July 2012

Budget 2013: The Bottomline

If the State of the Nation Address of the president is meant to rally the country behind him, the budget statement is meant to inspire confidence in markets both financial and political.

As far as this year’s budget statement goes, does it draw confidence from its intended audience? Who are the winners and losers? This being an election year (the midterm elections are scheduled for May 2013), are there any red flags or curious things to watch out for?

Let us first examine the figures.

Beginning with the bit aimed at financial markets, the government with its fiscal program for 2013 seeks to spend just over two trillion pesos, a jump of about 160 billion or 9.9% from 1.84 trillion in 2012. This level of expenditure will be financed by revenues that are expected to rise from 1.6 trillion in 2012 to 1.8 trillion in 2013, a growth of 14%, and borrowing or deficit spending that is set to go down from 280 billion to 240 billion in the same period, a decline of about 14%.

Expressed as a share of GDP (the value of all goods produced within the country), expenditures will rise from 16% of GDP in 2011 to 16.9% in 2013. Revenues are also set to rise from 14% of GDP to 14.9%. The deficit is set to go down from 2.6% of GDP in 2011 to 2% in 2013.

Relative to the budget position of rich countries, the fiscal program in the Philippines is sure to inspire confidence in bond markets as the deficit-to-GDP ratio will be less than half that in the OECD whose deficit-to-GDP ratios averaged 6.3% in 2011 and are projected to be 4.2% in 2013.

Given that the government’s total debt-to-GDP ratio went down to just under 51% in the first quarter of 2012, it is likely that it might go down further to below 50%, which would be crucial in gaining the coveted investment grade rating from credit agencies. Compared to the rich countries of the OECD whose debt-to-GDP ratios averaged 97% in 2010, the Philippine public sector looks a lot more solvent indeed.

So now let us turn to political markets and see how next year’s budget seems to fare. It is worth comparing budgeted levels in 2013 to that of previous election cycles. Back in 2010, expenditure levels were exactly at the same level compared to what they are proposed to be in 2013—that is, they were 16.9% of GDP. The same goes for 2007, the last time mid-term elections were held.

Incidentally in that year, the budget was practically balanced. Had the global financial crisis not followed, the government might have been achieving surpluses afterwards. It was the stimulus spending of subsequent years combined with weaker revenues that caused the government to incur deficits which have carried over until today. In 2004, a presidential election year, the expenditure to GDP level was at its highest over the past decade at 17.5%.

So is next year’s budget an election budget? Is it geared to win or buy votes for the administration? On the face of it, it would seem that the spending rate is at par with other election years. The 2004, 2007 and 2010 election spending by the Arroyo government earned the ire of the then opposition for what they said were blatant attempts to divert money into the ruling party’s campaign kitty. So could the same thing happening again?

First let us have a look at where the money is meant to go. The profiles of the 2012 and 2013 budgets are shown below. We can clearly see from this that from year to year, the structure hardly changes although next year’s budget goes up by 240 billion pesos. The shares of spending for defence (14%), debt (17%), and general expenses (17%) are down by one percentage point each from their 2012 ratios. Meanwhile the share received by social services goes up by 1% point to 35% and that of economic services (transport and public works) by 2% points to 26%.

The ‘doughnut’ chart shows how the additional spending is split across portfolios. Social services receive the biggest increase with an additional 85 billion pesos allocated on top of its budget this year of 613 billion pesos. Economic services receive the next biggest share of about 72 billion on top of the 439 billion from 2012. General services get 26 billion more on top of its current 320 billion, while defence gets an additional 3 billion above its current 87 billion. Net lending (currently at 23 billion) and debt repayments (at 333 billion) each go up by 4 billion and 1 billion respectively.

In terms of which departments get the largest growth in their budgets, the Department of Education sees the biggest growth of 54 billion pesos. Public Works follows with 27 billion. Third comes the Department of Interior and Local Government with 21 billion followed by National Defence with 14 billion. The Department of Agriculture comes in fifth with an additional 13 billion followed by the Health with 11 billion. Rounding out the final four are Finance with 9.6 billion, Social Welfare with 7.4 billion, Environment with 6.2 billion and Transport with 2.4 billion.

The president announced in his SONA that his administration would seek to clear the backlog of classrooms to provide sufficient facilities to public school pupils. This was in line with the K-12 reform which increased the years of secondary school by two while providing universal kindergarten classes at the primary level. It appears that his budget delivers on that.

He also announced the completion of repairs for all paved roads nationally. The procurement of guns for police and of modern equipment for the armed forces also featured in the SONA. The same goes for the improvement of irrigation for agriculture and health coverage of the government insurance system. The Pantawid Pamilya continues to be ramped up which is evident in the figures, and the same can be said of community based forest protection. Finally, the task of getting NAIA-1 refitted and NAIA-3 operational was raised.

So in terms of this budget being meant to win votes at the next election, if the president intends to show that his administration’s ticket deserves the support of the electorate on the basis of his government’s delivery of promises, this budget might be seen as a way to address that.

Other notable things about this coming year’s proposed budget include: an increase of the capital outlays for the compensation of land owners under the Comprehensive Agrarian Reform Program with Reforms by 100% from 2.5 billion pesos in 2012 to 5 billion in 2013; a similar increase of subsidies to government owned and controlled corporations by about 114% from 20 to 42 billion pesos; and a ten billion peso fund to provide performance based bonuses to civil servants.

The increased CARPeR funding is in line with the government’s target of completing land distribution by 2014 when the program ends. The increased subsidies to GOCCs and bonuses to government executives is a curious thing given how the president earlier decried the massive waste incurred by these firms which led to a ballooning of subsidy paid to them and the bonuses executives paid themselves as their firms suffered losses. I could be proven wrong, but it appears that the same could be occurring here.

It would be interesting to see just where these subsidies are going and how successful the bonus scheme is in its first year. Allowing government agencies to take a hit financially could be a way of avoiding the political fallout if fees and other charges were otherwise increased to cover the cost of service delivery adequately. In this sense, one might characterize this increased support to GOCCs as pandering to the electorate.

The question then becomes what the government intends to do after the elections. Will it seek to claw back some of these losses by increasing fees and charges to what they ought to be? In that sense, shouldn’t the administration be up front with the public instead rather than try to deceive them? The budget statement is silent on these matters despite the glaring deterioration that seems apparent among GOCCs.

At the end of the day however budgets do very little to give incumbent governments a boost, at least a lasting one. Previous budgets under the Arroyo presidency prove this point. Despite the massive infrastructure program and social insurance expansion undertaken from 2007 to 2010, very little improvement in its standing with the public occurred.

The fact of the matter is expanding the budget is fine for as long as the economy keeps growing briskly. Both financial and political markets will accept that the government has to do its part in maintaining the country’s growth trajectory. For as long as revenues are able to keep up with the expanded services, that is.

And this will be the biggest challenge moving forward. In the past, government revenues have not kept pace with growth in the economy. This was due to a range of factors, from technical smuggling of petroleum products, to the non-indexation of sin taxes, to the erosion of the revenue base by granting tax exemptions to targeted voter and interest groups.

This is where the administration could break with tradition: if it makes signing up to new tax measures a condition for its support to allied parties in Congress. That way it becomes less a marriage of convenience and one of principled politics. Candidates under the ruling coalition or alliance should be asked to commit, to sign an agreement to that effect.

Although the budget for 2013 won’t depend on new revenue measures like the mining tax, sin tax indexation and rationalization of fiscal incentives, future budgets and the fulfilment of the president’s agenda towards the latter half of his term will. It is incumbent upon the president to now forge a fiscal compact that guarantees his social contract with the Filipino people. How successful he is in doing this in an election year will prove just how skillful a leader he is.

The Social Bubble

The rise of the social web has been tremendous. Everyone from Digital Marketers to corporate Chief Executives, the Media and for the most part, government have been put on notice. The massive ability to express one’s self has never been more pronounced. Even in China, where our perception of censorship is high, the ability to express themselves is higher than ever before. The questions now arises, are we merely existing in our own little echo chamber?

The New York Times, being of reputable news organization published that Apple and Twitter had discussions “in recent months”. Vague enough to sound immediate, and loose enough to make the reader draw conclusions. Apple, according to the New York Times was at some point interested in putting a “Strategic Investment” in Twitter. A euphemism for “putting a large enough money, without outright buying the company.”

The Wall Street Journal countered it as saying that this didn’t “happen in recent months”. Rather, it said, “A year ago”, which really means, a while back, and so far back that it doesn’t really matter.

The Verge recently published an opinion piece saying this “leak” was a simple way of raising the value of social again. This “leak”, the Verge says comes after a string so social companies that have gone public are losing value. Facebook. Linkedin. Groupon. The Verge argued that Apple is being made to look like it needed Twitter, but Twitter, being a company of sound revenue stream, and strong future value could walk away from a marriage, or at the very least, girlfriend status with the world’s most profitable company, slash world’s most eligible bachelor. Twitter, The Verge adds is being prepared for an Initial Public Offering.

These are businesses that thrive in providing a user environment. Their value is only as great as the community they foster. Like Massively Multiplayer Online games such as World of Warcraft, Call of Duty, Star Wars, and so many others— dependent on subscribers. And like magazines, newspapers, and similar enterprise in the last century, wholly dependent on those subscribers, viewers, readership, in short that very thing television covets so much— eyeballs. The more people use their service, the more revenue they generate from advertising and from their other activities.

Are people’s interest in social waning? Have we reached a point where Social is no longer the shiny new thing? Has the Social Web simply reached the point where being the norm, it is now time to evolve?

All opinion matter, and weigh the same, and it is just some people’s opinion matter more than others.

The perceived value of social is how supposedly it can influence people. There is a perception problem with regard to social. Influence is borrowed from television, which is a euphemism for “how many are watching this program”. The question is simply put: “How influential, is social?”

We’ve seen Gladwell’s take on the matter. We’ve seen that limit on social activism on twitter. Like radio before it during the 20th century, it is a great way to send out a call to arms. It is great to gather people to serve as conduit during a crisis like a national disaster. And these social tools have been instrumental during the London Riots.

During the 2010 Presidential election in the Philippines, digital, which for marketers translate roughly to social it was roughly about shaping public perception on a candidate. The choice of dimension was merely in the shaping of information, through news, and often opinion. Whether it was through blogs, or social networks like twitter and Facebook. It is the same thought for a lot of people building blogs, creating blogging groups or networks. It is a question of readership, and a question of demographics.

An anti-government or an “Anti-Aquino” genre blog could be very much popular with people who disagree with President Aquino, for example. By the definition of “influence” number of comments in a blog is their barometer of “success”. It is the same as every message board that has ever existed, including Facebook groups and Yahoo groups. This kind of specialization creates an “echo chamber” of likeminded people discussing the same matter ad infinitum. This “echo chamber” effect exacerbate an increasing problem regarding cherry picking facts, and turning opinion into fact.

Put it another way, it is the problem of the hive-mind effect that Jaron Lanier puts forward in Digital Maoism, writ-large. These are the hazards of our digital collectivism. It is the same warning we get from Steve Jobs who once lamented, we’ve descended into a “Nation of bloggers” that there has no filter. No editorial oversight. No determination of the facts or even trying to determine what the facts are.

People now cherry pick facts. Further, they cherry pick opinion, and turn them into facts. This cherry picking of facts, and turning opinion into fact is a huge, global problem exacerbated by this near limitless ability to express one’s self.

The same echo chamber exists on Twitter. People determine who they follow. And on political issues, this tend to be people who are likeminded. So real sentiment analysis no matter which tool you use— Social Mention, Radian6 or so many others is lacking because our perception isn’t determined by hard facts. So quantifiable facts on sentiment is hard to come by, and arguably impossible to get as our understanding of artificial intelligence, natural language and sentiment is in the infancy stage. A case in point: How does a machine understand sarcasm?

A quick scan of the term “Tim Berners-Lee” (also see the misspelled term “Tim Burners-Lee“) the day of the 2012 Summer Olympics would be instrumental to this. So much noise, and so many misconception of the Internet, and the World Wide Web. It isn’t difficult to understand when the Wall Street Journal— a so called reputable source runs a piece that magnifies such ignorance just a week before.

So what happens when a nation of bloggers are right, and reputable establishment is wrong? When the Wall Street Journal flunks Internet History and Blogs step to Educate. There’s also this storify when Twitter corrects NBC News.

This works the same way with social sites like Groupon, even sites like eBay. How do you determine what’s real, and what’s not? How do you determine if it isn’t all one big scam?

What happens when you try to marry the two? The flexibility of Social Media, and real journalists laying down the facts, and giving smart analysis of situation based on those facts and not the echo chamber? A reframing journalism through the prism of social media tools. So is this Rappler?

What people are doing is that they are sharing less. Even ordinary people are learning that Facebook isn’t a place to write about everything. No one needs to know that “you went to the bathroom”. It is a place however to communicate, what’s cool, and what’s not determined by your audience. Your Facebook high school buddies may appreciate goofing off, or an event where you all meet up. Your office mates might enjoy a good album on your latest basketball game. So is it a case of, sometimes, social works, and sometimes, it is just wrong? How do you figure out when it is right, and when it is wrong?

Of course, Digital is more than Social. With social being subset of digital. Digital could be about shaping campaign contribution. It could be getting the word out to supporters. It could be about determining electoral strategy based on field reports from volunteers on the ground.

Digital strategy could also be employed on the other side— citizens publishing who won or lost on a per district, electoral map. Think traffic reporting or weather reporting but applied to a map, and driven by the social web. It has the potential for reducing electoral sabotage or cheating. Think NAMFREL– a citizen group in the Philippines dedicated towards free and clean elections by having a secondary count.

Digital could be employed to determine rain fall or flooding. These digital tools are more than social. And while we lament at the noise of social media, there are clear signals that it can be a tool for change. A Facebook status can help change someone’s life, and for the better. Real discussion, and real action can take place. How can Social Media reframe debate so that civility, and respect are at the center piece of every debate, and discussion? How do you burst the social bubble? How do you pop the bubble of the hive-mind? How do you filter the noise?

Image credit: public domain.

Short and curlies

In an interview at an evening program on Interaksyon radio, retired Archbishop Oscar Cruz wondered whether Pres. Aquino understood the meaning of responsible parenthood. He said one can’t endorse the Reproductive Health Bill and talk of responsible parenthood at the same time because responsible parenthood is the term used by the Catholic Church to denote family planning through natural methods and not through condoms and pills. Unfortunately, Cruz’s interlocutors did not ask him if coitus interuptus was natural or artificial.  
 
Be that as it may, Cruz pointed out that the Catholic Church is not against family planning. He said that like advocates of the RH Bill, the Catholic Church also believes couples should not have more children than they can afford to feed and raise properly. Now if everyone agrees that family planning is the responsible thing for married couples to do then why does the Catholic Church oppose contraceptive methods that are more effective than the rhythm method? It all comes down to control of behavior.

Lyndon B. Johnson who dominated the US Congress for decades said the secret to his success was “If you’ve got ’em by the balls, their heart and mind will follow.” That is the same axiom that the Catholic Church has followed since time immemorial. If there is any area that the Catholic Church will never cede control over, it is the genital area. 

The Catholic Church allows mass murder in the guise of just wars. It allowed torture during the Inquisition. It will tolerate practically anything including accepting donations from vice lords to cheating in elections as was so ably demonstrated by Archbishop Arguelles of Lipa when he justified Gloria Arroyo’s cheating in 2004 but it will never give up its “moral standing” in the regulation of the affairs of mankind through the control of its sexual behavior. It will never let go of your balls.

Catholics believe their church is the appointed representative of the Supreme Being who holds the keys to perpetual happiness and damnation, that it is deputized to exercise sole power over the enactment, enforcement, prosecution, judgment, and execution of His laws, and that it is the only one with a direct line to Him (that’s what that infallibility thing is all about).

In that context, the Catholic Church teaches, among other things, that the sole purpose of marital sex is procreation. Marital sex not intended for procreation is sinful. In addition, it sees the pleasure that comes with the act of procreation as an unfortunate side-effect and not even as a reward for doing God’s work, which is to fill the world with people who will adore Him. Procreation not recreation is the Church’s dictum on marital sex. Thus marital sex becomes a guilty pleasure, loosely defined as “something one enjoys and considers pleasurable despite feeling guilt for enjoying it.” 

Anybody who has ever felt guilt knows how vulnerable and malleable it can make a person. That’s why the ability to make somebody else feel guilty and to make him believe as well that one has the power to lift guilt off his shoulders is one of the most powerful tools of control. That’s what makes the clergy so powerful. We have nowhere else to go when we feel guilty over having done something we were led to believe offends God. 

If the Catholic Church relents on artificial birth control then it will be letting go of its ability to pollute the fountain of our pleasures with feelings of guilt. That would be like the US giving up its nuclear weapons arsenal. Married couples will be able to enjoy sex without feeling guilt for having sex without any intention of having babies. 

The conjugal bed will be transformed from a mere baby factory to a nest of marital bliss. What is so evil about that? Or better yet, did God intend the sacrament of marriage to be fraught with fear and worry over unwanted pregnancies? Wouldn’t He be more pleased that we used the intelligence He gave us to invent contraceptives that are more efficient than calendars that time the menstrual cycle of women? Unfortunately, we will never know the answer to those questions because God talks only to the Catholic Church when it comes to matters pertaining to sex, at least that’s what the clergy tells us.

    “It’s too bad, she’s got you by the balls 
    You can’t break loose at all 
    She’s got your name 
    She’s got your number 
    You’re screamin’ like thunder 
    And you’re trapped like a rat in a hole.”

    – from “Short and Curlies” by the Rolling Stones

Gloria Arroyo posts bail

Judge Mupas of the Pasay Regional Trial Court allowed Gloria Arroyo to post bail for her electoral sabotage case.

She is now free to go to her home in La Vista where she will await the warrant of arrest for the plunder case involving hundreds of millions of pesos in PCSO intelligence funds.

As soon as the warrant is served, Gloria Arroyo will definitely seek either house arrest or hospital detention and she will get it because Erap was allowed to spend his six years trial for plunder in his rest house in Tanay, Rizal because of a serious medical condition called a “bum knee”.

SONA 2012: From moralist to manager

President Benigno S. Aquino III, in his third state of the nation address to Congress, has come off as being more managerial and less moralistic.

At the Batasang Pambansa, before taking to the rostrum, the president took a big gulp of water from a glass offered by an aide. He needed to wet his tongue for what was to be a very verbose speech nine thousand words long. It took him ninety minutes to run through all of them with 105 rounds of applause in between. In the end, the sum total of his presentation seemed to add up to one convincing portrait of a government hard at work.

If in his past two SONAs, the president took pains to expose what he felt were the excesses of the previous government, in his third address, he sought to prove that his administration had turned things around. Mindful of the upcoming mid-term elections in 2013, he knew that his party would have to run on his record. He could no longer shift the blame for poor performance to his predecessor.

As a politician, we cannot fault the president for devoting part of his speech to address political matters. He definitely needed to given the events of the past nine months when the legislative process was taken over by the impeachment trial of the chief justice and where the strength of our institutional fabric was put to a severe stress test.

Quantitavely, the speech moved decisively away from moralistically preaching to the choir to managerially determining the objectives, goals and targets that he seeks to achieve before his term expires. A content analysis of the text of his speech (in Tagalog) reveals that he devoted about two thirds (based on a word count) to discuss policy matters, while about a quarter he reserved to talk about the politics of the past two years.

Qualitatively, there was a toning down of rhetoric even when the president spoke of politics. There was less venom in his delivery and less gloating. When he talked of running after corrupt officials, there was less of a partisan or vindictive strain in his voice. But not only that, there seemed to be conviction and credibility.

Perhaps this stemmed from the events of the past year which saw the arrest of Mrs Arroyo his predecessor and the impeachment of Mr Corona the former chief justice as well as the decision of the Supreme Court to distribute the Cojuangco family’s hacienda to farmers under the Comprehensive Agrarian Reform Program. These events perhaps will become a watershed for the elite in Philippine politics when their privileges became seriously curtailed.

Indeed when the president spoke of one law now applying equally to the powerful and the peasant, the mighty and the meek, he was talking about the case of Mr Corona, but his words could have equally applied to that of the Cojuangco/Aquinos. The double edged sword with which this white knight slew and vanquished his foes cut deep into his own skin fulfilling the command of scripture that says if your hand causes you to sin, then cut it off.

As for the policy discussion, only five percent of the text was devoted to legislative priorities. These included the enactment of laws covering sin tax indexation, reproductive health or responsible parenthood programs, mining policy and taxes, defense modernization and ammendments to the anti-money laundering law.

The fact that two of the five measures consist of revenue or tax bills could be considered an acknowledgement by the president of the limits of moralism. It is an admission on his part that fulfilling his social contract requires him to back track on his campaign promise of no new taxes. The extent of corruption and by the same token the efficiencies which good governance could generate were grossly overestimated.

It was easy as a member of the opposition to criticize the government and make great claims about how to eliminate waste and improve tax collection. Now that the cold hard reality has set in if our elected representatives want to avoid the political fallout of increasing taxes right before the next election, the president has given them the sales pitch by offering worthy programs those new taxes would fund.

The remainder of the policy text was split almost equally among economic, social and security concerns. The agenda set by the president covered a broad sweep of things. Under the economic portfolio, he discussed the improved business climate and renewed investor confidence, as well as the resurgence of business process outsourcing, tourism, and agriculture. These were all anchored on improving the infrastructure backbone of the country.

With respect to social services, the president emphasized the increased coverage of social and health insurance through the Pantawid Pamilya and PhilHealth programs via the the National Household Targeting System which identifies the poorest of the population. He also talked of closing the resource gaps in the education system from primary to technical and higher education, of completing agrarian reform and increasing community based initiatives to protect the environement.

With respect to defense and security issues, the president spoke of reducing the crime rate, modernizing the armed forces, providing housing to soldiers and police officers, bringing about peace and development in the Autonomous Region of Muslim Mindanao, and settling international disputes over territorial claims. He also talked of improving disaster preparedness capability through better equipment.

In all of these discussions, the president reported what his administration had been doing or what it had achieved, his plans for the future until the end of his term, and the goals and targets he would abide by to monitor and track his performance. This is the new managerialist stance that he has taken.

Having been stung by accusations of not doing much early in the year (noynoying was the term coined for doing nothing), the president sought to prove that not only was his government working hard, it was producing concrete results. If in his past SONAs the president tended to get bogged down with details and as a result seemed incoherent and directionless, in this one he portrayed himself as a competent executive, setting targets with a clear program and strategy for meeting them.

I believe he owes this transformation to his chief ideologue, Budget Secretary Butch Abad. With the program based budgeting process that was instituted in the Department of Budget and Management, the president had a framework with which to identify the goals in each portfolio that he would highlight in his speech.

Not only that, but with the recently released policy document detailing the Organizational Performance Indicator Framework adopted by the government, the administration is seeking to align incentives within each agency from the corporate level down to the individual level. This is why the SONA and the budget statement detail a performance based bonus scheme amounting to as much as nine billion pesos.

Time will tell of course whether this framework can be universally applied across the whole bureaucracy. The tools and techniques of managerialism do not always work out as they intend to both in the private and public sectors, which is why it has gained a somewhat spotty reputation in the West. At any rate, it is an admirable goal to try and achieve some form of alignment between staff output and pay. Where this cannot be realistically applied (think teachers, soldiers, and nurses where the “output” may be hard to define), then a combination of efficiency wages and rigorous performance appraisals would have to be put in place instead.

Hopefully in the coming SONAs, not only will the president give us a report on how well his administration is tracking with respect to all these targets, but government agencies through their websites should have published their annual reports which would detail not only their financial statements but their performance reports vis-à-vis their organizational targets as well. This would move us one step closer to greater freedom of information and transparency despite the absence of an FOI Law.

Having produced SONAs in the past that were long on rhetoric and short on results, filled with platitudes but no coherent plan, the president has finally turned a corner by following the famous quote attributed to a governor of New York, Mario Cuomo, who said that as a leader, “you campaign in poetry and govern in prose.”

With his third SONA, PNoy has proven that not only can he wax poetic, but his prose ain’t so bad after all.