P-Noy’s budget

Last week I decided to drop by the opening-day budget hearings of the Congressional appropriations committee. It was also my very first time to visit the Batasan compound, which I duly found to be pretty impressive, except for the lack of parking space.

At the Mitra Room where the hearings were conducted, we were given four handouts from the Aquino economic team. The first to present was the BSP governor Say Tetangco, who is actually not a member of the team—in view of his institutional independence—but a resource person to them, and the most important one.

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Here is what the central bank had to say about the performance of the economy following the last year of Dr. Gloria Macapagal-Arroyo’s presidency:

• Inflation remains manageable and generally in line with regional trend.

• The treasury bill rate remains low, again consistent with low rates in the region.

• There is ample liquidity in the system

• The peso remains generally stable against the dollar, and on a real trade-weighted basis remains competitive.

• The balance of payments position is strong; recovery in merchandise trade is in line with regional trend.

• Foreign exchange reserves are at historic high levels; remittance performance is resilient.

• The banking system remains sound and stable

Administration hacks might claim that this positive news is just a result of the global recovery, but such a claim would be dishonest. It ignores the effectiveness of the Arroyo economic stimulus program—so much so that we continued to post positive growth—even a credit rating upgrade!—in the depths of the global recession last year.

At a time when the world’s biggest economies were shrinking, our worst-ever quarterly performance under Dr. Arroyo remained positive at 0.2 percent. And by the time she stepped down, the peso was actually stronger than when she first took office—an achievement no other president can lay claim to.

This early, it would be foolhardy to overlook the fragility of the current recovery. Growth in the United States—one of our biggest trading partners—actually slowed down last quarter, and now President Barack Obama is mulling yet another stimulus package. If the global recovery should falter or even turn negative, we would have to rely on the skills of Noynoy Aquino to prevent our economy from being taken hostage by such a downturn.

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After Tetangco’s spiel, it was National Economic and Development Authority director-general Dondon Paderanga’s turn to weigh in with his overview of the performance and prospects for the Philippine economy. Not surprisingly, the centerpiece of his economic strategy was the so-called “public-private partnership”. Essentially, this is the administration’s attempt to capitalize the very real goodwill it enjoys—especially from the business community—into tangible investment commitments today.

Impressive rhetoric indeed—except for an item in yesterday’s papers about a decision by the new management at LRTA to reject a P56 billion proposal from local businessman Reghis Romero II to extend the LRT Line 1 all the way to Imus, Cavite. R-II’s group included blue-chip international partners like China Rail and Siemens, so the problem couldn’t have been with their financial or technical credibility.

So what in fact was the reason? It turns out that—at least to the LRTA guys—PPP means government shouldn’t bear any investment risk at all (even if its investment consists only of the land contributed to the project). Instead of sharing in both the risks and rewards as a true equity partner, government simply wants to receive a fixed concession fee from the private developer, come hell or high water, even if the project is losing money.

So this is the breakthrough in financial thinking with which the Aquino administration expects to convince the private sector to pour in over P300 billion into its infrastructure projects over the next three years. As a stroke of genius, this eclectic redefinition of “partnership” certainly ranks up there with Finance Sec Purisima’s well-guarded secret formula for taking the deficit down to only two percent of GDP, also in three years.

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Not to be outdone in all this prestidigitation, Secretary Florencio Abad’s budget proposal (cheekily subtitled “Tungo sa Paggugol na Matuwid”, a backhanded slap at his predecessors) also contributed its share of smoke and mirrors. Among its gems:

• The discretionary budget for 2011 (excluding debt service and Internal Revenue Allotment) is higher by only 0.2 percent, and within that budget, the share of “capital outlay” items, at 20.7 percent, is even lower than the previous two years. Clearly, government infrastructure spending is not intended to be the growth driver that it was, especially during the recent recession. The country will have to rely a whole lot on the Aquino team’s ability to sell the private sector on all those untested PPP concepts.

• What stands out is the growing allocation for “social services”, from 28.7 percent of the budget in 2009 to 31.9 percent in 2010 and 34.1 percent in 2011. This shift in budget priorities–from infrastructure spending to social welfare—could be a disturbing clue to the administration’s version of what development means. Hopefully this is nothing more than the reflexive populism of a president who kept on threatening to unleash “people power” on the campaign trail, right up to election day. Or… it could simply signify the influence enjoyed by the new Department of Social Welfare and Development secretary, especially over the new Department of Budget and Management secretary.

• Secretary Abad sought to exclude automatically appropriated budget items—the biggest one being annual debt service—from his proposal to Congress. This was quickly shot down by minority leader Edcel Lagman, who correctly pointed out that Congress is still duty-bound to review the actual numbers for those items year to year. There are all sorts of potential sandbagging and other cosmetic trickery that Abad may have been trying to slip in with this seemingly innocuous change, and we’re glad that he was properly slapped down.

gbolivar1952@gmail.com