This may be a trivial deviation from political strategist James Carville’s campaign handle (“the economy, stupid”) for former US President Bill Clinton during the latter’s successful bid to defeat then-sitting president, George H. W. Bush in 1992. But the phrase now becomes relevant to the ongoing public debate on whether we should abandon the 1987 Constitution to change our present form of government from presidential to federal.
Our economic managers, Finance Secretary Carlos G. Dominguez III and Socioeconomic Planning Secretary Ernesto M. Pernia, seven influential business groups and several economists, have warned the government against the dire economic effects of the shift if the proposal of the Consultative Committee (Con-Com) is ratified without undergoing rigorous vetting. Defense Secretary Delfin N. Lorenzana also chimed in saying that the draft proposal “is confusing,” to say the least.
From a monetary standpoint, Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla Jr. told BusinessWise that federalism is an economic gamble. He explained that the main risk, if not clearly addressed, is how to maintain fiscal sustainability by properly apportioning revenues and governmental responsibilities: “If the proper balance is not achieved and fiscal sustainability cannot be secured as a result, then monetary control will be compromised in a desperate effort to finance deficits. We risk chronic hyperinflation and debt crisis. For federalism to have any chance, the ground needs to be carefully prepared so there is proper governance in all aspects.”
Unless those who are trying to convince President Duterte to ram federalism down the Filipino people’s throats succeed in the next few weeks or months, their dream of “conquering Imperial Manila” is dead in the water. Con-com is proposing to divide the country into 18 federated regions. Each state is given the power to raise its own revenues, determine its own legislation and choose its own economic-development models.
Such idea springs from a flawed belief among those in the South that their region has long been unkempt. Former Sen. Aquilino Q. Pimentel Jr., the main proponent of the shift, believes that prosperity awaits these regions if and when Manila’s “stranglehold” on the national coffers is broken and distributed to the country’s “neglected” fringes.
Dominguez, during a hearing conducted by the Senate committee on finance, could not give an exact estimate of the total cost of the exercise. “How can we compute?” he asked. “We don’t [even] know what the final road map is going to look like…I had a long discussion with them and, quite frankly, I was more confused than when I started.”
The Con-com has already submitted to the Senate and the House of Representatives the proposed federal Charter for approval. While the price of federalism has yet to be allocated under the proposed 2019 national budget, Pernia in the same hearing gave a ballpark figure of P120 billion in direct costs.
What this means simply is that we’d have to spend way beyond our means or, if you want the more idiomatic version, we’re being asked to bite more than we could chew. To be even doable at all, the government has to raise taxes to back-breaking levels.
Imagine this: In order not to fall into an economic quicksand just to maintain our current deficit target of 3 percent, the federal government will have to do either or both of two things: scrimp by P560 billion its expenditure program, which could lead to the national government laying off 95 percent of government workers, or skim off the funds for Duterte’s “Build, Build, Build” program by 70 percent.
Dominguez himself said that the draft federal Charter “could lead to massive job losses in the public sector, reduce funds for the government’s ambitious infrastructure program, widen the budget deficit and downgrade the country’s credit ratings. The possible repercussions could result in dire, irreversible economic consequences”
The significance of credit ratings, which measure the creditworthiness of a government could not be underestimated. As the solidity of state assets is closely hewed to the country’s performance, credit scores serve as the nation’s economic barometer. The country at present enjoys investment-grade credit ratings from the top three debt sentinels, namely Moody’s Investors Service, Fitch Ratings and S&P Global Ratings.
Let’s say for the sake of argument that the fiscal facilities described in the draft Charter were to be executed, the federal government would suffer a shortage of 6.7 percent, leading to a credit rating downgrade, and thereafter, higher interest rates.
According to Dominguez, “Our investment-grade credit ratings, which make it cheaper for the country to borrow money may go to hell, while interest rates could [skyrocket] under the very confusing fiscal provisions of the draft federal Constitution.” It doesn’t help that the economy is already in tatters. Our economy has slowed down, with growth rates hovering low at 6% and inflation rates soaring to more than 5%.
Business has also weighed in on the federalism debate, expressing alarm on the costs and risks associated with the proposed shift.
The Cebu Business Club, Employers Confederation of the Philippines, Financial Executives Institute of the Philippines, Makati Business Club, Management Association of the Philippines, Philippine Chamber of Commerce and Industry and Philippine Exporters Confederation in a joint statement expressed their concerns over how the government would implement and fund the proposed shift.
They pointed out the “alarming cost” estimated by the Philippine Institute for Development Studies at P72 billion, and the P130-billion projection of the National Economic and Development Authority. “The fiscal deficit is estimated to reach 6.7 percent of the GDP, which is way beyond the sustainable 3-percent target of our fiscal managers—a prudential limit also observed by the European Union for its member-countries,” they said.
The majority of Filipinos are also lukewarm to the shift, which even provoked a hostile response from among the informed public. A recent survey by Pulse Asia found that 67 percent of Filipinos oppose the change, while only 18 percent were in favor and the other 14 percent were undecided. Another survey conducted by the Social Weather Stations revealed that only 1 out of 4 Filipinos know what a federal system of government is all about.
As for Con-com’s Fr. Ranhilio Aquino and Presidential Communications Operations Office’s Mocha Uson’s spirited defense of federalism, let me just point out how insignificant their views are to the level of discourse that the issue of such magnitude demands.
For comments and suggestions, e-mail me at mvala.v@gmail.com.