[ANALYSIS] How pro-Duterte lawmakers hurt economic growth

JC Punongbayan

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[ANALYSIS] How pro-Duterte lawmakers hurt economic growth
What makes the latest growth data unsettling is that our lawmakers seem to have been directly and largely responsible for it


Before you vote for pro-Duterte candidates tomorrow, know that they hurt our economy’s growth in recent months.

On Thursday, the Philippine Statistics Authority (PSA) announced that our economy grew at a dismal 5.6% in the first quarter of 2019.

This is the slowest pace our economy has grown in 4 years (Figure 1). It is also lower than the target set by government for this year, which is between 6% to 7%.

Sure, a lower economic growth rate doesn’t mean the Philippine economy is tanking. It’s still expanding, although at a slower pace.

But 2019 is an election year, and elections tend to boost economic growth. Would last quarter’s growth been slower had there been no elections?

More unsettling, though, lawmakers seem directly and largely responsible for the recent growth slowdown.

In this article let’s try to answer the following: Why is economic growth so slow? Who’s to blame? And what can we do about it?

Figure 1

Where is Build, Build, Build?

Of the myriad components of our national spending, government spending took one of the largest hits. In the first 3 months of 2019, its growth halved from last year.

Among our sources of income, meanwhile, industry slowed down the most. Last quarter, industry’s contribution to total growth reached its lowest in more than 7 years.

If you zoom in further, you will see that the construction industry faltered the most, particularly public construction which shrank for the very first time since the first quarter of 2015 (Figure 2).

In other words, Build, Build, Build – Duterte’s massive, if overly ambitious infrastructure push, comprising of new highways, railways, airports, seaports, and even a subway – seems to have lost steam.

Figure 2

Aside from weaker government spending, I must mention that trade has been sluggish, too.

Exports have been shrinking in the past 4 months. Even outbound shipments of electronics, our top export, have contracted due to weaker global demand.

For now, however, I will leave trade issues for a future discussion.

Budget fiasco

I want to focus instead on the budget fiasco that hampered government spending.

Indeed, upon announcing the latest growth data, government economists pinned the blame on the delayed 2019 budget, which was signed by President Duterte only on April 15.

This budget delay – the first since 2010 – meant government had no money to spend on important new expenditures at the start of 2019, and had to rely on a reenacted budget.

Hindered spending items included salary increases for most government officials, higher cash transfers to compensate for TRAIN’s effects, and new infrastructure projects under Build, Build, Build (only “ongoing” projects could be funded).

But what exactly led to this disastrous budget delay? Three main things:

1) Push for cash-based budgeting

First, and least serious, former budget secretary Ben Diokno insisted that Congress shift to a new “cash-based” budgeting system.

In contrast to the previous “obligation-based” budgeting system, a cash-based system allocates money only for projects which can be assuredly implemented within the fiscal year. To engage in multi-year contracts, implementing agencies will have to secure special authority.

The purpose for this shift is laudable: Diokno wanted to minimize “underspending” and expedite Build, Build, Build projects. In fact, the Lower House did pass a bill institutionalizing cash-based budgeting, and forwarded the same to the Senate.

But soon after several lawmakers suddenly withdrew their support and demanded to revert to the old system. Some cited huge budget cuts facing implementing agencies. Others feared the new system might hamper their local projects in the run-up to the elections. Others still simply found the proposal “confusing.”

Congress finally passed the P3.757-trillion 2019 budget on February 8, but they rejected Diokno’s cash-based budgeting.

2) Corruption allegations

Later on, Congress also busied itself with political attacks against Diokno.

House majority leader and appropriations committee chair Rolando Andaya Jr launched probes against Diokno for allegedly padding P75 billion on the budget of the Department of Public Works and Highways (DPWH).

Moreover, Diokno is said to have influenced certain projects in Sorsogon, where his daughter’s mother-in-law is vice-governor. Diokno vehemently denied such claims.

As late as February, Andaya accused Diokno of attempting to bribe lawmakers with P40 billion of “hush money” (coming from government savings) to allow the P75 billion worth of insertions. Again, Diokno said this was “absolutely false.”

Andaya persecuted Diokno so much – at one point several makers even petitioned for Diokno’s sacking – many people could not help but speculate Andaya himself was coveting Diokno’s powerful post as budget chief.

In early March, Duterte reappointed Diokno the new Bangko Sentral governor. Till now he has yet to be replaced at the Department of Budget and Management. (READ: Who should be the next budget secretary?)

3) Return of pork

In the last budget season, many forces in Congress – under the leadership of Speaker Gloria Macapagal Arroyo – also took the opportunity to bring back pork barrel allocations.

For instance, Senator Panfilo Lacson alleged that Speaker Arroyo inserted P2.4 billion worth of projects for the second district of Pampanga, which she represents.

Even more insertions (or “internal realignments”) were made by the Lower House even after the ratification of the bicameral conference report between the Lower House and the Senate. The amount in question totals P75 billion, or about 2% of the total proposed budget.

Because of these dubious acts, the Senate transmitted the 2019 budget bill to Duterte for signing in March but cited “strong reservations.”

Perhaps out of frustration, Duterte threatened in mid-April to veto the entire budget bill submitted to him by Congress. Duterte did sign it eventually, but not without vetoing certain portions and placing others under “conditional implementation.”

Hijacked budget process

All in all, Congress failed to pass the 2019 budget on time because of several squabbles and insertions. In the process, economic growth suffered.

The way I see it, lawmakers, at the behest of Speaker Arroyo, saw the last budget season as an opportunity to reward themselves with billions of pesos in exchange for pushing laws sympathetic to Duterte (like the martial law extension in Mindanao or the new draft federalist constitution).

However, former budget secretary Diokno proved to be a stumbling block, hence the incessant attacks on him.

Meanwhile, Duterte left lawmakers to hijack the system, but later realized his allies’ greed might work to sabotage his own economic programs, notably Build, Build, Build.

If you ask Socioeconomic Planning Secretary Ernesto Pernia, the anemic growth figures are an argument to vote for more pro-administration lawmakers, because President Duterte needs a more “supportive” Congress.

But clearly, even unabashedly pro-Duterte lawmakers – who have dominated Congress since 2016 – are perfectly capable of hijacking the budget process, hurting economic growth, and derailing key government projects.

Let’s bear this in mind tomorrow when we vote. – Rappler.com

The author is a PhD candidate at the UP School of Economics. His views are independent of the views of his affiliations. Follow JC on Twitter (@jcpunongbayan) and Usapang Econ (usapangecon.com). 

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JC Punongbayan

Jan Carlo “JC” Punongbayan, PhD is an assistant professor at the University of the Philippines School of Economics (UPSE). His professional experience includes the Securities and Exchange Commission, the World Bank Office in Manila, the Far Eastern University Public Policy Center, and the National Economic and Development Authority. JC writes a weekly economics column for Rappler.com. He is also co-founder of UsapangEcon.com and co-host of Usapang Econ Podcast.