OFFICIALS OF the Arroyo government are beginning to recognize that underspending is a serious problem. In a conference of Philippine business last October, Finance Secretary Margarito B. Teves said, "It would simply be a Pyrrhic victory if we rely solely on the revenue side." Socioeconomic Planning Secretary Romulo L. Neri has also acknowledged that too much fiscal discipline may be harmful to the economy; according to a recent Businessworld report, Neri assures the public that the Arroyo government would spend more in the last quarter of this year.

"Catch-up spending" may again appease international creditors and credit rating agencies, but it cannot address a serious backlog in basic infrastructure and needed social spending. Ordinary citizens know all too well the impact on their lives of a government that prioritizes debt spending over their needs: Agrarian reform is far from complete. Beneficiaries can hardly count on government support to make their land viable. Children have to cope with crowded and dilapidated classrooms (if not an outright shortage), not enough schoolbooks (the content of which has also been questioned), and deteriorating quality of teachers (many of whom, the more experienced among them, have gone abroad to work). Poor families have to turn to the local padron, charity, or lender in order to access health services. Many of them still do not have safe water at home.

On top of these, new pressures on fiscal resources are emerging as global warming and climate change unleash "super typhoons" and other extreme weather disturbances. Combine these with other "givens" — an abundance of active volcanoes throughout the country, substandard safety practices of the shipping industry, a growing illegal trade in toxic waste from neighboring countries, and man-made disasters. What the national government ends up with is one emergency relief operation after another.

The infrastructure requirements to prepare government at all levels to respond swiftly and effectively to disasters are huge. These would include, among others, geohazard mapping at a scale that enables municipalities to plan and prepare accordingly, establishing an effective early-warning system at the barangay level, land-use planning, capacity building for disaster prevention and response, and resettlement (including sustainable livelihood development) of families living in disaster-prone areas. Add to this the cost of rescue operations, emergency aid and relief, repair and rehabilitation of damaged infrastructure, and so on. Setting aside a calamity fund, while helpful, is far from sufficient.

THERE IS this widely held notion that reducing the fiscal deficit can work wonders by promoting investor confidence in the Philippine economy, in turn bringing all sorts of good things to the country. Dismissed as a crank idea in earlier times, this notion has returned with a vengeance to become a central article of faith among policy makers. The negative impact on the real economy, however, has become increasingly painful and clear in recent years — and will become even more so in the next three years.

The Arroyo government correctly points out that the economy has been growing nearly six years — the longest period it has done so without slipping into a crisis. But the GDP growth, averaging at 4.6 percent from 2001 to September 2006, is mediocre, if not stagnant. In fact, by the third quarter of this year economic growth failed to meet the planned target for the quarter. GDP grew by a mere 4.8 percent, against a level of nearly six percent in the first and second quarters.

The biggest single factor that explains why growth has been mediocre is declining investment spending. Official estimates show that real spending on capital formation as a percent of GDP has fallen from 20 percent in 2003 to 18 percent in 2005. In the first nine months of this year, investment spending dipped further to 17.7 percent of GDP.

This is not surprising given the Arroyo administration's fiscal-management policy. There is little if no economic stimulus from the public sector simply because it has been cutting its spending. Without infrastructure spending and without private investor spending the economy's productive capacity cannot expand. The stimulus to growth has for the longest period been consumer spending financed by remittances of overseas Filipinos. But even consumer spending has been weakening.

With investment spending virtually absent, government spending in the doldrums, and consumers hesitant to spend of late, export markets are the last remaining hope to fuel the country's economic growth. Unfortunately, even here the prognosis is not good. The bulk of Philippine exports are semiconductors that depend on robust global demand. But most experts expect the U.S. economy — ergo, the global economy — to weaken in the coming years. The exodus of Filipinos for overseas jobs and the reliance on remittances from relatives abroad will probably be the only factors preventing a wholesale economic collapse.