The economic team: Deodorant that has lost its fragrance

As presidential candidate Bongbong Marcos avoided the public debates during the presidential campaign period, he kept the people in the dark as to how he will lead the country’s recovery from the severe economic downturn caused by the pandemic.

The appointment of Vice-president–elect Sara Duterte-Carpio as his secretary of Education and Congressman Jesus Crispin Remulla as Secretary of Justice intensified the anxiety. Neither Duterte-Carpio nor Remulla is cut in the mold of their predecessors. Not only that, both Duterte-Carpio and Remulla belong to political dynasties and both have been politicians themselves for many years. The business sector feared President-elect Ferdinand Marcos, Jr. would appoint his political allies to his economic team.

The business sector was much relieved when the presumptive president announced that his economic team would be composed of Benjamin Diokno as Secretary of Finance, Felipe Medalla as Governor of the Bangko Sentral ng Pilipinas (BSP), and Arsenio Balisacan as Director-General of the National Economic and Development Authority (NEDA). The Philippine Stock Exchange Index gained 47.76 points, to 6,645.52 while the broader All-Shares Index went up by 14.61 points to 3,568.65.

All three earned master’s degrees in Economics from the University of the Philippines (UP), Diliman, and doctoral degrees in Economics from prestigious American universities. Diokno is a Professor Emeritus of the School of Economics of UP, Medalla and Balisacan had been dean of the School of Economics of UP, Diliman. All three had held Cabinet-level positions in previous administrations and had performed creditably.

If the members of the economic team were meant to deodorize the Marcos II administration, they proved to be ineffective. They may have even lost much of their fragrance shortly after they took over the management of the economy.

A shortage of supply of sugar in the domestic market was noted in late July this year, leading to an increase in the price of the commodity. On Aug. 9, the top officials of the Sugar Regulatory Administration (SRA) placed an order for the importation of 300,000 metric tons of sugar to fill the gap in production. Leocadio Sebastian, Undersecretary of the Department of Agriculture, signed the order on behalf of President Marcos, who is Secretary of Agriculture and concurrently SRA chairman. But the day after, Press Secretary Trixie Cruz-Angeles released a statement that the President did not authorize or sign the order.

The President said we need not import sugar as we have enough. In support of the President’s statement, government functionaries claimed that the sugar shortage was caused by some traders hoarding supply to raise the price and rake in profits. The people expected the economic managers, they with impressive academic credentials and long experience as government economists, particularly Arsenio Balisacan, who has a master’s degree in Agricultural Economics, to say what the real situation is with regard to the country’s sugar supply.

If they agreed with the President, Cruz-Angeles would have flooded mass media with releases that said the economic team affirms the President’s statement. That there was no such affirmation published or broadcast in mass media only indicated that the economic team disagreed with the President’s assessment of the sugar supply situation. But the economic managers chose to remain silent, perhaps to keep their jobs.

Now comes House Bill No. 6398 that proposes the creation of a Sovereign Wealth Fund (SWF). It was proposed in the Lower House of Congress by no less than Speaker Martin Romualdez, first cousin of the President, Senior Deputy Majority Leader Alexander Marcos, son of the President, Togon Party-list Rep. Yedda Romualdez, wife of Speaker Romualdez, and three other members of the Lower House of Congress. Albay 2^nd District Rep. Joey Salceda, vice-chair of the Ways and Means Committee, said, “We need support, and this is an order of the President.” Marikina 2^nd District Rep. Stella Quimbo, who is a PhD in Economics, helped Salceda steer the legislative effort.

Sovereign wealth funds usually solve a problem of excess. Some examples are excess revenues in a situation of consistent large budget surpluses, windfall revenues from booming extractive industries, and excess foreign currency reserves from enduring balance of payments surpluses. They are invested abroad to help stem currency overvaluation. But the Philippines does not have any excess. On the contrary, the country has a heightened fiscal deficit, a so-so export performance, and has not enabled the major commodity exports to bolster foreign currency reserves. Although the country is rich in mining resources, they remain undeveloped because of restrictive laws.

Immediately following the public announcement of the proposal by Salceda, policy groups, prominent economists, and business leaders issued a joint statement against House Bill No. 6398. The group said: “There is at present no gap nor ‘missing institution’ in the economy that needs to be solved by the creation of an SWF. The country does not have a bonanza of commodity surpluses that need to be deployed.”

Among the policy groups that signed the statement are the Foundation for Economic Freedom, the Financial Executives of the Philippines, the Management Association of the Philippines, the Institute of Corporate Directors, the Makati Business Club, the UP School of Economics Alumni Association, and the Philippine Women’s Economic Network.

Economic think tank Action for Economic Reforms said that a number of former government officials, faculty members and professor emeriti of UP and the Ateneo de Manila University, and some representatives of the civil society and private sector have released a statement calling for the junking of the proposed SWF. They opposed the bill on the grounds of its lack of principles of prudential regulation and risk management, conflict-of-interest avoidance, transparency and accountability.

Among the signatories to the statement are former NEDA director generals Solita Collas-Monsod, Cielito Habito, Dante Canlas, Ernesto Pernia and Emmanuel Esguerra, former BSP Deputy Governor Diwa Guinigundo; and former Department of Finance Undersecretary Milwida Guevara.

The Philippine Chamber of Commerce and Industry joined other major business groups in criticizing the proposed Maharlika Wealth Fund.

BSP Governor Felipe Medalla initially raised the alarm against the plan, hinting it could be used for corrupt practices. He cited Malaysia’s experience with 1Malaysia Development Berhad which raised billions of dollars in bonds for investment projects and joint ventures However, it is believed more than $4.5 billion were misappropriated for criminal schemes. He also was concerned about the possible effect on the independence of the BSP.

National Scientist in Economics Raul Fabella said in an interview with ANC, “We had sovereign wealth fund bills in the past. They did not get traction at all, it got traction only when BBM (Bongbong Marcos) became president, and the Speaker of the House is of course very close (to him). It gives you a lingering suspicion that something is being rushed before we wake up. That is very, very disturbing, in the Philippines, the concentration of funds tends to disappear because of our weak rule of law.” He cited the Malampaya fund, which he said could have been “a proper fit” but was embroiled in the fertilizer scam, a controversy which no high-ranking official has been held accountable for.

In spite of the strong objections of eminent economists, financial and management executives, former Cabinet members, and business tycoons to House Bill No. 6398, the country’s economic managers Diokno, Medalla, and Balisacan have issued a statement in favor of the bill, urging its immediate enactment. They explained that the objectionable parts of the bill have been removed. One of the changes is the replacement of Marcos Jr. as chairman of the fund by Diokno.

Raul Fabella, who earned a doctoral degree in Economics from Yale University, maintained that no amount of tweaking could repair the bill because its flaws were fundamental: the moral hazard arising from unnecessary state intervention and the unjustified economic backdrop. At the heart of the bill, he said, was the consolidation of resources under one umbrella which would be wielded by a group of people who did not own them.

I have had misgivings about Diokno. He has been in the high echelons of government so long that I believe he has been infected with the kind of politics the top government officials he has been dealing with practice.

In 2018, he declared, “The budget is a political tool to reward administration allies and punish political enemies. If you’re with us, then you get something. If you’re not with us, then you don’t get something.”

Rumors had it that Diokno was initially hesitant to accept his appointment as secretary of Finance as it meant leaving the central bank where he had fewer headaches and got the fabulous pay of P3 million a month. The BSP governor serves a term of six years and cannot be removed without cause. Yet Diokno agreed to leave his BSP position to head the Department of Finance. That suggests that he is either submissive to Marcos Jr. or that he has struck up a big deal.

Based on the Diokno Dictum, if the economic managers are not with the President, they lose their job. If they are with him, they get a big deal. The economic team originally meant to deodorize the Marcos II administration has completely lost its fragrance.

Oscar P. Lagman, Jr., is a retired corporate executive, business consultant, and management professor.