OF SUBSTANCE AND SPIRIT
By DIWA C. GUINIGUNDO
An affirmative action has gained popularity in the North American context of allocating public resources to favor minorities or disadvantaged groups of individuals. It could come in the form of greater educational and job opportunities to achieve some degree of equality and diversity even as some quarters argue that it could represent reverse discrimination. In some parts of the US, racial quotas are considered unconstitutional.
Today, we make the point that we need Congress to help the Executive Branch address the key issues we raised in our previous three columns — avoiding the middle-income trap, mitigating income and wealth inequality, and preserving the momentum of public expenditures through the timely approval of the national budget.
In more ways than one, the national budget could be a meaningful and strategic equalizer for those government departments or sectors that could have been ignored or marginally considered in the allocation of public money. While Congress may reduce the President’s proposed budget, it can not increase the proposed appropriations. Hence, the crucial task of Congress is to ensure that the allocation of the budget is consistent with the announced program of the President after each State of the Nation Address.
The national budget, therefore, becomes an instrument of the Executive in addressing the fundamental issues of growth and equity, infrastructure and education and health, defense, and other key public services. However, unless Congress originates the discussion in the House of Representatives and completes it with a bicameral consensus with the Senate, the budget remains a commitment on paper. Delay means having the resources to fund expenditures but without a budget authority, spending is not possible because it is outside legal bounds.
A budget impasse could therefore affect the delivery of public services. It could mean lower growth for the economy. Lower growth means fewer job opportunities in the market, less income, less food on the table, lower level of enrolment in the schools, fewer hospital beds…
Before the budget is approved, Appropriations Committee hearings are held in both houses of Congress. These are important because the budgetary macroeconomic assumptions are validated with the economic managers, consisting of finance, budget, economic planning and the central bank. Internal consistency is established between what could happen to both revenues and expenditure and the plans of the government. Individual agency allocations are assessed against their previous performance and future plans.
In these marathon sessions, the appointed officials of the National Government defend the budget before the elected officials of Congress. So it is not exactly true that the appointed members of the economic team of the government have no accountability to the people. They appear before Congress and submit the budget for its approval. Once the budget is approved, it becomes a product of Congress.
But passing the national budget is only one of those congressional actions with nationwide consequences.
As we wrote recently, in the last 25 years, we have seen key legislative actions institutionalizing the fundamentals of sustainable and self-sustaining economic growth. This is the converse of James Robinson and Daron Acemoglu’s theory that nations fail because they failed to build and nurture appropriate social, economic, and political institutions. In the case of the Philippines, the quarter-of-a-century congressional support of executive initiatives and Congress’ own initiatives constitute institution-building activities that have resulted in the country’s greater economic resiliency and robustness.
Congress has so far legislated the liberalization of various economic sectors including banking, twice in 1994 and 2014; telecom and power; and retail trade. Laws were also passed to privatize and deregulate the utilities sector, including MWSS and the oil industry. Public finance started on solid footing with the passage of the e-VAT law and the Tax Reform for Acceleration and Inclusion (TRAIN) law.
Greater competition in the Philippine economy was stepped up with the passage of Philippine Competition Act. Ease of doing business is the target of the law with the same name. The recently-approved law on the national ID system is very important in ascertaining and systematizing the delivery of public services especially to the poor. The rice tariffication bill was also passed into law migrating the industry from quantitative restriction to a tariffied regime to boost the supply of rice and bring the price down.
The BSP charter was also amended, giving the BSP higher capitalization, greater scope of supervisory authority, new authority to require both public and private entities to submit key data and information to the monetary authorities. Congress also gave the BSP the authority to put up reserves against the cost of open market operations and FX fluctuations. From today, the BSP will now be tax-exempt for all its governmental functions.
This list is far from exhaustive. Yet it is already quite a mouthful. And definitely fruitful.
One should just look at the credit rating upgrades we have received in recent years that have translated into lower borrowing costs for both the sovereign and the local corporates. Our resilience ranking among 21 countries studied by the Center for Global Development based in Washington, DC, is also very instructive. In 2007, the Philippines was ranked only 7th. In 2014, the country ranked 1st because of our improved fiscal and external position, benign inflation and track record of policy reforms. We scored high in the metric on the ability to withstand external shocks and the metric on the government’s ability to rapidly implement policies that counteract the effect of such shocks. If we persevere in our reform activities in this country, there should be no reason for us not to top the list again in 2021 during the next rating year.
Against this background, it should be a big challenge to the Executive to avoid politics getting in the way of defining the level and the distribution of the national budget. It should equally be a big challenge to Congress to ward off individual or group lobby for narrow interests that could undermine any affirmative actions against poverty, income and wealth inequality, illiteracy, and sickness.