Inflation and the regions

President Rodrigo Duterte’s third State of the Nation Address (SONA) was so boringly bereft of his usual colorful language and blitzkrieg declarations, but not at all uneventful. In the hour-and-a-half waiting for the SONA, Filipinos were watching live, the daring coup on the House floor that ousted House Speaker Pantaleon Alvarez and instantly installed Gloria Arroyo as the new House Speaker by 184 votes and 12 abstentions (philstar.com July 23, 2018).
“Two weeks ago she (Arroyo) called me to do something about the inflation,” President Duterte said in a speech in Zamboanga the day after the SONA (ABS-CBN News July 26, 2018). Aha, so that’s the reason why Arroyo, an economist by discipline (Ph.D. Economics — University of the Philippines) was “chosen” to replace the seemingly well-entrenched Alvarez, a close Duterte ally. But forget the political conspiracy theories about who planned and executed the Alvarez ouster. Forget the similar fate of Sen. Aquilino Pimentel III who had to turn over the Senate presidency, reluctantly, to Sen. Tito Sotto in May; and the added shaming of Pimentel by a rogue PDP-Laban “convention” just last Friday, that “removed” him as party president. The PDP-Laban will yet clarify if the coup was valid and within the party rules.
Yet the insistent political noise will only worsen the already-frightful inflation expectations and other economic worries in this country, where the brusqueness of how things are being done slaps the collective consciousness to look the other way, and pretend all is well.
But the latest Social Weather Stations (SWS) survey showed that the Duterte administration’s net satisfaction rating was down to +58% (still very good), from December’s “excellent” level of +70%. The administration scored the lowest when it came to fighting inflation, which reached its highest level in at least five years in April (interaksyon.com May 11, 2018).
And inflation slipped further to 4.6% in May and skidded to 5.2% in June.
President Duterte must have really felt it, when data from the Philippine Statistics Authority (PSA) showed that the inflation in his beloved Davao was at 5.0%, much higher than the 4.6% national inflation rate in May, and stretched up to 5.4% in June, when national inflation was at 5.2% (Sunstar June 15, 2018). He would have seen that inflation in nine (9) regions (out of 17) has been higher than the national inflation rate, with the Autonomous Region in Muslim Mindanao (ARMM) outrageously up to 7.0% in June, from 6.1% in May.
It is interesting to note that the Visayas incurred high overall inflation rates: Central Visayas (VII) has 6.4%; Eastern Visayas 6.3%; and Western Visayas 6.1%, caused mainly by price increases in transportation and fuel of about 8.0% (all inflation data from PSA).
Is this scenario of the regions being more punished by inflation than the National Capital Region (NCR), which shows 5.8% in June from 4.9% in May — a reason for devolving them as federal states independent of Imperial Manila? The diligence of a loving parent would look at the regional inflation figures and necessarily worry for the regions that are so vulnerable to economic turns that affect the poor citizens living on the resources of where they are staying. Or, should the national government ask, how are the regions handling the money doled out to them?
A BusinessWorld chart “How dependent are regions on national revenue?” showed that the regions outside the NCR have an average of about 85% dependency on the National Government (NG) revenues (bworldonline.com July 13-14, 2018). This is computed from each region’s total operating income minus local sources of income equals the externally sourced “income” as funded by the National Government (NG) expressed as a percentage of total operating income. By this chart, the most dependent on NG is the ARMM, whose total current operating income is funded a whopping 98.01% by the NG. And by the PSA chart on regional inflation, the ARMM has the highest inflation rate (7.7%) in the country as of June 2018.
The third most dependent region on NG is the Zamboanga peninsula (IX), with 86.9% dependency, and an inflation rate of 6.7%, the second highest inflation rate among the regions. The Bicol Region (V) depends 84.48% on NG, and shows 6.9% inflation on the subsidy of NG. SOCCSKSARGEN (XII), the fourth most needing of NG support (86.9%), has inflation of 5.9%. It is only the Cordillera Administrative Region (CAR), the second most supported by NG next to ARMM, availing of 88.7% NG funding and boasting of 3.9% inflation, or better funds management than NCR’s 5.8% inflation as of June 2018.
Could there be some correlation between the huge subsidies of NG to the regions, and the higher inflation rate of these regions vis-à-vis NCR and the total national? Should directed monetary policy be insinuated in the re-calibration of subsidies by NG to the regions — the control of money supply by the regional treasuries could be helped by strict implementation and monitoring of their budgets such that planned expenditures not used up do not leak out as inflationary excesses. How much is enough money for the regions, individually?
Sen. Juan Edgardo Angara has filed Senate Bill No. 1788, to include in the computation of internal revenue allotment (IRA) the VAT paid on imported goods collected by the Bureau of Customs (BoC), increasing funds for local government units (bworldonline.com June 28, 2018). Senate President Pro Tempore Ralph Recto and Sen. Aquilino Pimentel III have filed bills that will increase the IRA of LGUs from the current 40% to a 50% share under the Local Government Code, which has been unchanged since its enactment in 1991 (Ibid.).
In the Duterte administration’s determined move to federalism, the Consultative Commission has proposed a change of the 1987 Constitution to a federal charter which will include government revenue-sharing provisions setting the share to 50%-50% between the national government and federated regions (Ibid.).
Will the new House Speaker Gloria Arroyo, the economist — cooing in Duterte’s ear that he must do something about inflation — gently say to him that with the problematic calibration of revenue-sharing in the evidently continuing dependency of the regions on national funding, it is not yet the time to disaggregate the regions into autonomous federal states?
 
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.
ahcylagan@yahoo.com