It was all starting to look too good to be true for the Philippines. With a controversial yet vital increase in value-added tax all but approved, the senate's corruption-tainted pork barrel reduced by half and a highly successful start to the 2005 government debt funding campaign, people began to whisper the hitherto unspeakable. Asia's perennial underachiever, it seemed, might just manage to climb out of the financial hole that it has dug for itself.
The markets rewarded the efforts of president Gloria Macapagal Arroyo and her administration. Spreads on government debt tightened, the peso rose strongly and the stock market soared to levels not seen since before the Asian financial crisis.
However, the Philippines has long flattered to deceive and all of the hard-won progress since Arroyo's election in 2004 has turned out to be too good to be true. Arroyo is mired in a political crisis involving electoral fraud and alleged corruption that might yet claim her own political career. Already it has involved 10 members of her administration resigning in protest, and Arroyo is rapidly losing the credibility of Filipinosand the patience of the international financial community.
The most depressing prospect is that there is no-one eligible to replace Arroyo that has any greater credibility or talent: the political system that encourages dynastic family squabbling and crony politics makes certain of that.
To add to the country's woes, in July, Standard & Poor's, Moody's and Fitch downgraded their ratings for the country from stable to negative. That will make raising the $850 million of new debt still required to fulfil the government's 2005 funding requirements more expensive, costs that the country simply cannot afford. International markets respected the Arroyo administration and concern is understandably rising as to who will replace her if she is ousted. Investors have not forgotten the prospect of debt repudiation floated by opposition candidates at the last election. Predictably the stock market, after reaching a high in March, has fallen 17% and the peso is back below 56 to the US dollar.
The Philippines has problems that go well beyond its crushing government debt burden. Population growth at around 1.85% is already out of control and is exacerbated by an irresponsible but influential Catholic church. The population already stands at almost 88 million. Estimates suggest that by 2010 there will be more than 100 million Filipinos, most of whom are already struggling to feed themselves.
Perhaps in that statistic lies the ultimate solution to the country's problems. Nothing will change while the political system, which spawns and nurtures the biggest problem, corruption, continues in its well-worn ways.
Cesar Purisima, the respected ex-finance secretary who resigned in July to protest against Arroyo's leadership, remarked recently that Filipinos are too happy, too forgiving. He is right. With enough young, hungry and increasingly desperate Filipinos, the rich elite that has run the country for further self-enrichment and is incapable of changing might yet have change thrust upon it. That will not happen easily, however, and the human as well as the financial costs could be appallingly high. It is an indication of just how serious the country's problems are that such a solution, while costly, would probably be welcome in the long run.