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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