after the enactment of RA 8761.
This policy reversal has contributed to the decrease in tax effort in the succeeding period.

Fund Sources

Fund Uses
References:

http://www.philippinecountry.com/philippine_history/estrada_admin.html

https://en.wikipedia.org/wiki/Joseph_Estrada

http://www.investopedia.com/articles/04/051904.asp

https://www.scribd.com/doc/59670314/Philippine-Fiscal-Policy

http://www.officialgazette.gov.ph/2011/04/19/joseph-estrada/

http://pre.econ.upd.edu.ph/index.php/pre/article/viewFile/645/4

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