Coalition says ‘Aquinomics’ needs improvement, more action

MANILA, Philippines—The economy under the Aquino administration performed lower than expected, according to experts from the Movement for Good Governance, a coalition of organizations and individuals who aim to promote transparent, participatory, and accountable governance.

The MGG, which released Friday its assessment on the President Benigno Aquino’s administration, gave the Aquino administration a weighted average of 4.4 on the Economy. This score, MGG experts said, implied lower than expected performance (a 7.5 average signifies “on track” performance and a 10 signifies full compliance with commitments). In a related metric, which is Public Finance, the MGG gave the Aquino administration a score of 5.8, which the coalition said was generous.

The MGG gave  Aquino in overall grade of 4.78 (including actions on corruption, governance,  education, environment, and health) for his first year in office. MGG used a scorecard system to assess metrics that the president himself set in his campaign platform, reiterated at his inaugural address, and has developed into the “Social Contract with the Filipino People.”

The social contract, in turn, serves as the basis for the recently released 2011-2016 Philippine Development Plan or PDP, with inclusive growth as the mantra.

The low grade on economic performance, in particular, was weighed down by the only economic promise which the President kept: his refusal to impose new taxes or increase tax rates.

“Had the President ‘broken’ his no-new-taxes promise, his score would have improved not only because there would be no negative values, but also because the scores for tax collection as well as infrastructure expenditure would have increased,” said economist Solita Monsod, who chairs the MGG.

Milwida Guevara, one of the founding members of the MGG, said the no-new-tax policy was not consistent with the goal to provide universal health care, adequate housing, universal pre-schooling, and so on.

Meanwhile, the tax effort in 2010 barely inched upward to 12.1 percent and was due to economic growth, which is normal, and not because of improvements in the tax effort.

At the same time, smuggling continues, taking away much needed revenue from the government. Yet, MGG experts said it is an “open secret” among many who the big smugglers are.

The reality is that the government cannot provide efficient public service without the finances to support activities, Guevara said.

“The business of public finance should be done in the context of the overall economy,” former Finance Secretary Roberto de Ocampo said.

The President, Monsod said, seems to have made the decision to prioritize social services and reduce infrastructure outlay with the idea that the PPPs (public-private partnerships) will take up the slack. However, the PPP roll-out has been delayed and many projects are still being reviewed.

On both infrastructure projects and anti-smuggling efforts, one year seems a bit too long a suspense, Ocampo said. The public, as well as investors, will be looking for significant developments on these fronts. He warned, however, that steps should be taken so that PPPs would not have the few “usual” participants but also new players and even foreign investors.

“We did not set the metrics, he (President Aquino) did,” Monsod said. “He was the one who made the promises. We are simply assessing what has been done and what areas need improvement based on facts and available data.”

It is relatively easy to elect a President, the MGG experts said. The difficulty lies in supporting him, which entails affirming good performance as well as pointing out policies and practices that are not consistent with his platform and promises, they said.

Inclusive growth

The President promised “broad based” and “inclusive economic growth,” which, according to the PDP,  means sustainably high growth that massively creates jobs and curbs poverty. The country needs macroeconomic stability — low inflation and “sustainable fiscal targets” — to achieve these goals, the MGG assessment said.

The MGG said that the economy performed relatively well in the first three quarters under the President’s watch, that is, the third and fourth quarters of 2010 and the first quarter of 2011. The country’s gross domestic product or GDP grew an average of 6.2 percent; investment ratio was 22.6 percent (and net foreign direct investment was 65 percent larger than it was in the previous nine-month period); the average new employment was at 873,000 jobs (alternatively, employment increased by 536,000 jobs between July 2010 and April 2011); and the most recent (April) unemployment rate at 7.2 percent.

“The government is clearly within target on these terms,” Monsod said.

However, the investment boost was from increased business confidence, which hangs on expectations by the private sector that the governance/anti-corruption/increased government efficiency commitments will be fulfilled. “To the extent that they are not, the sustainability of the growth is imperiled,” the MGG assessment said.

The government has also reined in spending to keep the fiscal deficit on target, for which credit must go to Budget Secretary Florencio Abad, MGG experts said. However, in the face of lower-than-expected revenue collections, public underspending will have a negative effect on growth sustainability, they said.

As for poverty, no official data are available. However, the Conditional Cash Transfer Program, which serves as a safety net in the short run and breaks the intergenerational transfer of poverty in the long run, is very definitely on track, Monsod said. She said available data showed two million were covered during the first half of the year. The target for the whole year is 2.3 million.

Housing and transportation

The President promised that the government “will improve infrastructure in transportation and housing, which will generate jobs and also support investments.”

The PPP rollout, however, has been delayed. Four projects that were scheduled to be bid out by the beginning of July did not push through.

With respect to housing, the most recent reports show that 4,000 social housing units have been completed or are to be completed shortly for PNP housing, with nine units turned over. The PDP sets the 2011 target for direct housing provision by the National Housing Authority (NHA) at 190,000 units in the medium term, which means, even assuming slow start-ups, that 45,000 units (distributed among resettlement, slum upgrading, siles and services etc.) should have been completed by end-June. That obviously has not been the case, Monsod said.

She also noted that the NHA website does not have data and shows the lack of transparency in government agencies. “Why can’t they do it like the DILG (Department of Interior and Local Government)? Everything is there on the DILG website. Credit should really go to Secretary Robredo,” Monsod said.

No new taxes

The commitment not to impose new taxes is populist and is not consistent with President Aquino’s social contract, the MGG  said.

The MGG said that while the President is on track in the sense that he kept his promise not to impose new taxes or increase tax rates, the weight for this objective has to be negative.

“I gave him negative 7.5,” Monsod said. She explained that the commitment itself was inconsistent with the “Tuwid na Daan” premise that underlies the president’s social contract, which is that the measures he pushes to promote the welfare of the greater number of people over political considerations.

“The implicit, and wrong, assumption behind not imposing new taxes is that all new taxes are onerous,” Monsod said.

In keeping this “no new tax” promise, the government was forced to depend on improved tax administration, which takes a long time to bear results.

In the meantime, revenue is lower than expected, expenditure constraints to keep within the deficit, and slower growth. To the extent that infrastructure expenditures were further reduced, the Philippines likely missed growth opportunities, the MGG said.

Ocampo said that reforming the Sin Tax would have been a win-win situation for the administration. It is not a new tax, nor does it increase tax rates.

“The proposed reform would increase only the tax base, based on 1996 prices, and have automatic inflation indexing. It is also good in the sense that it would discourage smoking and would have increased the tax effort by close to 0.5 percentage points,” Ocampo said.

Government revenue

The President assured the public  that “We will plug revenue leakages by having competent and trustworthy tax collectors, broadening the tax base.”

The PDP target is to increase the tax effort to 15.6 percent of GDP by 2015, to be achieved “through an annual incremental 0.3 percentage point annual rise in the collection effort of the BIR (Bureau of Internal Revenue) and 0.1 percentage point for the BOC (Bureau of Customs).”

For the first three quarters of the President’s watch, average collection effort of BIR and BOC were 8.92 percent and 2.753 percent of GDP, respectively, according to the MGG assessment.

The average collection effort for the same periods in the preceding year were 8.729 percent and 2.816 percent. While the collection effort of BIR rose by 0.197 percentage points, it was below target. The BOC collection efforts, instead of increasing by 0.1 percentage point, decreased by 0.0 percentage point.

The inability of the BIR to achieve its target may perhaps be explained by the refusal of the administration to increase taxes coupled by the long gestation period of reforms in tax administration. Bit there seems to be no other explanation (than inefficiency) for the BOC performance, the MGG assessment said.

Overhead cost

Another promise of the President is to instruct the Department of Budget and Management to lead an internal government review of all its cost and present a plan to reduce government overhead within six months.

A Google search shows no news reports regarding a review being conducted or the results of such a review. The DBM website contains no reference to one being conducted, the MGG assessment said.

Modernizing agriculture

MGG said the President stood on a platform of “treating the rural economy as just a source of problems… to recognizing farms and rural enterprises as vital to achieving food security and more equitable economic growth, worthy of re-investment for sustained productivity.”

MGG said the action plans focused on in its assessment are the following:

• “We will review policies and programs to enhance productivity and modernize the agricultural sector.”

• “When we change administrations, there must be a complete review of all the programs in the Department of Agriculture. We can do a lot for our farmers given the present budget of the department if we eliminate the leaks and focus on the efficient use of resources. For example, we must stop eating up millions in mere administrative costs as in the case of the National Agribusiness Corporation or NABCOR, which charged our government P60 million because it served as a useless conduit to regional offices.”

“We can find no record, in the Department of Agriculture website or Google search, of any such review,” the MGG said.

However, the President, in his June 30 speech, adverted to the National Food Authority (NFA) and the possibility of rice sufficiency by 2013.

Monsod said that with respect to the latter, it must be pointed out that the 15 percent increase in production this year was due more to an increase in hectarage planted than to yield. As a matter of fact, the yield this year is roughly equal to the yield in 2009.

With respect to the NFA, the program has always been structural and unless that is resolved, the NFA will continue to lose money—although maybe not in the hemorrhage proportion  that had been occurring  in the past decade, MGG said.

“At the beginning of the administration, both Finance Secretary Cesar Purisima and Budget Secretary  Florencio Abad led the third serious attempt in the past two decades to restructure/dismantle the NFA. That they seem to have changed their minds should be a matter of great concern,” the MGG assessment said.