What is to be done (Part 3)

By Benjamin R. Punongbayan

(Third of Three Parts)

TO ACCELERATE the development of far-flung areas with good economic potential, we have to connect them by air to the major trade centers. This will require building or modernizing appropriate-capacity airports at government expense. To attract private air carriers to provide flights to these far-flung areas, a system of fare-subsidy to the carriers can be developed based on seat capacity utilization such that, when the capacity utilization reaches an agreed-upon rate, the subsidy ceases. Airports must be provided with night landing facilities so that the airlines can fly their otherwise idle aircraft to these rural destinations at night.

Shifting the geographical development area. Most of the economically developed areas in the country happen to be concentrated in disaster-prone places, especially those frequently visited by typhoons. These are on the Pacific side, more specifically from Samar/Leyte and going northwest up to Isabela/Cagayan. I guess this condition developed because of the initial establishment of the center of activities in Manila, which has a deep port and, at that time, was easily defensible from naval attacks. When economic activity subsequently grew, the development automatically moved north, south, and east of Manila by extending the already established infrastructure in the capital city to these nearby areas. With the regular and frequent occurrence of typhoons, however, much output and, therefore, productivity are lost during the disaster and when destroyed utilities and productive facilities are replaced and repaired. Rather than continue to establish new growth centers in this typhoon belt, we have to locate these to underdeveloped geographical areas that are not disaster-prone. These are in Southwest Luzon (excluding the bulls-eye areas around Mt. Pinatubo), Western Visayas, Palawan, and the entire Mindanao region. I realize that there will be added cost, because these areas are currently underdeveloped; but it will be worth the extra cost because there will be much less disruptions in economic activity and much more economic growth in these less-developed areas and, thus, encourage those residents looking for better lives elsewhere to stay put, preventing further congestion in the Greater Manila Area.

Spreading communication access. To help drive economic growth in nonurban areas, the national or local government should provide free Wi-Fi facilities at the center of every town and underdeveloped city in the country. Such facilities will also help school learning. Preferably, this project should be designed as a joint undertaking between the national and local governments and have the cost split between them. I do not expect this project to cause an undue burden in the finances of both the national and local governments. In fact, some cities have already installed such a free facility.

Promoting non-tertiary education. The 2010 census released in 2013 showed a total population of 82 million, of which 57 million were 17 years and older (69.5% of total population). Of this age group, the highest educational attainment of 24 million Filipinos or 41% of this age group was high school undergraduate, which means they did not finish high school. While this age group included those who were 60 years old and above, which I was not able to extricate from my references, it is not an important information for purposes of this commentary. While it is too simplistic to extrapolate from this information from the 2010 census the possible number of Filipinos today who are not high school graduates, I did so just to get a broad indication. So applying simple relationships, the derived number is 30.7 million (69.5% x 41% x 108 million present population) for the present. Even when we depress this derived number of 30.7 million by one third, there are an approximate 20 million Filipinos today who are not high school graduates. This represents a large number of Filipinos living today who are not or are less productive and are possibly suffering from poverty.

To make these fellow citizens more productive, the national and local governments should employ all necessary means to enable all elementary and secondary school students to finish high school. The necessary measures may include providing subsidized meals and transportation to poor elementary school students. The barangay captain should be given the responsibility of monitoring nonattendance of school-age youth. They should determine the cause of the problem in each case and provide the solution with the help of the town or city government.

Upon graduation from high school, those not ineligible to attend college and those eligible but who cannot afford to do so, should be encouraged to acquire technical skills by completing the requirements for their preferred vocational work. This assistance should be given free, including subsidized meals and transportation to the training centers. For this purpose, the scope of assistance given presently by the Technical Education and Skills Development Authority (TESDA) may need to be expanded.

Funding the expenditure requirements. Of course, all of these new initiatives require raising a lot of money to get them going. Much of the difficulties in raising money especially arise in the early years. To the extent that we are able to grow the economy at a sustainable higher rate, the annual growth will feed the funding requirements of succeeding projects through increased taxes, increased investments, and enhanced ability and capacity to borrow.

At the early parts of this whole program for accelerated development, there are a number of things we can do. One is to make the funds provided by current revenues work more efficiently. The congressional pork barrel funds must be redirected. Instead of parceling the total of this barrel of money into expenditures for congressional districts, the total amount should be kept intact and used to finance big-ticket national items. In the 2020 budget, it was disclosed by a senator that the pork is either P16 billion or P83 billion inserted at the last minute of the bicameral conference. This was strongly denied. The denial is not believable, of course; it is just described as something else. However this fund allocation is described, it must be redirected to fund national development projects that will certainly produce much greater benefits to the Filipino people. Such redirected use may not reelect some congressmen, but it will certainly benefit millions of Filipinos. Just imagine multiplying these two amounts by 10 years. The product of P160 billion or P830 billion is a huge sum. The annual allocations inside the barrel can partly or easily fund, depending upon the actual amount of pork, the housing for the poor proposed in this commentary.

Another fund that can be used more efficiently is the Internal Revenue Allocation (IRA) to the local government units (LGUs) which, at present, is 40% of Bureau of Internal Revenue (BIR) collections.

As a result of the Supreme Court decision in 2018, the IRA will eventually be augmented by 40% of Bureau of Customs collections. To improve the use of these LGU funds, especially for spending on infrastructure developments in the geographical areas of the LGUs, local executives must be made clearly accountable for them. This can be done by making a mandatory disclosure of the IRA allocation of each province, city, town, and barangay through a publicly disclosed website and by requiring the LGUs to disclose their locally raised revenue and all actual annual expenditures through their respective websites together with a proper comparison or reconciliation of such expenditures with the total of their respective IRA and local tax collections.

It is about time that a comprehensive rule should be established and accepted by all concerned on who is responsible for funding a particular development project in a particular LGU. For example, a road network in a town would include those that only traverse the town, those that connect various towns in a province, and those that connect a province to another province or several provinces. Who is required to build and maintain which of these? The same is true for a sewerage system, flood control network, irrigation system, and the like. It seems to me that the responsibility for initiating these development activities is not very clear, such that there seems to be some kind of waiting game taking place and that the national government is still being asked for funding, but which may not come. I could be wrong, but I thought it may be helpful to bring this matter up. It may help make efficient use of the annual IRA which, by any measure, is a huge sum and should have shown observable cumulative improvements in the countryside over the years since 1991, when the Local Government Code, decentralizing the LGUs, became law — a long period of 28 years. The use of these IRAs should clearly show by this time. Does it?

Another source of funding is additional borrowings. Of course, this should be undertaken with prudence to avoid any consequent negative effects on the national economy. The indicators that are watched for this purpose are the deficit to GDP ratio and external debt to GDP ratio. For 2018, these ratios are 3.2% and 23.9%, respectively; for H1 2019, 0.5% and 23.8% respectively. Additional borrowings, including Official Development Assistance, should be stretched as prudently as possible. Moreover, as the economy grows steadily, the growth will naturally expand the country’s ability and capacity to borrow.

The third way is to stimulate much more private investment initiatives in infrastructure development. We have seen these private investments in recent years in the construction of expressways, airports, and railways. Similar investments should be pushed for the development of other infrastructure, such as seaports, bridges, undersea tunnels, and ferries to connect our many islands; tourism infrastructure; and irrigation and water supply and sewerage systems. It should be noted, though, that to attract private investments in such undertakings, investors require a fair return on their investments. Such condition necessarily translates to a higher usage price than if the facilities were built with tax money, but which funding is not possible under the circumstances.

Along this line of private investments, much of national government activities may be privatized, which can lead to cost savings, leaving more tax money for other national development activities. I can see some activities of the BIR that can be privatized. There may be many more activities that can be privatized. We should consider adopting a policy on privatizing national government activities where this is possible. Doing so may lead to better services to our citizens and cost savings. The New Zealand government has adopted such a policy. We can learn from them.

That said, the big question, of course, is whether this leapfrogging can be done under the present circumstances of the national and local governments.

I laid down the scope and contents of this leapfrogging to try to create interest in what we as a people can accomplish to recapture the failed promise of the lost decades. To the extent that I was able to do so, we can take the next step of booting out the jokers and bringing in the do-gooders. Whatever it takes. Within existing rules.

Benjamin R. Punongbayan is the founder of Punongbayan & Araullo, one of the Philippines’ leading auditing firms.