FROM THE OFFICE OF PUBLIC AFFAIRS

December 3, 2004
JS-2147

Press Statement of U.S. Treasury Assistant Secretary Randal Quarles
Manila, Philippines,
December 3, 2004

On this visit to the Philippines I am meeting with key members of President Arroyo's economic team, leading Philippine legislators, and members of the domestic and foreign business community to discuss the economic challenges facing the Philippines. I think that there is wide recognition within the Philippines of the challenges that the country faces. Prompt and decisive action will assure that the Philippines shares in the rapid growth of the Asian region.

The United States supports the goals of poverty reduction, fiscal deficit reduction, and the establishment of more rapid growth set out by President Arroyo in her inaugural address. Achieving these goals will require strong, and at times difficult, actions by both the Administration and the Congress.

Significant measures to reduce the fiscal deficit to a sustainable level are particularly urgent. Rising deficits, of both the national government and government-owned corporations and entities, have precluded government expenditure needed to support more rapid growth and poverty reduction, and have added to an already large public sector debt.

Strong leadership, by both the Arroyo administration and the Congress, is needed to take action now to significantly reduce the government deficit and place government finances on a sustainable basis. President Arroyo began that process in the fiscal measures that she proposed shortly after her election. I encourage the government and the Congress to work together to ensure that key revenue measures, sufficient to reach or exceed the original goals set out by the President, are taken as quickly as possible.

Longstanding problems in the power sector have discouraged investments in capacity necessary to support long-term growth and have become an increasingly large fiscal burden. There is an immediate need to reduce the losses in the power sector, including by adjusting tariffs to reflect the increased costs of generation. The recent decision of the Energy Regulatory Commission to adjust tariffs was a welcome step. Private sector investment is critical to assuring that future needs for power are met. This requires a legal and regulatory environment that is both stable and predictable, and one that assures investors of a reasonable expectation of profit. These principles are important for encouraging investment in other sectors as well, and this week's decision of the Supreme Court upholding the Mining Act is welcome.

A healthier and more efficient financial sector is also critical to assuring long term growth. Bank should be encouraged to dispose of non-performing loans and strengthen their capital positions. Financial supervision should also be strengthened, including by assuring that supervisors have the authority and legal protection necessary to intervene in insolvent institutions.

Fundamental reforms are required to meet the challenges that the Philippines faces in assuring rapid and sustained growth necessary to bring about employment growth and poverty reduction. But the potential rewards are very high. Strong actions by the Arroyo Administration and Congress – working together – are necessary to meet these challenges. The United States encourages and strongly supports the Philippines in those efforts to bring about sustained growth.

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