Bernardo-M.-Villegas-125

Human Side Of Economics

FREEPIK

(Part 3)

Despite the long-term view that a strategic planning exercise normally assumes (at least three to five years and even as long as a decade), as an exception I will begin with the short-term outlook for the Philippine economy (the next 12 to 18 months) and identify the immediate measures that have to be taken by the next Administration to sustain all the beneficial ongoing programs of the Duterte Administration and add new ones that will be directed to reducing the poverty rate by 2023 to the 16.2% already attained in 2019.

I am convinced that in two years, even before we finally graduate from low-middle income status to upper-middle income, we can bring down the poverty incidence from the 23% at the end of 2021 to the 16% level. I would advise leaders of the public and private sectors to change their focus and not to be obsessed with whether the GDP will grow at 5%, 6% or more. As I mentioned in our Mission statement, it is about time we give more importance to reducing poverty than to attaining a high rate of economic growth, although admittedly a minimum level of growth is always necessary to generate the resources to combat poverty.

In 2022, we can implement fully the social market strategy suggested by our Mission and Vision statements. We can allow existing market forces, together with already established government intervention, to guarantee at least a 6% to 7% GDP growth rate for the full year. OFW remittances, growing next year at least at 5% annually; BPO-IT revenues also growing at 3% to 5%; the Build, Build, Build program accounting for 5% to 6% of GDP and fully spent as lockdowns become a thing of the past; the demographic dividend resulting in a large domestic market generating a 7% increase in consumption expenditures, which account for some 70% of GDP — all these are guaranteed to deliver the 6% to 7% GDP growth rate for 2022. What Government has to do is to make sure that this increase in GDP really trickles down to the poor are enumerated below.

First and foremost, the Government must be ready to make full productive use of the significant increase in Internal Revenue Allotment (IRA) that will be received by the heads of Local Government Units (LGUs). As a result of the Mandanas-Garcia Ruling of the Supreme Court in 2018 (and confirmed in 2019) the IRA is programmed to increase by 55% in the 2022 budget, reaching P1.08 trillion or 4.8% of the country’s GDP compared to 3.5% in 2021. As mentioned by Ndiame Diop, World Bank Country Director from Brunei, Malaysia, Philippines, and Thailand: “We look at the implementation of the Mandanas-Garcia ruling not just as a transfer of resources but an opportunity to strengthen decentralization and improve social services delivery in the Philippines. If this ruling leads to better coordination in planning and implementation across levels of government, taking into account the capacity and needs of LGUs, it could improve the lives of people and communities especially those that are far from the country’s economic growth centers.”

As is being done in the Department of Agriculture, headed by Secretary William Dar, there are enlightened members of the present Cabinet who are already addressing the significant risk that the transition process could lead to a large gap in service delivery, as a lack of coordination between the national and local government and weak implementation capacity could delay the transition towards increased decentralization. As World Bank Economist Kevin Cruz advised the present Government (which advice should be taken seriously by the “presidentiables” and their respective prospective Cabinet appointees): “The national government should clearly define re-devolved functions and communicate these clearly to both national government agencies and local government units. The authorities need to ensure that the development goals of the national government and local governments are well aligned, and that service delivery gaps are minimized, particularly during this unprecedented crisis. This will require the national government and local government units to review the division of labor between national government agencies and local government units in re-devolving functions, while keeping fiscal and absorptive capacity in mind.” The units of the National Government most responsible for providing technical assistance to the LGUs in the devolution process are the Department of the Interior and Local Government (DILG), the National Economic and Development Authority (NEDA), the Department of Finance (DoF), and the Development Academy of the Philippines (DAP).

To give the highest priority to poverty alleviation and eradication, all sectors of society should cooperate to ensure that this unique addition to available funds in the hands of the LGUs will be spent productively for the benefit of the less privileged Filipinos. It must be pointed out that this increase of IRA funds available to LGUs will be over and above the P20 billion for disaster relief that will be made available once President Duterte signs the 2022 budget right after Christmas. The P7-billion contingent fund as a supplement to the 2022 budget and the savings of various agencies from their 2021 budgets, which could be realigned, could also be used for calamity response. As regards the additional IRA funding, all efforts should be exerted to implement the following recommendations:

• Channel the increase in IRA towards local government’s COVID-19 response efforts to mitigate budget execution risks while providing much needed support to local constituents. The LGUs should be made aware of the importance of spending a large part of their budgets on health-related facilities and the hiring of more medical personnel such as nurses and other health workers, ensuring reasonably high wages to attract them away from the urban centers or from seeking employment abroad. The same can be said of public-school teachers especially at the elementary school level.

• Focus the efforts in coordinating the respective roles of National Government agencies, the private business sector, and civil society to lend immediate support to the localities in the Visayas and Mindanao that have suffered most from the fury of the Typhoon Odette (international name: Rai). President Duterte declared a state of calamity in 31 provinces in six of the country’s 17 regions (Mimaropa, Western Visayas, Central Visayas, Eastern Visayas, Northern Mindanao, and Caraga). A good number of these provinces have poverty incidences much higher than the national average. A large part of the calamity funds and the additional IRA funds to the LGUs should be spent rebuilding roads, bridges, and other infrastructure that have been damaged by the typhoon. There should also be significant funding that will be made available to households, especially in rural areas, to rebuild their homes as well as facilities used for micro-, small-, and medium-scale enterprises. The devolved functions of the Department of Agriculture to the local counterparts should especially focus on farm-to-market roads, irrigation systems, and post-harvest facilities destroyed by Odette. All these construction and rehabilitation activities will generate a great deal of employment for local labor that can immediately address the lack of incomes in many poverty-stricken areas. In a sense, we can consider the tragedy of Odette as a blessing in disguise for the national effort to reduce poverty.

• At the National Government level, there should be a continuation and even acceleration, if possible, of the practice of the Department of Public Works and Highways (DPWH; under the leadership of former Secretary Mark Villar) to spend most of the budget of DPWH in the countryside rather than in urbanized areas. More than ever, the Build, Build, Build program should be concentrated in the rural areas, and especially in those regions that suffered the most damage from the typhoon. An added qualification to this policy is the even greater focus on those remote areas that are very attractive to domestic tourists, such as Siargao, Bohol, Palawan, Mindoro, and other top tourist destinations that were badly hit by the super-typhoon. They should be made ready as quickly as possible for the big surge* in domestic tourism that is expected to happen in 2022 as the pandemic is put under reasonable control due to the attainment of a higher population immunity to COVID-19.

Beyond 2022, additional measures that should be taken apropos the Mandanas-Garcia ruling have been recommended by the World Bank officials:

• Providing capacity building support to local government units to improve their implementation capacity and overall service delivery;

• Addressing inequality among LGUs by providing targeted support to poor local governments that lack proper capacity and resources; and,

• Strengthening citizen’s capacity to demand accountability through measures like citizen participation in budgeting and expenditure processes; public hearings on budget information; civic monitoring of intergovernmental transfers; monitoring of local service provision; and social audits.

These more medium-term strategies should keep the academe and private think tanks like the University of the Philippines, the Ateneo de Manila University, De La Salle University, the Asian Institute of Management, the Center for Research and Communication, the Institute of Corporate Directors and many others busy in lending their help in the capacity building of LGUs to make more productive use of their respective increased IRA allotments. I suggest that some exemplary LGUS like those of Pasig City, Bataan Province, Batangas Province, La Union Province, and a few other well-run LGUs be held up as role models to be emulated by the others still trying to build up their respective capacities to benefit their constituencies as a result of the Mandanas-Garcia ruling.

(To be continued.)

 

Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.

bernardo.villegas@uap.asia