WITH the rates of inflation, foreign exchange and interest going haywire, preparing the government’s budget proposal for 2009 must be giving some people in Malacañang terrible migraine attacks these days.

Ramdam ang Kaunlaran banner [photo courtesy of pia.gov.ph]

Do Filipinos really feel progress as trumpeted by Arroyo’s “Ramdam ang Kaunlaran” banners? [photo courtesy of pia.gov.ph]

These macroeconomic assumptions for the national budget are now in a state of constant flux, and the Executive branch might need to do more than just fudge or fib or tweak numbers, to surpass two hurdles for its budget proposal: One, submit a realistic and honest budget proposal for 2009, a year before the May 2010 synchronized national and local elections. And two, submit its proposal to Congress within its August 28 deadline, or 30 days after President Gloria Macapagal Arroyo delivers her eighth state of the nation address (SONA).

On both counts, two experts on the government budgeting process have raised serious doubts that Arroyo and her economic team would do well.

The experts, former budget secretary Benjamin E. Diokno and former national treasurer Leonor M. Briones, said that amid signs of an economic slowdown, the further depreciation of the peso, and the relentless uptick in oil and commodity prices, one thing is certain — Arroyo’s goal of a balanced budget in 2009 is a goner.

At a “Budget Advocacy” forum for journalists held in Quezon City Friday, 18 July, Diokno and Briones noted that recent economic events have rendered moot and incorrect all the macroeconomic assumptions prescribed for budget calls and hearings held over the last few months on the 2009 budget of government agencies.

All these assumptions, they said, have either increased or decreased dramatically, and beyond all expectations. Last June, for instance, the rate of inflation climbed to 11.4 percent, more than double the 4.9 percent recorded in January. The Arroyo administration, in its budget calls, enrolled an annual projection of four to five percent inflation this year, from 2.8 percent in 2007.

Too, it forecast the foreign exchange rate to move between P40 and P43 to the U.S. dollar this year and until 2010, from an actual annual average of P46.15 in 2007. This week, however, the local currency breached the P45:$1 mark.

The math does not simply add up well, according to Briones. “The government has lowered its growth forecast, but how is that translated into the budget because the (2008) budget was originally prepared (based on) a different set of assumptions?” she said. The Arroyo government, she added, has two options: “The government has to redo these things and start all over again or (adopt a) business-as-usual (attitude), if they will keep the same numbers.”

It seems clear, she noted, that even Bangko Sentral Governor Amando M. Tetangco Jr., doubts Arroyo’s promise of a balanced budget next year. “For 2008, the (Bangko Sentral) governor clearly said there will be a deficit. For 2009 they are quiet, 2010 they will have a balanced budget on an election year? For 2009, if they will still have a deficit, they have to identify the sources of financing (the deficit). If they will insist in their budget call for a balanced budget in 2009, it’s really way, way, way off, as you can see from the numbers,” Briones explained.

“The diminishing purchasing power of people’s money caused by the surging prices of rice, food items and oil will cause lower consumption and affect business profitability. The oil prices, which, for the month of June alone, already had four rounds of increases in gasoline and diesel to a total of P6 per liter will also increase costs of farm inputs,” she pointed out.

Andaya: Adjust it

Budget Secretary Ronaldo G. Andaya Jr. has to submit the President’s 2009 budget proposal on or before August 28, or within 30 days after Arroyo delivers her SONA before the joint session of the Senate and the House of Representatives on the fourth Monday of July, which falls on July 28.

Failure to do so would be a ground to impeach the President, according to Diokno.

View Dr. Diokno’s presentation on “Do Budget Rules Matter?

Interviewed by phone on Thursday evening, Andaya voiced confidence Malacañang would be able to submit on time a budget proposal that is responsive to the needs of the various sectors, and in pursuit of the development goals of the administration.

Andaya said implementation of some infrastructure projects may have to be delayed so that more pressing programs can be funded.

“There has to be something in the budget to address problems like rising energy costs, food security, the increasing dropout rate in elementary and secondary education, among others. I am particularly sensitive to these indicators and I make sure that these are taken into account in the preparation of the budget,” said Andaya, who had earlier served as chair of the House appropriations committee that scrutinizes the President’s budget request.

According to Andaya, there is no need to worry about the effect on the 2009 budget of the sharp price increases and the weakening of the peso because there is an “automatic mechanism” for adjustment of how the government spends taxpayers money.

“Every quarter, the DBCC (Development Budget Coordinating Council) comes out with numbers, and based on that, we adjust the expenditures. So, the expenditures are adjusted not just on the basis of the macroeconomic assumptions, but also to inflation,” Andaya asserted. “I am very sensitive and receptive to adjustments in the indicators. When a budget proposal is not responsive to specific problems, I return it to the agency until they have something to address the problem.”

To be sure, Andaya has no believers in both Diokno and Briones, who separately criticized what they deem to be a pattern under the Arroyo administration of giving doleouts in the form of subsidies, such as the P500-assistance to households consuming below 100 kilowatt hours of electricity a month. The subsidy has supposedly cost the national coffers P200 million already.

Bad spending

Diokno maintained that the subsidy’s funding source raises questions, adding that this “subsidy” does not exist as an enrolled item in the 2008 budget that Arroyo had proposed and signed into law only last March, after Congress’s belated approval.

Subsidies, he noted, illustrate bad spending patterns that are also opportunities for corruption, recalling the case involving the P725-million fertilizer-pesticide subsidy scam that supposedly benefited some legislators. It would turn out later that a number of lawmakers listed as recipients of this subsidy did not actually get their share, Diokno added.

“What will prevent the government now from padding the list (of beneficiaries)? Who and where are the recipients of this P200-million subsidy?” he asked.

The funding source of the subsidy could not have been the P114.49-billion unprogrammed funds in the 2008 budget because, Diokno stressed, the law states that it could only be released when revenue collections exceed the original revenue targets.

In addition, Diokno cited that Congress had specified in the 2008 budget the programs for which the funds must be used: budgetary support to government-owned and -controlled corporations, P57.07 billion; strategic government reforms, P2 billion; support to foreign-assisted projects, P16.42 billion; general fund adjustments, P3.50 billion; support to infrastructure projects and social programs, P30.50 billion; and, gratuities and separation benefits, P5 billion.

Produce SARO

Diokno challenged Malacañang to make public the SARO (Special Allotment Release Order) for the P200-million subsidy, which should state the specific funding source for its new and much-touted subsidy program.

The budget chief under the Aquino and Estrada administrations wondered if the Arroyo government had in truth generated savings or excess collections from which the subsidy could have been drawn.

And if indeed it had raised excess revenues, Diokno argued that the enactment of the income tax exemption for minimum-wage earners could easily mean P20 billion in revenue loss.

It is most frustrating, Diokno said, that legislators who put the spending limit for the unprogrammed funds by specifying allocations do not find it unlawful for the President to extend subsidies from questionable sources. Subsidies conceived and trumpeted in the media by the President are patent Executive action that demeans the legislature and encroaches on what should be Congress’s exclusive “power of the purse.”

Where’s legal cover?

For her part, Briones said a supplemental budget measure should have been passed first to provide for such subsidies. This would only require a certification from the Bureau of Treasury that funds are available for the special purpose fund.

“It is really mind-boggling why Congress says it (subsidy) is legitimate when they themselves know the use of the unprogrammed funds is limited,” Briones averred.

Briones voiced hope that when she delivers her SONA on July 28, Arroyo would make her choices clear on spending. “Each time the government makes a choice, it benefits a particular sector and, at the same time, makes another sector suffer. With poverty that is now so widespread, who will benefit from her choice?”

Progress, poverty

The urgent questions in Briones’s mind are: “Ramdam ba ang kaunlaran o mas ramdam ba ang kahirapan (Do we feel the progress or the poverty much more)?” The government slogan “Ramdam ang Kaunlaran” emblazoned on huge tarpaulin banners across the country has not escaped Briones’s notice.

“We have to watch out for the choices of government on expenditures. Will it be for more subsidies or to initiate programs to create sustainable employment?” Briones asked.

At the same forum, Diokno dismissed as “political gimmick” the massive infrastructure program that Arroyo launched in her 2007 SONA. With the economy slowing down, particularly the construction sector, many of the projects promised could not be delivered, he said.

Reining in spending

“What they are trying to do to cut down the (budget) deficit is to control spending,” Diokno pointed out.

In Diokno’s view, the Arroyo administration should have taken advantage of the devolution process to empower local government units with their growing share in the annual Internal Revenue Allotment (IRA) for infrastructure development.

“With a P210-billion IRA, the LGUs should be the first line of defense in times of disasters or calamities. But what happens is that when disaster strikes, they go to Malacañang to beg for funds,” he noted. Arroyo, he reckoned, evidently wants to keep local officials indebted to, and solicitous of, her good graces.

But how the LGUs use their respective IRA share is another matter altogether, Diokno said. A number of LGUs had been observed to blow most of their IRA shares on salaries of additional personnel that typically assure only bloated bureaucracies.

Briones intoned that while there is a regulation that limits the use of IRA to salaries at 60 percent, some LGUs have found a way to get around it. They come up with “job orders” to cover wages of employees who are not in the plantilla positions, including the so-called “15-30” or “ghost employees.”

Both Diokno and Briones lamented the lack of transparency and accountability in the government’s budgeting system, especially when the budget-making process reaches the bicameral conference committee where the real wheeling and dealing or horse-trading happen among a select group of legislators and the President’s men in the Cabinet.

* Diokno and Briones are leading lights in a consortium of 50 non-government organizations under an umbrella called Alternative Budget Initiative or ABI. In 2006, it launched a pioneering effort to foster vigorous engagement of civil society in the government’s budget-making process.

1 Response to As inflation soars and peso slips, will Arroyo tweak 2009 budget?



July 21st, 2008 at 3:46 am

I read professor’s Diokno’s 19 page treatise on Improving Public Financial Management and I found some salient points in the paper that are worthy of comment.

He said: “x x x the government incurred huge losses when it prepaid foreign loans when the peso exchange rate was P50:US$1 say two years ago, when we it could pay now at P41:$US1. In addition, the budget prioritization was changed when more was spent for debt service than what was actually due, and less for investment in human capital and public infrastructure”.

The result of the strong conversion of the peso was not due to peso appreciating vis-a-vis, the dollar but because the dollar has misperformed internationally for the last three years, making the appearance that the peso was bouncing back from lethargy when in fact it is not.

Had the dollar been robust for the last three years and makes the foreign exchange rate at P55:US1, instead of P41:$US1, Professor Diokno would still fault the present administration for paying our debts ahead of time despite our “savings” because of budget misprioritization.

If you pay your debts in advance, you are freed from debt servicing fee (“interest” in layman’s language) of those portions already prepaid. This results to some savings too. But it is never considered as plus in the analysis of how GMA managed/mismanaged the economy.

But in its entirety, the study of Prof. Diokno was correct. The executive muscles its way around to get the budget it needs from Congress and the latter was too weak to say no to the President. Congress also allows the Executive to contract loans or guarantee loans without approval from Congress.

Prof. Diokno did not include in the analysis of why Congress had allowed itself to be the pawn of the President. It is for the simple reason that the Office of Budget and Management which is under the President, determines who gets the largesse from the government budget. If you are a Congressman who wanted to impress your constituents of your infrastructure projects in your district, you have to play Malacanang’s game.

Or Prof. Diokno did not discuss how despite the existence of controls and constitutional restrictions, the Executive had managed to go around these controls. It is for the simple reason that we do not have a very enlightened citizenry who can feel cheated and betrayed everytime there is a government misuse of authority. Those government officials who should have an oversight function (minority acting as the fiscalizer), are in reality part of the team, whose fiscalization charade was made only to raise up the ante.

Even the Supreme Court is part of this team and known to have played the Malacanang’s game. This is the reason why up to now nobody challenges this line veto item of the President.

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