Economist says: RVAT is good for the economy

The recent implementation of 12 percent Reformed Value Added Tax (RVAT) may result to slower consumption demand, but this development injects positive economic movement in the country, as a whole.

Economist Cayetano Paderanga Jr. said foreign exchange is seen to stabilize as it is projected to settle between P45 to P50 per one dollar.

Although the RVAT implementation irked some sectors in the society especially the consumers, he said the expected increase of services and some goods is just a short term effect, while the country is trying to recover from financial difficulties.

"With the RVAT, consumption demand is seen to decline. But this signals good impression to investors," Paderanga said during the economic briefing hosted by Bank of Commerce and the Waterfront Cebu City Hotel and Casino.

Starting this month, the government is expected to get substantial tax collection, thereby pushing improved public expenditures, especially in the construction side. He reiterated that the Philippine economy is on the bright side, unless major interventions like political upheaval, further major spikes in world oil prices, or major economic downturn for our trading partners will take place.

"Any change in political and security situation will just throw all the [positive] assumption out of the window," said Paderanga who is also the chairman of the Institute for Development and Economic Analysis Inc., (IDEA).

"Increase revenues [from RVAT] can allow for modest growth in public expenditures," he said.

Even before the implementation of RVAT, Paderanga said that the government had already started huge expenditures in the construction side in the fourth quarter of 2005.

The construction sector grew by 7.3 percent in the fourth quarter of 2005, because of public construction.

Already, there were several good indicators of growth and improvement noticed in the fourth quarter of 2005. Paderanga said this good picture will be sustained if no negative intervention will take place within the year.

In the fourth quarter of 2005, domestic inflation was contained to single-digit levels between 6.6 percent and 8.4 percent. Interest rates also have generally moved lower, while peso showed stronger value that gained five percent against the dollar based on year-on-year.

The strengthening of the peso will take the two sides of the coin, he said it will lessen pressure in inflation, but the downside is Philippine products for export will become less competitive in terms of pricing.

For Cebu, which is an export-led economy, a stronger peso may not be a good development for the province.

A P50 per one dollar will be easily absorbed by exporters, but drastic change in the exchange rate may cripple the dollar-earner industries or the export sector.

On the other hand, exporters said that what they need is a stable exchange rate so that they could calculate good business deals abroad. Unstable exchange rate will further hamper their growth.