Economic growth

Bad Theatrics

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World Economic Forum on East Asia 2013

A CASE of ham acting and bad theatrics.

This is how the opposition and critics of the administration described President Benigno Aquino III’s decision to reject the resignation of Budget Secretary Florencio “Butch” Abad despite the plunder complaint filed against the latter over the controversial Disbursement Accelerated Program (DAP).

On Friday, Aquino announced his decision to turn down Abad’s resignation submitted Thursday. Abad and several administration officials are in hot water after the Supreme Court declared part of the government’s DAP—created by Department of Budget and Management Circular 541—as unconstitutional.

And, to fortify its “in good faith” defense, former Chief Justice Artemio Panganiban went on national television saying Abad and Aquino could not be held accountable for violating the Constitution as proponent and executor of the DAP—unless it is determined that they are guilty of “culpable violation of the law”.

Almost instantly, social media and the news networks were flooded with adverse reactions.

Stubborn Defense
“It’s a bad day for good governance, Navotas Rep. Tobias Tangco, secretary-general of the United Nationalist Alliance (UNA), said in a text message describing Aquino’s retention of Abad. “I am waiting for them to sing ‘If We Hold on Together’”.

Renato Reyes, head of the militant group Bagong Alyansang Makabayan, called Aquino’s decision to keep Abad in the Cabinet as a “stubborn defense” of DAP. He said the rejection “shows that the President is still in a state of denial regarding the illegality of the DAP. He is protecting Abad and in turn protecting himself.”

For his part, ACT Teachers party-list Rep. Antonio Tinio said Abad should have submitted an irrevocable resignation if the Cabinet official was sincere about taking responsibility for the DAP. “This is merely theatrics meant to ease pressure on himself and Malacañang,” Tinio said in a statement.

“As chief executive, President Aquino swore an oath to preserve and defend the Constitution and execute the laws of the land. This includes respect for and compliance with jurisprudence as embodied in Supreme Court ruling. In loudly and publicly rejecting the ruling on DAP, he is breaking his oath of office,” Tinio added.

Also on Friday, the Senate committee on finance has summoned Abad to make a public accounting on how the Aquino administration spent billions of pesos in public funds released under the Disbursement Acceleration Program.

Senator Francis Escudero, the chair of the Senate panel that examines the proposed national budget, asked Abad to appear before a public hearing scheduled July 21.

Escudero directed Abad to submit to the Senate panel the complete list of the all the Special Allotment Release Orders or SAROs that were disbursed under the DAP, including “projects/purpose and the amount of the releases. This is what we have been asking the DBM too since our last committee hearing: where is the list?” Escudero said in a statement.

Abad has not issued any statement on the DAP since it has been declared unconstitutional.

Meanwhile, impeachment complaints against Aquino have meanwhile been submitted to the House of Representatives, which administration congressmen vowed to block.

Irrational
Described as a “stimulus package to fast-track public spending and to push economic growth on high impact budgetary programs, activities and projects”, the High Court gave three reasons for declaring the DAP unconstitutional: the withdrawal of unobligated allotments from the implementing agencies and the declaration of the withdrawn unobligated allotments and unreleased appropriations as savings prior to the end of the fiscal year and without complying with the statutory definition of savings contained in the General Appropriation Act (GAA); the cross-border transfers of the savings of the executive department to augment the appropriations of other offices outside the executive; and, the funding of activities, projects and programs that were not covered by any appropriation in the GAA.

The Supreme Court also voided the use of “unprogrammed” funds in the absence of a certification by the National Treasurer that revenue collections exceeded revenue targets.

Aside from serious concerns about its legality and propriety—of being used as presidential pork barrel for patronage purposes, particularly the impeachment of former Chief Justice Renato Corona—the DAP has also been described as economically irrational which is consistent with the notion that the supposed stimulus effect is only a cover for self-serving political agenda.

According to the research, education and development institution Ibon Foundation, the practice of using government spending to stimulate or pump-prime the economy in a situation of low demand is well-established. But to generalize from this and claim that any and all government spending is a stimulus to the economy would render the practice tautological and meaningless.

In a report, Ibon said certain conditions need to be met for the spending to be a genuine stimulus. The most basic is that the quantity of spending must be large enough and occur within a short enough period to actually make a discernible difference. The quality of spending also matters and this should be on items that will have the most immediate and greatest multiplier effect on the economy. Notwithstanding all the justifications that the administration has raised, the DAP did not meet either of these and the so-called stimulus argument is weak.
Economic Stimulus?

When questions about the DAP first surfaced, President Aquino claimed that the program stimulated the economy in 2011 and created a momentum that carried on years after.

When the controversy first came out President Aquino himself claimed that the DAP stimulated the economy in 2011 and created a momentum that continued until years after. PNoy also specifically said that the DAP contributed 1.3 percentage points to the growth in the Gross Domestic Product (GDP)in the fourth quarter of 2011; this is considerable considering that growth in that period was just 4.0 percent as reported by the National Statistical Coordinating Board (NSCB). Since the brouhaha, government has released varying, incomplete and inconsistent statements on DAP, but there is nonetheless not enough information to make a sound conclusion.

Early reports from the DBM had total DAP spending of P159.36 billion broken down into P85.53 billion (2011), P58.70 billion (2012) and P15.13 billion (2013). But these DAP magnitudes are not additional to the spending programs for the respective fiscal years of P1,580.0 billion (2011), P1,829.0 billion (2012) and P2,005.9 billion (2013); these figures coming from the latest Budget of Expenditure and Sources of Financing (BESF) documents.

It is therefore important to note that the DAP did not provide additional government spending for any of the years it was implemented and was just, as the acronym suggests, merely an acceleration of the disbursement of budget that were already established under the GAA. This fact makes it grossly inaccurate to claim the DAP as a stimulus package as it did not introduce additional appropriations into the budget, but only changed the manner how these amounts were spent by changing the actual expense items through various means which the Supreme Court declared unconstitutional.

Ibon further notes that the DAP was not that all significant. Total government spending – computed as the sum of government final consumption expenditure (GFCE) and public construction from the national accounts measured at current prices – in those same years was P1,132.67 billion, P1,376.10 billion and P1,558.24 billion, respectively. This means that the DAP was just 7.6 percent of total government spending in 2011, 4.3 percent in 2012 and 1.0 percent in 2013. Measured versus the economy the DAP was just 0.9 percent of GDP in 2011, 0.6 percent of GDP in 2012 and 0.1 percent of GDP in 2013.

No Impact
So even at its peak in 2011, the DAP could not have had any substantial impact on the national economy. The Ibon report even proceeded to compare the DAP with equivalent figures of more genuine stimulus programs. For instance, the US government’s stimulus program – consisting of the $787 billion US economic recovery package of 2009 and $700 billion in Troubled Asset Relief (TARP) funds, unemployment insurance, health care—was, if spent as programmed—equivalent to about 20-30 percent of total annual federal outlays and some 4-6 percent of the US economy.

Meanwhile, stimulus packages in other countries in 2009 were also similarly large or larger, such as: Malaysia (7.9 percent of GDP), China (4.8 percent), Spain (4.5 percent), Germany (3.4 percent), Thailand (2.8 percent), Korea (2.7 percent), Indonesia (2.5 percent) and Japan (2.2 percent).

Still, to claim the DAP accounted for 1.3 percentage points of the 4.0 percent GDP growth in the fourth quarter of 2011 would have been meaningful if true, because then it would have accounted for more than one-fourth of the economic growth. But again, this 1.3 percentage point contribution to was not actually just of the DAP but rather of total government consumption and public construction for the period (of which the DAP was just a small part of). The contribution of DAP-related spending to economic growth is likely just one-fourth of a percentage point at most in the fourth quarter of 2011 and less than a tenth of a percentage point for 2011 as a whole.

But since there is no accounting yet of how the DAP was spent, it could even be possible that for it to have reduced the contribution of the national budget to economic growth. If it is true that portions of the DAP were lost to corruption or for bribing lawmakers to vote for the removal of Chief Justice Corona, it is possible that instead of being spent in the real economy the DAP has been lost to hidden bank accounts here—or even abroad.

Accounting
With the DAP dwarfing the amount of money involved in the PDAF scandal an immediate accounting of where and how it was spent is required if Aquino and company want to come clean and get themselves out of the public crosshairs.

Problem is, there is no available information of the criteria applied by the government in deciding which projects to fund through the DAP or how it chose which projects to in effect discontinue by realigning funds away from them. A complete listing of the project also remains unavailable and a cursory glance of what projects have been made public is more than enough to cast doubt on how the administration utilized the funds which is several-fold bigger than the amount involved in the PDAF scandal.

Included in the items of alleged prima facie dubious stimulus impact are: PhP30 billion capital infusion to the Bangko Sentral ng Pilipinas (BSP); PhP8.6 billion for Autonomous Region of Muslim Mindanao (ARMM) peace and development interventions; PhP5.4 billion in landlord compensation; PhP3.4 billion in GSIS premium payments; PhP1.8 billion for the Moro National Liberation Front (MNLF); PhP1.5 billion for the Cordillera People’s Liberation Army (CPLA); PhP1.6 billion for the Department of Science and Technology’s (DOST) DREAM project; PhP1.1 billion for human resource development of BPOs; PhP750 million to settle the tax liabilities of the National Power Corporation; PhP666 million for the Department of National Defense (DND); and others.

The issue is not whether these identified expenditures are desirable, but if they have had any significant impact on the economy. The ultimate objective of any supposed stimulus package is to increase aggregate demand. The multiplier effect of any particular amount of government spending is however diminished if it is spent for foreign goods and services rather than locally, if it is not spent by the recipients, if it is not spent on labor-intensive projects, and so on. The situation therefore demands greater transparency on the part of the Aquino administration which is presently engaged in bringing the perpetrators of the PDAF scandal to justice.
A Cabinet secretary tendering his resignation and a President rejecting the same is simply not enough to address the issue and to calm the brewing storm.

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NOT TRUE

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By Miguel Raymundo

Far from the true picture of the economy that belies Malacanang’s assertion of economic growth, latest numbers imply that the economy is on the wane, a far cry from the still sanguine assessment dished out by those in power.

Bluntly, political scams are weighing down on economy’s prospects and how businessmen perceive them.

Take the gross domestic product (GDP) which measures the nation’s local output, which has declined over the past quarters.

From a high of 7.7 percent in the first quarter of 2012, GDP has gone down to 6.3 percent in the first quarter of 2013 and a disappointing 5.7 percent growth in this year’s first quarter.

Blame game
As expected, officials heap the blame on the spate of natural calamities for the economy’s slump over the past quarters.

Finding fault, however, with the weather as the culprit of the economy’s woes may not be that accurate.
While the figures are quarterly, they nonetheless provide a glimpse into what has long bogged down the economy – uncompetitive, protectionist and corruption-prone.

Yearly, the Philippines aims to chalk up between six and seven percent GDP growth in its bid to make it one of Asia’s fastest-growing economies.

That projection takes into account the foreign exchange remittances of overseas Filipino workers (OFWs) which account for 20 percent of the annual GDP.

This year, prospects don’t augur well for a significant share of remittances to GDP due slowdown in this year’s first quarter as hostilities flare up in the job-rich Middle East, particularly in Libya, Iraq and Syria.

Constraints
Moreover, certain policy and structural constraints still abound, one of which is the still unresolved 60:40 equity limit imposed by the Constitution on investors seeking to do business in the country.
While both Houses of Congress are receptive to striking out the archaic provision in the Constitution, it seems ironic that no less than President Aquino himself stands in the way.
In no unequivocal terms, he thumbed down any proposal to tinker with the basic law of the land, including its economic provisions.
Undoubtedly, the pro-Filipino but anti-foreigner equity ratio ceiling curbed the entry of foreign funds which only ended up in other hassle-free nations – Thailand, Vietnam and Myanmar.

Lack of infras
More often than not, prospective foreign investors bewail the government’s incoherent and unstable business policy, lack of infrastructure, particularly roads, ports and airports in the Philippines.

Yet, billions of pesos are allotted annually to finance the construction of highways, being the lifeblood of the economy.

Talk of corruption in the business circuit often revolves around the pork barrel scam, a major embarrassment to Aquino’s so-called tuwid na daan” program of government.

During the just-concluded World Economic Forum in Makati city, Finance Secretary Cesar Purisima was booed by activists for his upbeat assessment of the debt-plagued economy.

He was blamed for orchestrating the multi-billion dollar debt deals with the multilateral finance institutions, plunging the country deeper into a debt hole.

Jimenez
Not spared was Tourism Secretary Ramon Jimenez, a dyed-in-the-wool Aquino loyalist who was roundly assailed for giving tribute to Aquino’s “tuwid na daan” platform of government for the restoration of people’s faith in the government.

Contrary to what Aquino officials trumpet, critics believe that the recent growth in the Philippine economy was “artificial, narrow, debt-driven and unsustainable.”

Worse, it is accompanied by worsening job generation, growing unemployment and exclusionary growth, mainly in the narrow real-estate and construction sectors.

These sectors are supported by record-low interest rates, which have made financing for production and for consumption artificially cheap.

While it artificially increases economic activity, this situation of cheap financing is only momentary.

MVP
Filipino businessman, Manuel V. Pangilinan, whose group of companies operates toll roads, telecommunications firms, mining pits and power utilities, says while reforms are laudable, the government still needs to address many critical issues necessary for economic growth.

“Certainly, the soft spot of development is important – reforms, governance and perception of the Philippines – but there are hard parts of development as well. It can’t be all perception.” Pangilinan wants the government to cut red tape, reduce the cost of power and build more infrastructure.

For one, American financial services giant JP Morgan Chase has cut its 2014 economic growth forecast for the Philippines, noting that its first-quarter GDP results fell below expectations and turned out to be the slowest pace of expansion in 10 quarters.

It also revised its GDP growth forecast of six percent for the Philippines this year, down from the previous forecast of 6.6 percent.

As more and more analysts reassess their views on the Philippine economy, they tend to narrow down their verdict – that the much-hyped economic growth was but a flash in the pan.

Such labels as “Asia’s next miracle” and “Asia’s rising star” are all but empty advertisements meant to make the Philippines popular to investors.

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Kamag-Anak Inc.

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ONLY modest reductions in poverty have been made since the economic and political collapse of the mid-1980s. Without doubt, severe regional disparities remain and the gap between the rich and the poor of this country continues to widen. While 75 percent poor Filipinos live in rural areas, the urban poor have contributed to the rising share of total poor population since 1971. Manila, once the bustling center of post-war business activity, is no longer the promised land it used to be. Migrating to the city is no longer a guarantee of a better life.

By World Bank calculations, urban poverty stood at around 23 percent and rural poverty at 53 percent in 1991. The numbers are far worse today. Most of our poor have little education and are engaged in the agriculture, fishery and forestry sectors and anemic government support have driven our farmers and fisher folk to the brink of poverty.

Compared with the rest of East Asia, government performance on poverty reduction has been downright disappointing, because the Philippines has not been able to sustain growth long enough to better the living conditions of the poor.

Stranger even is the fact that poverty declines remained modest even during the times of rapid economic growth as government policies discriminated against labor, subsidized capital-intensive production and gave low priority to agriculture and exports. This resulted in growth that was narrowly based and inequitable—trapping many Filipinos in low-paying jobs while capitalists made money out of labor’s misery.

The rich get richer while the poor stay poor—and multiply. If you look closely, the rich in this country bear the same face with politicians and government executives. People who run big business are—more often than not—related to someone in government. “Kamag-anak Inc.” never really left the building. The same evils hounding our society back in the 70s remain with us today.
There is no quick fix and panacea for everything that bedevils this nation. But getting rid of crooks in government and in big business is definitely a good place to start.

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FROM THE CHAIRMAN: Inciting Upheaval

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By Ray L. Junia

RAPID changes are occuring in the economic front, hence OpinYon’s focus on its dynamics and how it shapes the fate–and future–of ordinary Filipinos as they plod on with their daily lives. In this week’s issue, we are delving into the widening and alarming rich-poor gap, often glossed over by the mainstream media in favor of sensational political stories. Research-based and interpreted in a layman’s language,  the story aims to be a wake-up call for the decision makers, both in government and private sectors, to assess how and why policy measures failed miserably in stemming the surging tide of disparity in democratizing the wealth of the nation.

Our Asian neighbors like Thailand and Malaysia succeeded in scaling down the dominant control of their economy by few families and there’s no reason why we can’t do the same for the sake of millions of Filipinos who continue to languish in silence under the yoke of poverty and deprivation.

Certainly, the people are sick and tired of glowing and self-serving government statements that the economy is booming. To them, economic growth is an empty boast as it has failed to uplift the quality of their lives.

Our government takes pride in being democratic. But in reality, it’s a subtle form of dictatorship by proxy in disguise because it it allows the oligarchs to reign supreme in the economy.

Unless decisively addressed, the worsening rise of poverty incidence vis-a-vis the insatiable appetite of the rich to rake in more profits may be likened to a ticking time bomb.

If the economic system is flawed, then why the heck do we insist on it? The clamor for a drastic change is resounding and unless we heed it, we may find ourselves jolted again by an onslaught of an irreversible political upheaval.

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