Economy, Fiscal issues, Governance

Martial Law legacy: debt servicing, top priority from Macoy to Noynoy

Image from gmanetwork.com

Last September 21, the country marked the 40th anniversary of the imposition of Martial Law by the late strongman Ferdinand Marcos. Those dark years were notorious for the numerous cases of human rights atrocities committed by the military; for the unprecedented cronyism; and for the massive and flagrant ransacking of state coffers by Marcos, his relatives and friends.

Seldom pointed out is how the Marcos dictatorship also instituted national policies that further tied our pre-industrial economy to perpetual backwardness and bound a great majority of our people to acute poverty. Seldom pointed out is how the anti-Marcos faction of the ruling elite led by Cory Aquino who supposedly restored democracy, and her successors – including son, incumbent President Benigno Aquino – have upheld and continued these policies to the serious detriment of the country and the people.

One such policy was automatic debt servicing. Guaranteed payments of the national debt, even if they were incurred under questionable circumstances; went to the pockets of corrupt government officials; and/or used to fund programs and projects that harmed the economy and the people is a testament to the still dismal state of governance and democracy in the country 40 years after Martial Law was imposed.

That the Marcosian policy of automatic debt servicing continues to deprive the people of much needed social services contradicts assertions by the Aquino government of a pro-people national budget. It has hyped, for instance, its proposed 2013 ₱2.006-trillion national budget as “Empowerment Budget”, building on its previous packaging of “Reform Budget” (2011) and “Results-Focused Budget” (2012). Underlying all these budget proposals is the theme of “daang matuwid” (straight path) and “kung walang corrupt, walang mahirap” (without corruption, there’s no poverty).

But behind the pro-people packaging is the reality that the priorities and programs of government, as reflected in its national budget, remain unresponsive to the urgent social needs of the poor and development requirements of the country. From the late strongman Macoy to the son of supposed democracy icons Noynoy, keeping the creditors assured has always been the top priority in crafting the national budget.

Current debt data

Marcos’s borrowing spree – from less than $1 billion when he first became President in 1966, the foreign debt ballooned to $28 billion by the time he was kicked out of Malacañang twenty-years later – set off the crippling debt burden that the country has had to endure. To keep the foreign loans coming, which had become the dictatorship’s largest source of corruption (one estimate claimed that Marcos pocketed at least ⅓ of foreign loans), Marcos issued Presidential Decree (PD) 1177 or the Budget Reform Decree of 1977 that automatically appropriates for debt servicing regardless of how much is left of the country’s resources to fund basic social services. The late President Corazon Aquino affirmed this policy through Executive Order (EO) 292 or the Administrative Code of 1987.

As of July 2012, the outstanding debt of the national government, according to the Bureau of the Treasury (BTr) stood at ₱5.16 trillion, of which ₱3.12 trillion (61%) come from domestic creditors and the rest, ₱2.04 trillion (39%) from foreign lenders.  When President Aquino assumed office in June 2010, that debt was pegged at ₱4.58 trillion (₱2.59 trillion, domestic; ₱1.99 trillion, foreign). Since taking over, the Aquino administration has added more than ₱580 billion to the debt burden, or an average of more than ₱23 billion a month (July 2010 to July 2012). During the Arroyo administration, the outstanding debt of the national government was growing by a monthly average of ₱21 billion (January 2001 to June 2010).

Meanwhile, looking at the foreign debt data (which include public and private debt, with the former accounting for 77% of the $62.9-billion total as of March 2012) as monitored by the Bangko Sentral ng Pilipinas (BSP), it appears that the country’s external loans have been accumulating most rapidly under the current Aquino administration with an average of $268.81 million per month. It is the largest monthly growth in foreign debt among all post-Marcos administrations. (See Chart)

A news report on the latest debt data noted that each Filipino now owes the national government’s creditors some ₱53,715 (based on the latest estimated population of 96 million by the National Statistical Coordination Board of NSCB). A minimum wage earner in the National Capital Region (NCR) will need to give his salary for 120 to 131 workdays if he will be forced to pay for his share of this debt; or 232 days if he is from the Autonomous Region in Muslim Mindanao (ARMM).

Meager allocation for social services

But the real impact of such heavy debt burden is felt by the poor in the meager allocation that important social services get from government because limited resources are being siphoned off by automatic debt servicing. And Aquino is proving to be worse than Arroyo in this respect. Under the Aquino administration, government has already shelled out ₱1.45 trillion for debt servicing from July 2010 to July 2012. It’s equivalent to ₱58.05 billion a month, almost ₱10 billion bigger than Arroyo’s ₱48.18 billion a month during her prolonged 9 ½-year term. (See Table 1)

Further, debt servicing relative to total expenditures (including principal repayments) is pegged at almost 59% under Aquino, compared to 42% under Arroyo; and relative to total revenues collected, it’s 76% under Aquino and 66% under Arroyo. These figures mean that that the absolute increase in debt servicing in the past two years is exerting more pressure on public resources which could not cope with the country’s growing expenses, including the need to pay for government’s mounting debts. To finance its expenses, including payments for past debts, the Aquino administration is borrowing more.

Debt servicing continues to eat up a huge portion of the national budget despite claims by the Aquino administration that social services are now being prioritized by government. The expenditure program from 2011 to the proposed 2013 national budget, for instance, shows that the budget for debt servicing (including principal amortization) is equivalent to an average of 2.5 times that of the budget for education; 6.4 times, health; and 11.2 times, housing. (See Table 2)

To be concluded

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Consumer issues, Fiscal issues, Oil deregulation

Mar Roxas: From Mr. Palengke to Mr. Perwisyo

Roxas’s 180-degree turn on the issue of oil VAT is yet another proof that the supposed change the Aquino administration has been peddling is nothing but an illusion (Photo from plurk.com)

On the heels of the successful nationwide people’s protest against high oil prices last March 15, Malacañang reaffirmed its position not to lift the 12% value-added tax (VAT) on oil. One of the administration officials who immediately articulated the Palace stand was Mar Roxas, secretary of the Department of Transportation and Communications (DOTC). Defending the oil VAT, Roxas said that revenues generated by the controversial tax “are being used to render services to the public”. “It’s easy to say ‘stop collecting taxes’ but this would mean that a particular government service will be affected,” Roxas argued.

Mar column

It’s amazing how fast Roxas changed his mind about the oil VAT. To those who have a short memory, let me refresh your recollection by quoting portions of Roxas’s column Mr. Palengke that the tabloid Abante used to publish. The opinion piece, entitled “$100 kada bariles”, was published by the popular daily in its Jan. 8, 2008 issue. It was Roxas’s reaction to the then escalating prices of oil that for the first time breached the $100-a barrel mark.

(Click on image to download full article)

“Hindi na po normal ang sitwasyon natin ngayon. Alam nating ang langis ay talagang nakakaapekto sa lahat ng aspeto ng pamumuhay: transportasyon, pagkain, kuryente, manufacturing ng mga produkto, at marami pang iba. Kaya sa bawat pagtaas ng presyo ng langis, sumusunod naman ang presyo ng iba pang produkto at serbisyo. Nanganganib talaga ang bulsa ni Juan dela Cruz. Maikli na ang kanyang pisi, lalo pa itong iikli.

Naaalala ko, noong kakatapos lang na ipasa ang Expanded Value-Added Tax Law noong 2005, sumipa ang presyo ng krudo mula $36 kada bariles hanggang $56, at natakot tayo noon na sumipa pa ito sa $75 kada bariles.

Ngayon, $100 na, ang layo na sa dating mga presyo at kailangan na talaga ang parehong mga agaran at pangmatagalang solusyon sa umaalagwang presyo ng langis. Kailangan na ng political will. Walang lugar para sa mga “token-ism,” o mga pakitang tao. Kung talagang ginugusto ng pamahalaan na makatulong sa ating mga kababayan, isang malinaw at kongkretong hakbang na maisasagawa ay ang agarang pagsuspinde sa EVAT sa langis at mga produktong petrolyo.

Agarang ginhawa sa halagang P4 kada litro ng diesel o P60 kada tangke ng LPG ang maidudulot nito. Kung gusto talaga ng pamahalaan na mapaginhawa ang buhay ng ating mga kababayan, sana’y suportahan nila ang ating panukala.

Hanggang ngayon, tila ba hindi pa rin nagbabagong-loob ang administrasyon dito. Nakakalungkot, dahil P20-30 bilyon lamang ang mawawala sa pamahalaan sa anim na buwang suspensiyon ng EVAT sa langis, kumpara sa kalakhang P1 trilyong revenues nito. At sabihin nang sa mga social services daw, tulad ng edukasyon at kalusugan napupunta ang pondong ito, nararamdaman ba ninyo ito?

Ang nakakalungkot pa, malaking halaga ng buwis na dapat makolekta ay nawawala dahil sa katiwalian at iba pang mga leakages. Noong 2006 nga, ayon sa isang pag-aaral ng DOF mismo, may P107 bilyon ang hindi nakolekta dahil sa mga leakage. Ang lalong nakakalungkot, ang kalakhan ng mga leakage ay naroon sa mga buwis na hindi nakokolekta sa mga malalaking tao. Hindi nakolekta ang P81.96 bilyong potensiyal na kita mula sa corporate income tax. Samantala, ang tinatawag na “tax gap rate” sa income tax ng mga negosyante at propesyonal ay nananatiling mataas, sa 40%, kumpara sa tax gap rate ng income tax ng mga manggagawa, na nasa 10% lamang.”

Pera ni Juan dela Cruz ito, hindi ito pera ng gobyerno. Hangga’t hindi natin nakikita na mahusay ang paggastos ng gobyerno sa pera ng taumbayan, mabuting ibalik muna ito sa kanila upang maibsan ang kanilang kahirapan. Ipinasa noon ang EVAT dahil nanganganib na humina ang ekonomiya dahil sa sinasabi nilang “fiscal crisis”. Ngayon naman, nanganganib na bumagsak ang ekonomiya kapag naipit nang naipit ang pagkonsumo ng ating mga kababayan. Ibang sakit ang ating nararanasan ngayon, hindi puwedeng parehong gamot pa rin ang ating inumin.” (All emphases mine)

People deserve break

Roxas used to think that removing the VAT on oil, even if temporarily as he proposed then, will translate to immediate benefits for the poor. In his 2008 column, he said it’s P4 per liter for diesel and P60 per 11-kilogram (kg) tank for liquefied petroleum gas (LPG). Today, the immediate benefits are even bigger – for diesel, it’s almost P6 per liter and for LPG, as much as P110. “Government believes it should keep on collecting EVAT on oil and be the sole arbiter on how these revenues should be reallocated. I say, let’s give our people a break… Give the people instantaneous relief from high prices and meager incomes,” said then Senator Roxas in a separate Dec. 20, 2007 press statementNoon, the people deserve a break, pero hindi na ngayon?

VAT for debt servicing

Indeed, the points Roxas had raised against the continued collection of VAT amid soaring oil prices remain as valid as ever. His arguments, in fact, could very well answer the Aquino administration’s excuses to justify the VAT on oil today. For instance, while revenues have increased because of the oil VAT, social services continued to be marginalized in terms of government spending. Most of the revenues are being siphoned off by debt servicing. When Roxas was raising the issue of oil VAT in 2008, social services comprised less than 21% of total public expenditures while the total debt burden (interest payments and principal amortization) accounted for more than 34 percent. In 2011, preliminary data show that social services are still marginalized at less than 23% of public expenditures while the debt burden continued to hold the lion’s share with more than 31 percent. As Roxas said, “Pera ni Juan dela Cruz ito, hindi ito pera ng gobyerno”. Why should we allow the Aquino administration to be the sole arbiter on how these resources should be used?

Tax leakage

Roxas’s point on the tax leakage, meanwhile, remains a compelling argument against the VAT on oil. A 2010 study by the National Economic and Development Authority (NEDA) estimated that individual tax leakage could reach at least P35.69 billion a year from 2011 to 2016. From 2001 to 2005, the individual tax leakage was pegged at P35.74 billion a year, according to a 2006 study by the National Tax Research Commission (NTRC). Despite the hype of Daang Matuwid, the fact remains that bureaucratic corruption, inefficiency, and wastage continue to deprive government of potential revenues. Alas, like the Arroyo administration, the Aquino government is over-relying on the regressive and burdensome VAT instead of finding other ways to raise revenues such as addressing the perennial tax leakage.

“Perwisyo”

As mentioned, Roxas is now dismissing the very same arguments he once espoused against the oil VAT. For him, protest actions against the VAT and deregulation – issues he used to consider as legitimate concerns that government must address – are “perwisyo” or nuisance. Of course, only the naïve will be surprised by such turnaround of a traditional politician. Roxas obviously just rode on the very popular anti-VAT sentiment when he was still eyeing the presidency. (He eventually gave way to Aquino and ran for the vice presidency but lost to Makati Mayor Jejomar Binay in the 2010 elections.) But now that he is part of the incumbent administration as a Cabinet official, the oil VAT has suddenly become indispensable.

Thus, from the consumer advocate Mr. Palengke, Roxas has now transformed into the VAT apologist Mr. Perwisyo.

Illusion of change

Finally, let me share another quotable quote:

“Napakahalaga ang VAT… Ito ang sagot sa mga problemang namana natin… Kung aalisin ang VAT, hihina ang kumpyansa ng negosyo, lalong tataas ang interes, lalong bababa ang piso, lalong mamahal ang bilihin… Kapag ibinasura ang VAT… ang mas makikinabang ay ang mga may kaya…”

That’s not President Aquino or one of Malacañang’s mouthpieces speaking, although the tune is very familiar to the one being chorused by administration officials. It was Mrs. Gloria Arroyo in her speech during her State of the Nation Address (SONA) on Jul. 28, 2008. Arroyo was responding to Roxas and many others who were demanding that the oil VAT be removed or reduced and that pump prices, which then were reaching historic highs, be controlled.

Tapos na ang pamumunong manhid sa daing ng taumbayan? Roxas’s 180-degree turn on the issue of oil VAT is yet another proof that the supposed change the Aquino administration has been peddling is nothing but an illusion. #

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Economy, Fiscal issues, Privatization

Aquino’s 2012 budget: Diretso sa tubo (Part 2)

Aside from creating more profit-making opportunities for private business through the PPP, the 2012 budget is also focused on creating the most favorable conditions for investors. (Photo from mylot.com)

First published by The Philippine Online Chronicles

Continued from Part 1

To fund his Public-Private Partnership (PPP) initiatives, President Benigno S. Aquino III is proposing in his 2012 budget an amount of P8.6 billion for the Department of Transportation and Communications (DOTC) and another P3 billion for the Department of Public Works and Highways (DPWH). The said amounts are for the various PPP ventures of the two agencies, including for the preparation of business cases, pre-feasibility and feasibility studies.

Aquino has tasked the DOTC and DPWH to implement his first 12 PPP projects. PPP Center data show that the DOTC is handling eight projects worth P95.3 billion for the privatization and expansion of the light rail transit (LRT) and metro rail transit (MRT) and another P16.7 billion for the privatization and development of airports in Bohol, Albay, Palawan, and Puerto Princesa. On the other hand, the DPWH is in charge of four projects worth more than P44.9 billion for expressway projects in Luzon.

These projects are on top of the numerous other PPP initiatives that will be handled by the DOTC and DPWH under the medium-term plan of the Aquino administration.

Another major recipient of the 2012 PPP support fund is the Department of Agriculture (DA), which will receive P2.5 billion for right of way, infrastructure, and other related support. The DA and its attached agencies are in charge of 16 PPP projects for medium-term rollout worth at least P55.8 billion for irrigation, post-harvest facilities, and agribusiness ventures, among others.

(Download the complete list of Aquino’s PPP projects here)

PPP for social services

But aside from infrastructure development, Aquino is also expanding the use of PPP schemes to the delivery of social services. One is the P3-billion government counterpart funding to rehabilitate, maintain, and operate 25 regional hospitals. Another is the P5-billion fund for school building construction through PPP, wherein the contractor will undertake the financing, design, construction, and maintenance of classrooms and turns them over to the Department of Education (DepEd) after completion.

In his budget message, Aquino also said that the administration is employing the Multi-Year Obligational Authorities (MYOA) to encourage private participation in the
construction, operation, and maintenance of school buildings, health centers, and other basic government infrastructures. MYOA is an authority released by the Department of Budget and Management (DBM) to enable an agency to enter into a multi-year contract for locally-funded or foreign-assisted projects.

The DepEd has been ordered by the President to pursue PPP projects for the construction of elementary and secondary schools (amount still to be determined) “as public funds are not being able to fully cover the needs of an increasing school population”, according to the PPP Center. DepEd Secretary Armin Luistro has also recently bared his agency’s plan to establish privately-run public schools
supposedly to address critical shortages in the public school system.

Department of Finance (DOF) Secretary Cesar Purisima, on the other hand, said that the government will be bidding out contracts for the construction of 10,000 school buildings within the year. Purisima said the private contractors will build and maintain the school buildings while the government will pay them over a period of time.

Meanwhile, the DOH will handle 11 PPP projects for medium-term rollout worth at least P7.9 billion, including the construction of the Philippine Health Insurance Corp.’s (PhilHealth) building, hospital staff housing facilities, use for commercial operations of hospitals’ unused lands, research facilities and materials, air transport service, commercialization of the Philippine Orthopedic Center, and use of information and communication technology (ICT).

All in all, the 2012 strategic support fund for PPP projects of the DepEd, DOH, DOTC, DPWH, and DA is pegged at P22.1 billion, of which P8 billion are fresh funding for PPPs in education and health.

Budget cuts

While allotting P8 billion and P5 billion in new funding for PPP initiatives in health and education, respectively, the supposedly Diretso sa Tao budget has either frozen or cut the allocation for key items to sufficiently meet the growing public health and education needs.

According to the Coalition for Health Budget Increase (CBHI), for instance, the Maintenance and Other Operating Expenses (MOOE) of five Metro Manila-based special hospitals and 18 local hospitals nationwide have been kept at their 2011 levels. Also, the Personal Services budget of the five special hospitals and of 16 local hospitals nationwide has been reduced.

In addition, the budget for Service Delivery Programs has been cut by almost a billion pesos while the budget for Health Facilities Enhancement Program has been slashed by more than two billion. Also, the subsidy for indigent patients for confinement or use of specialized equipment has been totally scrapped, according to the CBHI. It said that at least P90 billion, or more than P40 billion higher than Aquino’s proposed 2012 allocation, is needed to provide immediate relief to the health needs of the people.

The same thing is true with the education budget. Activist youth group Anakbayan has pointed out that the budget for 50 State Universities and Colleges (SUCs) will be slashed by P583 million. Meanwhile, despite the seemingly huge P31.5-billion increase in the DepEd budget, its allocation can only plug 27% of the backlog in classrooms, 19% of the backlog in desks, and 13% of the shortfall in teachers.

Pro-business budget

The country’s experience with PPP in the past three decades has been awful, to say the least. Various PPP initiatives in the power, water, road, and mass transportation sectors, among others, have all resulted in exorbitant user fees and onerous debts all in the name of assuring the profits of private business. The proposed regulatory risk guarantee of Aquino to further entice the private sector in his PPP program will surely worsen the public cost of privatization.

But even more alarming is the greater intrusion of profit-oriented investors in the most basic social services. The costs of running of hospitals and schools will certainly rise as PPP contractors expect not only to recover their investment but also to earn profits, which distorts the nature and role of public schools and hospitals. The increased cost will either be directly passed on to the patients and students through higher user fees or to the general public through the regulatory risk guarantee, or both.

From a fiscal point of view, PPP also does not guarantee that the budgetary woes of the government will be resolved based on the country’s own experience. Similar outcomes are evident in other countries. A recent study, for instance, by the Washington-based group Project on Government Oversight (POGO) found that the US government actually spends more when it hires private contractors to provide services than when the government itself is undertaking such tasks.

Anti-development

Aside from creating more profit-making opportunities for private business through the PPP, the 2012 budget is also focused on creating the most favorable conditions for investors, particularly in those sectors that the administration deems as growth and employment drivers. They include tourism, electronics export, and business process outsourcing (BPO), among others.

P9.2 billion, for example, has been allocated for access roads to tourist destinations on top of airport projects that will also be pursued through PPP. P500 million, meanwhile, has been assigned to the Commission on Higher Education (CHED) to focus the curricula of SUCs on BPO and tourism as well as agriculture and infrastructure development.

But these priority areas for development have long failed to spur sustained economic growth, much less address the chronic job scarcity and reduce poverty. They fail because they are not anchored on any long-term national industrialization plan that promotes and relies on domestic production and consumption. They have always been driven by what is profitable for foreign investors and what meets the appetite of the global market, specifically of the developed world.

Dole-out for the poor

The only semblance of Diretso sa Tao in the 2012 budget is the P39.5 billion allocated for the controversial Conditional Cash Transfer (CCT) program. For 2012, the CCT targets 3 million households with a proposed budget of P39.5 billion or P18.3 billion higher than this year’s budget. Aquino aims to cover 4.3 million households by the end of his term.

Such massive expansion in scope and budget is not backed by any thorough assessment on whether the program has actually contributed to sustained poverty reduction, not to mention that it is funded by $805 million in growing foreign debt that has long been debilitating the economy and depriving the poor of much needed social services.

As it is, even the target of 4.3 million households is still just a fraction of the ever growing population crippled by joblessness or lack of livelihood amid ever rising cost of living – social ills that ironically are being aggravated by PPP and other flawed development programs that the 2012 budget supports. Thus, the CCT is simply being used by the Aquino administration to sell his proposed national budget as Diretso sa Tao but at its core is Diretso sa Tubo. #

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Economy, Fiscal issues

Aquino’s 2012 budget: Diretso sa tubo

Far from being Diretso sa Tao, the 2012 budget is in reality Diretso sa Tubo. Instead of the government’s meager resources going straight to the needs of the people, taxpayers’ money will actually go straight to the pockets of creditors while creating the most favorable environment and profit-making opportunities for private business. (Photo from The Philippine Star)

First published by The Philippine Online Chronicles

In the President’s 2012 Budget Message, President Benigno S. Aquino III boldly proclaimed: “Noong nakaraang taon, tinangkilik po ninyo ang aming pakay na tahakin ang landas Tungo sa Paggugol na Matuwid. Sa paparating na taon, hinihikayat ko po kayong patuloy na sumama at lumahok sa biyaheng ito: sa pagsiguro na ang benepisyo ng Paggugol na Matuwid ay nakatutok sa ating prayoridad at Diretso sa Tao.”

Aquino also called the P1.816-trillion budget a Results-Focused Budget, with sharp focus on the so-called A Social Contract with the Filipino People, which he used as campaign platform in last year’s elections. In sum, the Social Contract and thus the proposed budget supposedly have five priorities: (1) Transparent, accountable, and participatory governance; (2) Poverty reduction and empowerment of the poor and vulnerable; (3) Rapid, inclusive, and sustained economic growth; (4) Just and lasting peace and rule of law; and (5) Integrity of environment and climate change adaptation and mitigation. The spending and efforts of the administration will purportedly focus on these five priorities.

But far from being Diretso sa Tao, the 2012 budget is in reality Diretso sa Tubo. Instead of the government’s meager resources going straight to the ever growing and urgent needs of the people, taxpayers’ money will actually go straight to the pockets of creditors while creating the most favorable environment and profit-making opportunities for private business.

Debt servicing remains top priority

In hyping the budget, Aquino declared that a substantial portion of it – about 20.3% or P368.8 billion – will be spent directly on programs for poverty reduction and empowerment of the poor. Of this amount, the Pantawid Pamilyang Pilipino Program (4Ps) accounts for a considerable share with P39.5 billion. Another major portion comes from the P61.9 billion allocated for public education sector’s scholarship programs, financial assistance programs, training programs, hiring of additional teachers, construction and rehabilitation of facilities, procurement of textbooks, and support to State Universities and Colleges (SUCs). It also allotted P44.4 billion for undertakings meant to achieve the health targets under the Millennium Development Goals (MDGs). There’s also the P5.6 billion intended for the resettlement of families residing along danger areas and families affected by calamities and so-called “slum upgrading.”

While Aquino and his budget officials try to paint these numbers as impressive, the truth is they still pale in comparison to the huge amount of public money that will again go to debt servicing in 2012. The P368.8 billion is just a little higher than the P333.1 billion in Interest Payments in the proposed budget. Including the Principal Amortization (P405.5 billion), Debt Service Expenditures for 2012 will reach P738.6 billion, or more than twice the P368.8 billion that Aquino said will directly go to the poor and marginalized sectors. To further illustrate how big the budget is for debt servicing, the total Debt Service Expenditures is also much larger than the combined P575.8-billion Social Services budget that includes Education (P308.9 billion); Social Security, Welfare, and Employment (P104.5 billion); Health (P49.9 billion); Housing and Community Development (P7.1 billion); Land Distribution (P2.5 billion); and Other Social Services and Subsidy to Local Government Units (P102.9 billion).

Aquino, in his first year in office, has already proven to creditors that his administration is a reliable and good borrower, even better than his immediate predecessor. From July 2010 to July 2011, Aquino has shelled out P735.6 billion for debt servicing. This translates to about P61.3 billion on a per month basis, or P13.1 billion bigger than the monthly debt servicing under the Arroyo administration (from January 2001 to June 2010). Furthermore, from July 2010 to May 2011 (latest available data), Aquino’s debt servicing is equivalent to 46.6% of government expenditures (including its principal payments), as compared to Arroyo’s 41.5 percent.

Facilitating more privatization of infrastructure and services

It is true that debt servicing will decline in the 2012 budget while increases will be made in Social Services and Economic Services. The P1.816-trillion budget is higher than the present budget of P1.645 trillion by P171 billion, with the budget for Social Services going up by P54.3 billion (from P521.5 billion to P575.8 billion) and Economic Services increasing by P77 billion (from P361.9 billion to P438.9 billion). The budget for Defense will also go up by P11.6 billion (from P101.5 billion to P113.1 billion), General Public Services, by P44 billion (from P288.1 billion to P332.1 billion), and Net Lending, P8 billion (from P15 billion to P23 billion). Interest Payments, on the other hand, will go down by P24 billion (from P357.1 billion to P333.1 billion). In terms of percentage share, Economic Services will improve by two points (22 to 24%) and Interest Payments will slide by the same amount (20 to 18%), while the expenditure program of the rest of the sectors will maintain their share – Social Services (32%), Defense (6%), General Public Services (18%), and Net Lending (1%).

As pointed out, however, debt servicing will continue to be the single biggest expenditure item in the 2012 budget despite its decline both in absolute terms and as a percentage of the total. Furthermore, aside from the increase in quantity, it is also important to examine the quality of the increases. The budget increase in Social Services and Economic Services are deceiving because they do not guarantee improved access and better quality of life for the people. In reality, the increases are meant to facilitate the privatization of infrastructure development and social services in the country in line with Aquino’s centerpiece program – the Public-Private Partnership (PPP). (Read more about the PPP here and here) As the President said in his budget message, after introducing PPP through the 2011 budget as an innovative way to address the perennial lack of funds for infrastructure, the government will not only sustain it but even expand to include social services.

For the 2012 budget, Aquino is proposing P22.1 billion as counterpart funding from the national government for various infrastructure and capital outlay support for the PPP initiatives of the Department of Public Works and Highways (DPWH), Department of Agriculture (DA), Department of Transportation and Communications (DOTC), Department of Health (DOH), and Department of Education (DepEd).

(To be continued) 

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Fiscal issues, SONA 2011

SONA 2011: Making sense of Aquino’s facts and figures (part 2)

Aquino missed in his SONA the facts and figures that matter to the people (Photo from pinoypower.net)

Continued from part 1

Aquino also claimed that in his first year as President, the Philippines got upgraded four times by credit rating agencies. Compare this, said Aquino, to the lone credit upgrade and six downgrades the country had in the nine and a half years of the Arroyo administration. A high credit rating means lower interest payments. According to Aquino, the country spent P23 billion less in interest payments from January to April 2011 compared to the same period last year. This amount can supposedly already cover the 2.3 million families in target beneficiaries of the CCT program until the end of the year.

Debt servicing

A credit rating is simply the measure of the credit worthiness of government. Credit worthiness, meanwhile, pertains to the ability of government to repay its debt obligations. A high or favorable credit rating indicates that there is less or no risk of defaulting on our loans. Thus, creditors are more willing to lend with lower interest rates and therefore “less” debt burden for the borrower.

But the credit rating upgrades came at a high cost for the people. To obtain the upgrades, the Aquino administration ensured that debt obligations are being paid dutifully and at the same time resorted to massive under-spending. The result is that an ever increasing portion of spending by the national government went to debt servicing. Since Aquino became President, total debt servicing has already reached P668.65 billion (from July 2010 to May 2011). Until April this year, 49.3 percent of what the Aquino administration has spent went to debt servicing.

Worse than Arroyo

Compare these figures to those under Arroyo, who has been criticized as a heavy borrower and payer. Monthly debt servicing during the Arroyo administration was P48.18 billion while in the first 11 months of the Aquino presidency, it went up to P60.79 billion.  As a percentage of total government spending (including principal payments), the average during the Arroyo administration was 41.5 percent while under Aquino, it has increased to 49.3 percent (until April 2011). (See Table)

Despite the bigger debt servicing, the total outstanding debt of government (including contingent debt) still rose from P5.19 trillion in June 2010 to P5.23 trillion as of April 2011. The P40-billion rise in government debt includes $400 million (about P18 billion) in loans from the Asian Development Bank (ADB) approved last September 2010 to help bankroll the expanded CCT program. This means that the P23 billion mentioned by Aquino as savings from lower interest payments will just be used to pay for the rising debt obligations of government, including those incurred for the CCT.

Fiscal deficit

The credit rating upgrades were also achieved due to the improvement in the national budget deficit, another indicator closely watched to determine a country’s creditworthiness. From an all-time high (in absolute terms) of P314.5 billion in deficit in 2010, the Aquino administration has been able to substantially reduce the shortfall so far this year. From January to May 2011, the fiscal deficit was pegged at just P9.54 billion or 94.1 percent below the deficit during the same period in 2010. It is also way below the programmed deficit of P152.13 billion for the first half of the year.

This lower deficit was made possible by higher revenues and lower spending during the period. As compared to the first five months of 2010, revenues are higher by P81.5 billion while spending is down by P71.08 billion. Furthermore, monthly collections are more than P1.89 billion higher than expected while monthly expenditures are almost P21.55 billion lower than programmed.

At the people’s expense

But the improved fiscal situation was achieved at the expense of the people who are being deprived of social services as government under-spent and much of what it spent went to debt servicing. At the same time, the people are being squeezed dry with burdensome taxes to raise revenues.

To keep credit rating agencies and creditors impressed, Aquino rejected the growing public clamor to scrap or at least suspend the 12 percent value-added tax (VAT) on oil amid soaring pump prices. According to Aquino, “suspending the VAT might trigger a credit downgrade because credit rating agencies would likely deem such a move as ‘fiscally imprudent’.”

The oil VAT has become one of the most important sources of revenues for government since Arroyo introduced it in 2005. But it is also the most oppressive. Revenues from the oil VAT rise dramatically as prices of petroleum products increase. Due to higher oil prices this year, for instance, the Department of Finance (DOF) expects government to earn an additional P18 billion in revenues. From an original forecast of P52 billion in oil VAT earnings based on a global crude price of $80 per barrel, the DOF revised its projection to P70 billion based on $110 per barrel.

High pump prices made a significant contribution to higher tax collections this year. In the first two months of 2011, oil VAT revenues increased by P1.2 billion because of the oil price hikes. Aside from the 12 percent VAT, gasoline products are also charged with excise tax, which generated P4.03 billion for government from January to May this year – P389 million higher than during the same period in 2010.

Facts & figures that matter

Meanwhile, facts and figures that truly matter to the people have been ignored in Aquino’s SONA – P125 or the amount of legislated minimum wage hike workers have long been demanding to help them cope with ever rising cost of living; 6,453 hectares or the size of Hacienda Luisita lands that should have long been owned and controlled by farmers and farm workers; 556,526 or the number of families living in informal settlements in Metro Manila and face the threat of forced eviction; 27 or the number of times that diesel prices have gone up since Aquino became President; and 48 or the number of victims of extrajudicial killings in his first year as Chief Executive, among others.

By using numbers, the President hoped to be objective in presenting his administration’s supposed achievements during the SONA. But he ended up ignorant of the numbers that truly matter. (End)

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Fiscal issues, Photo slideshow

Photo slideshow: groups press for increased health budget anew

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Health advocates marched to the Senate Friday (November 26) to press anew for increased allocation for public health services in the proposed 2011 national budget. The Senate is currently reviewing the P1.645-trillion budget proposal of the Aquino administration, which critics like think tank IBON Foundation said shows a “diminishing priority for health”. The proposed budget reduced the allocation for 55 public hospitals nationwide by P363.7 million while funds for specialty hospitals like the Lung Center, Philippine Heart Center, and the Philippine Children’s Medical Center, among others, have been cut by P970.6 million. Meanwhile, debt servicing continues to eat up a major portion of the national budget with interest payments alone eating up 21.7 percent of the planned spending program. Including principal amortization, the debt burden actually represents 38.9 percent of what the Aquino administration is willing to spend in its proposed 2011 national budget (read more here).

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Fiscal issues

2011 national budget: reducing the debt burden

A COA report released in 2008 noted a number of serious issues in bridge projects funded by foreign debt (Photo from http://www.pia.gov.ph)

The House of Representatives today (September 1) started its review of the P1.645-trillion national budget submitted by Malacañang.  Rep. Emilio Abaya of Cavite, chair of the committee on appropriations, has earlier promised a thorough deliberation of the Aquino administration’s proposed budget.

Sec. Butch Abad of the Department of Budget and Management (DBM) called the proposed 2011 budget a “reform budget”. The first budget of the new government is supposedly anchored on the basic governance principles of, among others, fiscal responsibility to reduce debt and bias in allocating resources for the poor.

Increased debt burden

But the spending plan submitted by Pres. Noynoy Aquino to Congress even increased the debt burden and like his predecessors, effectively marginalized resources for the poor. In fact, almost 77.5 percent of the P104.4-billion increase in the 2011 budget came from the huge P80.88-billion rise in interest payments for government’s debt. While personal services grew by P47.24 billion, maintenance and other operating expenses (MOOE) fell by P10.92 billion and capital outlays and net lending, by P12.8 billion. The said declines reflect the avowed policy of the Aquino administration of turning over to the private sector vital functions of government, including the provision of services and undertaking infrastructure development. Public infrastructure, for instance, fell by P21.13 billion in the 2011 budget. This policy will ultimately take its toll on the poor and marginalized in the form of, among others, exorbitant user fees. (See Table)

The Aquino administration is proposing interest payments of P357.09 billion in the 2011 budget, or 21.7 percent of its planned spending program. But the total debt burden for 2011 could actually reach P823.27 billion if the principal amortization of P466.18 billion is added to interest payments. Thus, debt burden (interest payments plus principal amortization) represents 38.9 percent of what the Aquino administration is willing to spend in its 2011 budget. (See Table)

Such a heavy debt burden means that fewer resources are available to spend for social and economic services badly needed by the people. What makes it doubly unjust is that many of the projects and programs funded by these debts did not benefit the people, or worse, even made life more difficult for them while private contractors, corrupt government officials, and the creditors rake in billions of pesos in taxpayers’ money.

Anomalous projects

Many of these anomalous and questionable loans can be easily identified. Take the case of the notorious bridge projects undertaken by the previous administration. In June 2008, the Commission on Audit (COA) released its findings on selected bridge projects undertaken by the Arroyo administration from 2002 to 2006, which were funded by various loan agreements with foreign creditors.

The COA noted a number of “lapses in the process of implementation” of these bridge projects such as uninstalled and unaccounted construction materials, use of expensive materials despite the availability of a cheap alternative, project delays that resulted in commitment penalties, construction of bridges in inappropriate places, overlapping of bridge projects, poor quality of constructed bridges, projects overshooting the approved budget, etc.

Based on the COA findings, I tabulated below some of these foreign debt-funded bridge projects to give an idea how much in taxpayers’ money are being wasted on debt servicing. Five questionable projects alone already cost $62.93 million in principal amortization and interest payments for 2011. That’s around P2.83 billion (at an exchange rate of P45 per US dollar) in funds that could be used for more meaningful and beneficial purposes. If the policy of automatic appropriation for debt servicing is not repealed soon, these onerous and questionable loans will continue to drain our budget and resources for many more years to come. (See Table, click to enlarge)

To be sure, these foreign debt-funded bridge projects exposed by the COA are just a small sample of the many anomalous loans incurred by government and unjustly being passed on the people. Not included in the table above, for instance, is the First National Roads Improvement Project (NRIP) in which the Philippines borrowed $150 million from the World Bank. The loan closed in March 2007 and we have already been servicing our debt to the World Bank when the country learned that five Filipino and Chinese contractors that participated in the project were involved in bid-rigging. For 2011, we will pay the World Bank $14.74 million (about P663 million) in principal amortization and interest payments for the anomaly-ridden NRIP and the country will continue to service the loan until 2020.

Debt for neoliberal reforms

Aside from infrastructure projects, there are also programs bankrolled by foreign debt that introduced neoliberal structural reforms in the Philippines. One example is the ongoing power sector restructuring program that will supposedly address high electricity cost and power supply insecurity through privatization and deregulation. But after many years of restructuring, what we have are frequent brownouts and monthly increases in our electricity bills while the auction of state-owned power assets has been repeatedly marred by irregularities (the latest case is Angat Dam privatization) and industry participants again and again manipulate electricity rates. Worse, taxpayers have been paying for the debts used to implement these anti-people power reforms.

The power sector restructuring program, which included the bribery-ridden railroading of the Electric Power Industry Reform Act (EPIRA) in 2001, has been mainly funded by the Asian Development Bank (ADB) and the Japan Bank for International Cooperation (JBIC). For 2011, the Aquino administration wants us to shell out $121.34 million to service the principal amortization and interest payments of four loan accounts with the ADB and JBIC for the implementation of power sector reforms. (See Table) The amount is on top of the debt servicing, worth $151.07 million in 2011, for the loans incurred by the National Power Corporation (NAPOCOR).

A more meticulous review of Philippine debts will certainly yield more anomalous transactions ranging from loans associated with the privatization of water utilities, loans for the mandatory importation of agricultural goods including rice from the US, loans used in infrastructure projects fraught with corruption, etc.

Challenge Congress, Noynoy

Our resources are indeed limited, constantly undermined by a fundamentally weak and backward economy and systemic corruption. Thus, lawmakers, as they review the 2011 budget proposal of the Aquino administration, must be pressured to take a serious look into these questionable and anomalous debts. We must compel them to at least suspend payments for these debts (and later work towards their complete repudiation). Congress can pass a 2011 budget stipulating that certain debts must not be serviced due to unresolved issues of corruption, program failure, etc. This move will also challenge President Aquino – will he veto such a budget and choose to honor his predecessors’, including Gloria Arroyo’s, illegitimate debts?

Servicing debts that did not benefit the people and the country amid chronic poverty and hunger and severe lack of social services is not only immoral and unjust. It is also inconsistent with genuine and sustainable development since it deprives government the capacity and the resources to invest in its people and spur the economy.

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