Fitch Ratings

Trapo Alert! Detecting political pandering, part 4

Panderometer

Featuring Gringo Honasan, Ernesto Maceda and Migz Zubiri.

This is the fourth part in a series on the candidates for the senate in 2013. Just a recap: I am attempting through this series to have a serious discussion of the aspirants and their political platforms (or lack thereof). These are put through what I call the pander-o-meter to determine whether the policy detail they have released so far places them in either the reformist or populist columns. The following table details the range of possible scores a candidate can get and the equivalent meaning of each reading:

Introducing: the ‘Pander-o-meter’ or Trapo Scale

A reading of… …is equivalent to…

1-2

Low levels of pandering detected, generally reformist in nature

3

A mixed bag of proposals aimed at both pandering and reforming

4

Trapo alert! Approaching dangerous levels of pandering

5

Could be likened to a vote buying trapo

In part 1, I covered Juan Edgardo Angara, JrBenigno Aquino IV and Alan Peter Cayetano. In part 2, I covered Francis Escudero, Risa Hontiveros and Loren Legarda. In part 3, I covered Aquilino Pimentel IIIJoseph Victor Ejercito and Juan Ponce Enrile, Jr.

In this instalment, I will be covering Gregorio Honasan II, Ernesto Maceda and Juan Miguel Zubiri.

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Gregorio “Gringo” Honasan (Ind-UNA): has been principally involved in crafting a number of landmark pieces of legislation on the environment (Clean Air, Clean Water and Solid Waste Management Acts), national security and public safety (National Security policy and Disaster and Risk Reduction Management Act) and social reform (Comprehensive Agrarian Reform Program Extension with Reforms Law).

His manifesto says that he is currently shepherding the passage of a number of bills through the Senate. These are listed as:

  1. Freedom of Information (what he calls POGI or the People’s Ownership of Government Information) act
  2. National Mapping and Resource Authority Law and Land Use Act
  3. Mini-Marshal Plan for Mindanao.

My critique:

It is clear from the senator’s platform and track record that he takes a strategic view with regards to public policy issues. The pieces of legislation that he tends to get involved with are often framework documents in areas that are often neglected and require the state to set the scene. They don’t make for catchy political jingles or slogans but they are essential nonetheless.

The Clean Air Act has been criticised due to implementation failures owing to corruption, but at its core are the fundamental principles of using a market-based mechanism for pollution abatement and of making polluters pay for their emissions. These create incentives for motorists and businesses to change their behaviour in the long-run.

Similarly with a National Land Use Act, the development of a 30-year plan would come into play which would guide the setting of city and municipal zoning ordinances and ensure the proper use and development of natural resources based on a mapping of regions done at the national level. One of the important benefits of this would be to prevent settlements in ecologically sensitive or disaster prone places. Again, behaviour would be changed because a national framework would be in place.

Overall comments:

Senator Honasan demonstrates through his legislative work a kind of far-sighted, long-range vision and planning that is needed in solving many vexed public policy problems. The kind of structural reforms he pursues are the sort that don’t make the headlines or score him brownie points with the public, but they will be noted historically as landmark pieces of legislation for their long-lasting impact.

Pander-o-meter: 1.5 out of 5

(Update: I have had to revise Gringo’s score from 1 to 1.5 due to his stand on the reproductive health bill.)

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Ernesto Maceda (NPC-UNA): the former senate president has a thirteen point agenda which are organised under five major themes:

  1. Senior citizens: the creation of a conditional cash transfer type allowance for seniors and the increase of senior citizen’s discounts from 20% to 30%.
  2. Job creation: creating 3 million new jobs over the next 4 years through infrastructure works, agricultural programs and by offering credit to 1 million small businesses.
  3. Education: tripling the budget for state universities and colleges (SUC), increasing scholarships offered to poor students at SUCs from 10% to 50% and reviving the study now, pay later scheme.
  4. Local government unit (LGU) fund allocation: increasing the internal revenue allotments of LGUs to 50% from the current 40%.
  5. Clean and safe drinking water: providing safe and potable drinking water to every household.

My critique:

Including seniors in the Pantawid Pamilya or 4P’s program would essentially turn it into a pension scheme (see also my comments under JV Ejercito who has made a similar proposal). Perhaps what the senator intends to do is provide a wider safety net to seniors than what currently exists. To do that he would have to address their healthcare costs which rise as they get older.

There are about 1.51 million Filipinos aged 65 and older according to the Department of Labor and Employment, out of which about 1.49 million are employed and 22,000 are unemployed. This sounds strange as you would expect most seniors to be retired (perhaps most of them are engaged in part-time work). Assuming they are provided with a Php 500 per month allowance or Php 6,000 a year, that would cost the taxpayers an additional Php 9 billion annually*. The question here is how should the government shoulder this expense?

The target of creating 3 million jobs in 4 years has already been achieved in recent years (on average) even without any new policies or programs being enacted. Perhaps the target needs to be a bit more ambitious (which is the 1 million jobs per year which the government has but doesn’t meet consistently). What is needed is not a new goal but a new way of achieving it. The usual tired old idea of using infrastructure projects and livelihood programs which Mr Maceda espouses is already at play.

Tripling the current SUC budget would require an extra Php 60 billion given last year’s budget. Again, the question here is how the government should support such an expansion and whether it is appropriate to do so given the quality issues prevailing in the system. Those who follow this space know that I have offered a comprehensive reform package here, which would address questions of affordability, effectiveness and quality at minimum cost to taxpayers.

As for expanding the IRA to 50%, again the problem lies in the fact that many LGUs are simply not adopting best practice because they are so accustomed to deriving a large portion of their budgets from the national treasury automatically. Improving their revenue raising capacity through other measures would allow them to gain true fiscal autonomy (see also my comments under Koko Pimentel who is pushing for the same measure as Mr Maceda).

Clean and safe drinking water is of course an ongoing program of the government. The UN MDG report has shown us being on track towards achieving the relevant targets of providing safe drinking water and sanitation by 2015. Of course meeting the MDG targets wouldn’t get us to universal access, but in the case of drinking water, we would be coming really close.

Overall comments:

Mr Maceda seems to be operating on the basis of limitless resources as far as the budget is concerned. Perhaps if the Philippine government had revenues equivalent to 33% of GDP like other nations with a BBB- credit rating instead of the measly 18% that it currently collects (as Fitch Ratings recently noted), we could afford to undertake the costly measures he proposes. Unfortunately, we don’t. So that means, we need to prioritise and rationalise our level of spending, or we need to raise additional taxes. That choice hasn’t been posed by Mr Maceda’s program of government.

As for the targets he sets for job creation and safe drinking water, the government is currently on track to achieve them.

Pander-o-meter: 5 out of 5

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Juan Miguel “Migz” Zubiri (PMP-UNA): the Bukidnon based first term senator who resigned due to allegations of cheating at the 2007 elections is campaigning on a platform comprised of five key planks. I would like to focus on just the two primary ones covering health and education due to space limitations.

1. Health:

  • Description: making healthcare “totally free including hospitalisation in government hospitals and health facilities” and providing free medicine at public hospitals among others
  • Cost: upwards of Php150 billion (see explanation below)
  • Source of funding: not specified

My critique:

The latest Philippine National Health Accounts show total health expenditures in the Philippines was Php379 billion back in 2010 up from Php269 billion in 2007. Of this about Php100 billion came from public sources (national and local governments), another Php34 billion from social insurance (medicare and employer contributions), Php 6.4 billion from donors and grants, and finally about Php240 billion from private sources. Of the private sources, about Php200 billion were out-of-pocket expenses, which has been growing at an annual rate of 10.6 per cent.

Assuming out-of-pocket expenses continue to rise at the same rate, it would total Php299 billion by 2014. Now suppose that about half of these out-of-pocket expenses were to be shouldered under Mr Zubiri’s policy proposal. That would require additional funding to the tune of about Php150 billion by 2014.

Either we raise additional revenues (including insurance premiums) to cover this or the budget deficit would have to blow out to 3-4% of GDP per year from the current 2-3%. That level of spending would be unsustainable. We would definitely lose our coveted investment grade status immediately. The alternative would be to cut spending elsewhere to the tune of Php150 billion to fund his policy. Which programs would he cut? Mr Zubiri has to offer a way to square this circle.

Providing free medical services and medicine at government hospitals and health facilities would cause a shift in behaviour, as people who formerly sought treatment at private facilities substitute private for public healthcare providers. This would put a greater strain on public hospitals to deal with this influx of patients. Mr Zubiri has to specify how the government would handle not only the full subsidy to health patients, but also the growing number of people who seek treatment from it.

2. Education:

  • Description: providing free breakfast and lunch at public schools, increasing entry level salaries for public school teachers and offering special education centres in the public system among others,
  • Cost: not specified
  • Source of funding: not specified

My critique:

The food for school program (FSP) was introduced by the Arroyo government during a period of rising rice imports and food price inflation. Program evaluations have indicated certain inefficiencies associated with managing the logistics of it. The 4P’s was seen as a more effective way to achieve the same results without the administrative cost and wastage. That is why the Aquino government ramped it up, while addressing some of the weaknesses of the FSP. Expanding the 4P’s rather than FSP is the better, more cost-effective option based on the evidence.

Increasing salaries for entry level teachers is clearly a vote getter, and it is a continuation of past measures to improve salaries of frontline service providers. Rather than imposing such an across the board adjustment, which would create budget pressure on the already strained DepEd budget, a more realistic option would be to provide extra salary loading to teachers who are assigned to remote regions, thereby encouraging the movement of qualified staff to those locations.

Providing additional salary loading to teachers with training to handle children with special needs would also help address the problem of learning difficulties in school. Special diagnostic tests would be the first step. We need to first measure the magnitude of the problem existing among our school children before embarking on a policy solution.

Overall comments:

Mr Zubiri is indeed trying to revive his political fortunes using vote-getting politics. He has flagged health policy as his number one priority. The problem is that funding his proposals would cause the government to go broke. Without offering a way to fund this additional level of spending, we are entitled to consider these promises as mere pie-in-the-sky. The more likely outcome if his proposals are adopted is for government hospitals to be overwhelmed with the influx of patients who then get turned away or for their service to suffer even further.

Ignoring the evidence by espousing an expansion of a program that has serious flaws is a bit reckless, as well. Calling for across the board wage adjustments would not necessarily solve the problem of hiring qualified teachers which is more acutely felt in remote parts of the country. Proposing policies without estimating the magnitude of the problem and diagnosing it properly is the fault of many aspiring senators. Mr Zubiri has demonstrated his capacity for it in spades.

Pander-o-meter: 6 out of 5 (off the charts!)

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Next up: Teodoro Casiño and the small parties: DPP, Kapatiran and SJP.

*Update: Ernesto Reyes in this recently released ADB report arrives at a similar estimation by assuming that 20% of the 6.2 million elderly Filipinos aged 60 and above or 1.2 million are poor. It makes sense, because individuals who cannot afford to retire have to keep working beyond the retirement age (either that or they love their jobs extremely).

Dredging the Waters

The Laguna Lake dredging project is a good analogy for what the Aquino administration seeks to achieve with its anti-corruption campaign.

Last month, during the celebrations of Independence Day, PNoy sought to put an emphatic fullstop to the ongoing debate over what to do with a 19 billion peso dredging project involving the Laguna Lake by a Belgian firm which had handled a similar project involving the Pasig River.

In its most elemental form, the project intended to dredge the silt from one part of the lake and dump it on another part. It was cancelled not because the deal was invalid, as the DOJ had determined it had been. Nor was it due to corruption, as the administration did not allege any form of it had taken place (otherwise the OECD Anti-Bribery Convention would have required the filing of cases against those who offered or paid any bribes).

It was cancelled simply because as PNoy had put it, he was “allergic” to such deals, which led the firm to file for damages amounting to 6 billion pesos with the International Centre for Settlement of Investment Disputes. In seeking to dredge the silt from its own spending, the government seems to have delayed, if not cancelled many of its own public works projects in the first half of the year. Applying the same criteria (suspicion of corruption) to PDAF or congressional pork barrel would actually mean cancelling the lot of it.

But this post is not about that issue. Today, it was reported that credit rating agency Moody’s had followed another agency Fitch Ratings in recommending a structural (read: roots-to-branch) reform of the fiscal system. After praising the government for its efforts at consolidation (read: restraining expenditures while improving collections) without resorting to new taxes, it said that

(I)t is unlikely that stricter tax compliance will generate a material change in revenue performance if tax evasion cases are not resolved expeditiously by the country’s inefficient legal system.

So it would seem the efforts towards apprehending tax cheats is similar to the scuttled project that involved dredging the waters of Laguna de Bay in that it takes volumes of silt from one end of the bureaucracy, i.e. the revenue agencies, and dumps them onto another end, i.e. the courts, where they presumably accumulate and clog up the system. Without substantial amounts of spending to upgrade our court system, Moody’s is saying that a significant, permanent improvement to collections is unlikely.

To underscore the scale of the mountain the country has to climb if it wishes to gain an investment grade rating, Moody’s noted that the Philippines which had an average revenue-to-GDP ratio of 14.7% from 2006 to 2010 compared unfavorably with similarly rated peers in its category which averaged 23.7% in that period.

While it recognized the existing proposals to rationalize fiscal incentives and to index sin taxes to inflation as a positive first set of steps, it encouraged the country to go down a path of fiscal reform to improve its “ratings trajectory”. This is probably the loudest endorsement for what we have been espousing in this column.

Considering the problems the government has encountered in rolling out its PPP projects (with the first one being taken off the table), the government has to consider such recommendations seriously. Given the increasingly menacing headwinds coming from Europe, MENA, Japan, China and the US, it will have to find a way to pursue infrastructure and social spending in the future as the period of low interest rates (read: cheap capital from abroad) is bound to come to an abrupt halt.