Achieving federalism goals under a presidential system

PRESIDENT Duterte had sound reasons for trying to anchor his presidential campaign on three fronts: a war on drugs, the fight versus corruption and conversion into a federal system of government.

He knew where he was coming from. As a prosecutor for many years, he saw the weaknesses of the Philippine justice system. It was both a delayed and compartmentalized type of justice—one for the rich and influential and the other for the poor.

His aggressive implementation of the drug war was probably a recognition of the fact that the road to justice (here) is often crooked and loaded in favor of the privileged.

The war on corruption, meanwhile, was probably an offshoot of what he had observed in his 20 years as city executive about how the national and local budgets were prostituted to benefit a few government officials and their conniving private-sector collaborators.  And he was likely aware of the World Bank report on the cost of corruption to the nation.

Hankering for a federal form of government, on the other hand, was probably due to Duterte’s realization of an imbalanced growth: his Mindanao region accounted for only 15 percent of national wealth, while Manila gobbled 50 percent and Calabarzon some 8.7 percent.

He pointed to a bias in the allocation of government resources as the key to the imbalanced growth, and concluded federalism would prove to be The Great Equalizer.

However, recent events will bear out that such targeted fiscal reforms of federalism can be achieved under the presidential form of government. The Supreme Court, in fact, had a very recent decision raising the IRA (internal revenue allotment) to the LGUs from 40 percent to 50 percent and dividing it equally among the regions made up of 80 provinces and 40,000 villages.

Years back, the same Supreme Court also proved it can “usurp” some of the so-called  power of the purse enshrined with Congress and initiating the GAA (General Appropriations Act), or the national budget by the Executive department, by simply declaring the PDAF (Priority Development Assistance  Fund)— otherwise infamously known as the “pork barrel” and the DAP (Development Acceleration Program)—as unconstitutional.

If equity is the target of federalism, there is enough legal room to amend the nuances of the Local Government Code to tailor-fit to the goal. A more judicious reallocation of funds for programs and projects rationalized based on regional developmental needs and not governed by a list of pet projects of lawmakers and provincial political kingpins in connivance with executive line agencies—could be a good enough answer to the problem.

Sen. Panfilo M. Lacson Sr. can argue soundly here that while pre-budget identification of pet projects has been discarded, a lot of maneuvering can still be done post-budget approval—de facto institutionalizing the pork barrel without calling it so. What’s in a name, Watson?

If proximity to the levers of executive power in Manila is the reason NCR (National Capital Region) and Calabarzon get the bulk of the financial largesse, then the solution is to bring the agencies right into the heart of the regions.

Such proposed agency regional headquarters should be given enough autonomy as to make Manila-based decisions on project executions and fund release irrelevant. If the “cash-based” budgeting as proposed by the Palace is implemented, then one can theoretically do away with the lethargy in spending compared to the current method which invites “underspending” because projects approved can be spent over the spread of two years. This applies more specifically to the capital expenditure types rather than the operating budgets.

Inflation and the present value of money, by the way, are two of the compelling reasons  a “cash budget” type of spending is encouraged. Such reforms are possible within our current system.

Of course, it goes without saying that implementing budgeted projects “aboveboard” is a sine qua non so that this will redound to the betterment of the people’s welfare rather than a huge chunk of it frittered away into the deep pockets of the assorted crooks within our midst. The political resolve to do that can happen in either presidential or federal forms of government.

It has little to do with the system and everything to do with political will.

The above, therefore, argues for the corner of the present presidential bicameral form of government—indicating not so much its inherent weakness but more of us not really stretching its maximum benefits in the course of our young democracy.

It is for these possibilities within the current system and the utter failure of the proposed draft of the federal form of government, especially on the fiscal side, that seven major business groups want to put the brakes on talks on federalism and echo the worried voice of the country’s top economic managers from the Department of Finance and the National Economic and Developmeny Authority (Neda)

Finance Secretary Carlos G. Dominguez III sees nothing concrete written about how the national affairs related to national security, foreign affairs, the management of the BSP (Central Bank) and the existing national debt (peso and foreign currencies) can be fiscally managed.

Aside from the projected direct cost in the shift from PDI’s P70-billion tag to Neda’s P130 billion, the erection of 18 new bureaucracies, Judiciary and legislature could mean the sharp increase in the deficit-to-GDP ratio from the present 3 percent to 6.7 percent, according to Neda Director General Ernesto M. Pernia.

With a country viewed as one sovereign risk, that could mean, to the credit rating agencies, a “deteriorating fiscal discipline” and might affect their heretofore rosy view of the nation. That could mean a higher cost of leveraging and a turnoff for investors.

Already, in the simple expedient of the SC raising the IRA from 40 percent to 50 percent, Budget  Secretary Ben Diokno said that the 2019 GAA of P3.757 trillion has already been approved. This new mandate could easily mean the increase in IRA share of LGUs from P573 billion to P732 billion or an additional P159 billion. Will the government incur more debt to finance this new need? What happens to the country’s debt-to-GDP ratio by then?

On top of that, can we really afford to scale up deficit spending even more due to federalism?

To say the least, the fiscal aspect under the new draft Charter is as “clear as mud.”

Because of this it behooves all to “make haste slowly” on the proposed Charter change. Otherwise, in our rush to reach the finish line like the ubiquitous rabbit,  the latter might fall from the frying pan to the fire. Pardon our mixing of metaphors.


Bingo Dejaresco, a former banker, is a financial consultant, media practitioner, and book author. He is a Lifetime member and chairman of the Broadcast Media of Finex. His views here, however, are personal and do not necessarily reflect those of Finex.



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