Son of a SONA!

The first State of the Nation Address (SONA) of PNoy to Congress was awaited with great anticipation. He came, he spoke, but did he deliver? Many were underwhelmed with what seemed a mere recitation of facts in rapid succession. Others found fault with the lack of policy detail. Still others criticized the overemphasis on fault finding with the previous administration, a vestige of the campaign season no doubt. Are any of these criticisms valid?

In my opinion, such speeches, televised as they are to the nation are really meant for the public at large and not for Congress alone, to engage the nation not the politicians or policy wonks. For the president to do his job as Communicator-in-Chief, he will have to construct his message around a narrative that people can relate to, not a set of sterile facts and figures. It becomes national story telling time, with him as the chief story teller. So what were PNoy’s primary plot-lines?

Well, he opened with a biblical reference to the broad path of political corruption where he claims our leaders have led us in the past, and then pointed to the enlightened straight and narrow path to economic nirvana via the Market that he offered to steer us towards. He closed with appeals to divine provenance and a commitment to take the road less traveled. In the middle he made use of three mini-narratives as sub-text which I quickly summarize here.

Narrative #1: “Those fat cats lied to you, but don’t worry; you’re in good hands.”

Narrative #2: “Trust me and my team; we are on your side; please work with us.”

Narrative #3: “Government has been inept, so let’s leave it to the markets.”

Let’s go over these one by one, and try to sift through the issues:

  • Those fat cats lied to you, but don’t worry; you’re in good hands.

To drive home this message, PNoy used figures relating to public expenditures made by the previous Arroyo administration. These expenditures related to disaster assistance, compensation of boards in government corporations, the rice importation and subsidy program, public bailout of NPC, acquisition of MRT and the overall disposal of the budget itself. In all this, he was trying to assert that the Arroyo regime had engaged in extravagant, unnecessary and wasteful spending. He claimed that only 6.5% of the annual budget was left for his government as a result.

In its reply, the minority in the house led by Rep Edcel Lagman countered that PNoy had not appreciated the budget rules and procedures that automatically set aside personnel salaries, materials, maintenance and operating expenditures, interest payment, as well as local government allotments at the start of the year. As such, PNoy might have overstated his case for the government’s dire fiscal straits. The big bonuses paid to directors may be subject to congressional oversight, but in the end these entitlements had legal basis according to Lagman.

In all likelihood, reality will probably hew more closely to Lagman’s account of it rather than PNoy’s given the budget rules and procedures cited. Lagman was quoting directly from the Bureau of Treasury’s own media release on July 21, 2010. What PNoy was referring to in the SONA were the discretionary funds controlled by his office that remained unspent. It is practically inconceivable for the non-discretionary allotments for the full year to be all but spent. Whoever crafted and gave clearance for this part of the SONA really deserves the boot for allowing PNoy to appear ignorant of the mechanics of government.

  • Trust me and my team; we are on your side; please work with us.

This in essence was why PNoy pleaded with Congress to fast-track approval of his cabinet appointments and to enact the laws he enumerated. He claimed credit for the quick runs on the board: for catching the first big tax cheat, for identifying suspects in half of the extra-judicial killings that have already occurred under his watch, and for averting a water and power shortage.

The last of these was not the result of government action so much as nature replenishing our reservoirs and showed a tendency on its part to blame “forces beyond control” when things go wrong, while claiming credit when things go its way. In other areas though, such as the ongoing reforms to education, health and social welfare, the administration can rightly claim that they are pursuing the right strategies owing to the policies and personnel assigned to them.

  • Government has been inept, so let’s leave it to the markets.

This was the implicit reminder that PNoy gave when he introduced the public-private partnerships (PPP) for resolving the funding gaps in infrastructure both physical and social and for strengthening employment in the countryside. This argument was an essential part of his stand on bringing fiscal deficits to heel without instituting new taxes to fund his social and good governance agenda, an attempt at fiscal alchemy, in the view of budget experts.

The Financial Times’ Beyond BRICS blog picked up on these pronouncements. It regards them as a re-affirmation of faith in privatization. The message that for the economy to grow, all that the government had to do was to “get out of the way” is a classic laissez-faire approach held by free marketers. The absence of any pronouncements on land reform, agricultural productivity and industrial policy was emblematic of this philosophy. PNoy pointed to the failings of the Napocor, MRT and the NFA as his “Exhibit A”. He was in essence saying that government interference with these markets have led to a fiscal black hole, and that the way out was for enlightened economic managers to depoliticize them.

This unbridled faith in markets for solving these collective action problems is questionable given evidence suggesting that PPP’s have failed to deliver in developing countries the public infrastructure they require. The presence of water and power shortages alone would confirm that. Pity because if there was a road-map contained in his speech, it seemed to pivot around the success of these privatization efforts.

Rather than laying it straight to the nation that things were difficult, that there were no quick fixes or silver bullets, and that sacrifices on the part of all would be necessary, PNoy seemed to fall in the trap of offering a panacea in the form of PPP’s to solve the budget, employment and growth gaps. In so doing, PNoy’s speech may have provided the appropriate policy goal of sustainable economic development, but it lacked the right philosophy or mix of policy instruments for getting us there.

By simplifying, not nuancing, his narrative, he may have created the conditions for disappointment down the track once the reality of his “straight and narrow path” sets in. A year from now, when people are smarting from higher power, water and transport rates with the specter of double dip recessions in the West dampening credit, labor and product markets, the nation may end up saying to itself, “that son of a SONA!” At which point the words “good ol’ days” may be uttered in the same breath with reference to “Madam Arroyo”: something nobody contemplates doing at present.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • Thoughtful assessment. It is sometimes difficult to look at the trees and see the forest properly. If one sees a lot of pines, one might conclude the forest is all pine, and miss all the oaks and elms. If one is a scientist, it is helpful to do some counting, and even some prognosis of where the growth ought to be to have a healthy and elegant forest. GDP growth. Ranking on global corruption or failed state listings. Birth rate. Trade volumes. One can count the trees by type, and even the height and girth if one is so inclined. Put the data into a computer and draw pretty doppler-like maps of the forest in reds and greens and blues. Then both scientists and artists would get the picture.

    Perhaps the earliest tangible measure reflects a favorable readout, as investors shifted money from dollars, the safe haven in troubled times, to Philippine pesos:

    Pesos to dollars the day before SONA: 46.48
    Pesos to dollars the day after SONA: 45.81

    • Mike H

      And on 07/26/2008 under GMA, peso-to-dollar was 44.117.

      • Well of course there are many factors influencing the rate, including “management” by the Philippines, the global perception of risk that drives money into or out of the dollar, etc.. However, the one-day drop was significant (1.44%) and suggests (to me) the SONA certainly was not taken negatively. I would be wealthier if President Aquino had done a really crappy job.

  • liberdad

    salamat po, this is a good assessment!