Of ‘porks’ and debt servicing in the budget

THE national budget for 2011 totals P1.645 trillion but Congress actually approved only P933.5 billion. The balance of P712 billion is composed of automatic appropriations which were not included in the national expenditure program submitted by Malacañang to Congress, otherwise known as the President’s budget.

This tack taken by President Benigno Aquino 3rd for the 2011 budget deviates from that followed by previous adminisrations since 1993. For the first time in 17 years, the President’s budget did not include automatic appropriations, which include debt servicing.

The other expenditures deemed automatically appropriated are the Internal Revenue Allotment, Retirement and Life Insurance Premiums of government employees and Customs duties paid by the government.

Prior to the 2011 budget, debt service had been a rich source of funds for congressional initiatives. Lawmakers “reduced” the budget for debt servicing, then realigned it to their pet programs or for social services. With this item out of their hands, they are left with nothing else to augment their “pork” or priority projects they deemed to have been underfunded. Oh well, I guess they will not complain, especially the congressmen, since their regular pork has been augmented by P50 million each. That’s an oversupply of pork. Burp!

Debt servicing, being automatically appropriated, does not need congressional approval. Therefore, any cut is more imaginary than real because the government is always obliged to pay for it when due. The cuts in debt servicing by Congress has been correctly identified as one of the main culprits for the ballooning of the budget deficit. However, I believe that cuts in this item, if done judiciously, enhance the traditional “Power of the Purse” of Congress. How so? Well, because Malacañang had been inflating the amount for debt servicing, by overstating the exchange rate or the interest rate.

The 2011 budget allocated P357 billion for interest payment. Of this amount, P120.8 billion will be used to service foreign debts. Note, however, that the figure of P120.8 billion was arrived at based on the assumption that the exchange rate for 2011 will be P47 to a dollar. Economists are saying that this is a very high assumption. The exchange rate now is less than P44 to $1, and had it not been for the intervention of Bangko Sentral, it would have been about P42:$1.

Sen. Ralph Recto, one of the economists in the Senate, had cited projections by the Standard Charter bank that the exchange rate by the end of 2011 would be P43 against the dollar. He added that Hong Kong Shanghai Bank and Goldman Sachs are more bullish, predicting the peso to surge to P42.50 and P42, respectively. He calculated that a peso difference from the assumed exchange rate would translate to P2.55 billion. So, an exchange rate of P45:$1 would reduce interest payment from P120.8 billion to P115.7 billion, of P44:$1, to P113.2 billion.

Since the exchange rate is certain to be nowhere the assumed P47:$1, where will the difference go? This was never discussed in the budget deliberations. However, when I asked Sen. Frank Drilon, chairman of the Senate Committee on Finance, he said that any difference would be used by the President to fund the unprogrammed portion of the budget. (This portion of the budget can be funded only when revenue collections exceed target.) If this is so, then this leaves its use to the complete discretion of the executive department. And considering that Congress left the President’s budget virtually intact, where oh where is the vaunted Power of the Purse of Congress? Surrendered to Malacañang?

Government-owned and -controlled corporations (GOCCs), whose executives are justly maligned for their unconscionable perks, are also responsible for 43 percent of the country’s debts. Many of their borrowings end up in being additional perks for their insatiable execs. Drilon has filed a bill seeking to put a cap on the perks enjoyed by the execs of GOCCs. A companion measure, I believe, should be filed to stop their impudence in securing debt, which is the main reason for their extremely negative financial position. All debts incurred by the GOCCs are guaranteed by the national government and are automatically appropriated.

A bill filed by Sen. Edgardo J. Angara seeks to stop this debt rampage by GOCCs. It not only seeks to end the government’s automatic guarantee of GOCC debts but also requires the inclusion of the GOCC budgets in the annual budget of the national government submitted by the President to Congress. A general provision introduced into the 2011 budget by Sen. Joker Arroyo has an even broader scope—it seeks a debt cap of 55 percent of the latest gross domestic product. No debt beyond that ceiling could be incurred without securing congressional approval. I hope this worthy provision is not vetoed by the President. –EFREN L. DANAO, Manila Times

efrendanao2003@yahoo.com