Yellow Pad
By Filomeno S. Sta. Ana III
Those who knew Ernest from afar — perhaps as a technocrat and a former Finance Secretary — might ask: What on earth was he doing in Papua New Guinea where he contracted malaria, leading to his death?
Papua New Guinea is a dangerous place. Violence, corruption, and police brutality are rampant. Assaults, including rape attacks, robberies, abductions, and carjacking are frequently reported, with criminals not hesitating to use firearms and machetes to harm victims. In Port Moresby, the capital, and in other cities, foreigners are warned not to go out after dark. Having native escorts is a must.
Tribal violence persists. In July 2019, 15 women and children were massacred when one tribe attacked the village of another tribe.
Social tension is high; inequality is sharp; and close to 40% of the population lives in poverty. Health conditions have shown no progress or have worsened. And despite gains in fighting malaria, it remains a critical problem.
Despite all these dreadful things, Papua New Guinea beckoned Ernest, the brave and bold traveler. Unspoiled flora and fauna, deep rainforests, rugged mountains, natural trails, glistening waters, and diverse culture — all in a land that is least discovered by tourists.
Boldness and bravery defined Ernest’s travels. One memorable story was about Ernest’s participation in Pamplona’s running of the bulls. Instead of exercising caution by joining wife Edwina in a balcony to witness the event, he positioned himself on the edge of the street so he could run together with the bulls.
Yes, he was brave and bold, but he was likewise smart. Instead of following the custom of running in front of the bulls, Ernest ran behind the bulls. No way then could the bulls gore him. Further, he could not resist being naughty by touching the tail of one of the bulls.
Ernest displayed bravery, boldness, and smarts in the other facets of his life. He was athletic, a competitive one at that. In badminton, he could beat much younger opponents by being smart and giving it his all. Despite his old age, he had stamina and nimbleness — even diving and falling to hit the shuttlecock.
His boldness, courage, and intelligence likewise served him well in the conduct of shaping and implementing public policy.
His views and actions with respect to economics and finance were unconventional. For example, at a time that almost everyone in the mainstream economic profession was embracing neoliberalism, Ernest was showing his discontent over financial liberalization and the proposal to grant autonomy to the Bureau of Internal Revenue (BIR).
Ernest was strongly in favor of capital controls and managed currency depreciation. He wanted to insulate the economy from the destabilizing effects of short-term flows and to make the real economy competitive. He fought then Bangko Senral ng Pilipinas Governor Gabriel Singson who favored a regime of a strong peso backed up by high interest rates.
Ernest’s position endeared him to the exporters, local manufacturers whose businesses suffered from the competition with cheap imports, and the overseas Filipino workers, whose remittances to families diminished in value due to currency overvaluation.
He believed that making the BIR autonomous was an idea from external donors that was bereft of diagnostics of what really constrained Philippine tax effort. Ernest and others argued that this would have weakened accountability and degraded the over-all quality of Philippine institutions.
Unfortunately, Ernest’s stint as Finance Secretary was very short. One is thus tempted to ask a counter-factual question: If Ernest served longer, would have he been in a position to fend off the all-out liberalization, particularly financial liberalization, which triggered the crisis in the late 1990s? It was this kind of liberalization that hollowed out our manufacturing sector. Till now, manufacturing is struggling.
Would have he been able to introduce deep, transformative reforms in the economy, which could have ignited sustained growth much earlier?
Even after his stint in the public sector, Ernest remained active in fighting for change. He was consistent in the struggle for tax reforms. Ernest, together with former Economic Planning Secretary Winnie Monsod, former Finance Secretary Gary Teves, former Finance Undersecretary Nene Guevara, former Finance Undersecretary Romy Bernardo, former Health Secretary Quasi Romualdez (+), and former Health Secretary Espie Cabral, joined forces with the reformers in the Benigno R.S. Aquino administration and with civil society to constitute the coalition that passed the increase in tobacco and alcohol taxes in 2012.
Ernest continued to support the succeeding reform effort, particularly the comprehensive tax reform encapsulated in the TRAIN (Tax Reform for Acceleration and Inclusion) packages.
But Ernest was likewise critical. He time and again said that the reforms on the agenda were not comprehensive enough. He insisted on the unconditional lifting of the Bank Secrecy Act. He was uncompromising on this matter. The purpose was not limited to ferreting out tax evasion, money laundering and related crimes. It was likewise a necessary tool to track interest incomes in the context of his proposal to consolidate passive income and compensation income for taxation.
In this regard, he thought that the reform on income taxation was insufficient. He wanted the tax rates for passive income like deposits (including foreign currency deposits) and dividends aligned to the marginal tax rate for personal income tax. In other words, he wanted a global income (wherever the source) taxed by a single rate as a means to correct distortions and check tax avoidance behavior.
On other issues, Ernest criticized the BSP’s special deposit accounts (SDA). The SDAs are an instrument of the BSP to mop up excess liquidity by offering interest rates higher than those given to time deposits. But because of the big amount required for the SDAs, only the rich could qualify for this. For Ernest, this was an example of policy serving and benefiting the rich but being detrimental to the public interest. Further, the SDAs correlated with a surge in short-term inflows that affected the exchange rate in a negative way.
Nevertheless, Ernest was supportive of the leadership of the late BSP Governor Nesting Espenilla, even commending him for his program on financial inclusiveness and for leaning towards regulation of short-term capital flows.
Ernest also tackled issues beyond finance and taxation. He championed reforms in governance, basic education, sustainable farming, and the environment. He was active in networks with worthy causes like the Movement for Good Governance, Synergeia, and the Competitive Currency Forum
He was thoroughly against the Marcos dictatorship and its corruption. In a letter addressed to me and Cla Lapus, Ernest expressed his shock over the Supreme Court’s dismissal of the case of stolen wealth against the Marcos family. An implication of the ruling, said Ernest, was returning to the Marcoses whatever amount government had already recovered. In sarcastic fashion, he asked: “Will our tax money from hard work be allotted to reimburse the insane Imelda and her brood?”
Like Duterte, Ernest intimidated his adversaries. But unlike Duterte who intimidates through killing or threats of killing, Ernest scared opponents through the power and toughness of his ideas and the sharpness of his tongue.
A favorite expression of Ernest whenever he encountered someone uttering silly, unintelligent ideas was: “From which school did you graduate?” If you said you came from a school that Ernest considered inferior, you are damned. If you boasted that you graduated from an Ivy League school, you are all the more damned, for how could you account for your mediocrity or foolishness?
Above everything else, Ernest had integrity. Always on his mind was the public interest. And to serve the public interest, his integrity was beyond reproach.
To underscore this, let me share a story that inspired his fellow reformists in government. One weekend, Ernest and associates decided to gather in Subic. Ernest showed up in a beat-up car. He did not use the government-issued vehicle, and he came without a driver or an attendant. That seemingly small act was a big statement about how deep Ernest valued public interest.
And that is how I will remember Ernest: He had the highest ethical standards, and he mustered all his attributes, including his being testy and biting, to serve the public good.
Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.
