Sunday, September 7, 2008

Fiscal Dictatorship

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The Scarcity of Fiscal Democracy in Post-EDSA Philippines

By James Matthew Miraflor
Researcher, Debt and Public Finance Campaign
Freedom from Debt Coalition

The Post-EDSA regimes are usually contrasted with the undemocratic rule of late strongman Ferdinand Marcos. An important testament to this claim of post-EDSA democracy is the so-called “power of the purse” – the power to allocate national resources – granted to the legitimate proxies of the people, the elected members of House of Representatives. This is supposed to be a marked divergence from the Marcosian authoritarian power over the budget, a power that was eventually wielded for crony-patronage and dreams of grandeur.

The governance style of the current regime, however, seems to discredit this claim of fiscal democracy. Gloria Macapagal-Arroyo’s current practice of line-vetoing budgets, realigning approved budgets, impounding her opposition’s pork, and heavy borrowing and taxation, seem go against the congressional prerogative. Instead, the way she manages the country’s coffers is instructive of how our democratic budget process can be abused and mutated into a virtual financial tyranny of one person. But is Arroyo the only one guilty?

This paper argues that while the current administration had been the most brazen in doing so, the roots of this fiscal autocracy are structural rather than conjunctural. In fact, the past three presidents could have done the same and gotten away with it – all because of how the public finance system had been designed on the onset. Thus, it is necessary to study the nature of the budget process itself, which in itself is placed in a context of a society of actors operating on a predefined set of power relations – something which also needs to be considered. 

But ultimately, the question can be phrased as a question of who controls what and how much. We can begin answering this by considering one of the most fundamental and perennial problem of public finance – the problem of scarcity.

Scarcity of Democracy, not Resources

The problem of budget had always been framed by social movements as the scarcity of resources on education and other social services. The response of the government on this had thus been consistent throughout the years: the scarcity of resources in general. They claim that they want to impose fiscal discipline, and it is inevitable to under-spend on other social and economic sectors simply because the revenues generated are not enough to cover all obligations. 

The classic rebuttal of debt and development advocates to this reply is the debt servicing problem. A huge chunk of the budget, these advocates say, is eaten up by the servicing of interest payments and principal amortization of loans incurred in the past, some of which under questionable circumstances. The government has an equally classic defense when this issue is raised – that debt service is, by law, automatically appropriated. They elaborate on the underlying logic behind the law, that automatic appropriations is “necessary” if we are to maintain the country’s access to credit. 

This brings us to the question, who decides what is “necessary”, and how to do the necessary things. This is a question of resource management and allocation, taking us closer to the fundamental refutation of the resource-scarcity argument by the government. 

The fact is, while scarce resources remain to be a true problem of public finance, it is not its main predicament. In fact, last year (2007), we had generated the highest levels of revenue from 1983 to 2007, even in real terms or 1985 prices. Revenue and tax effort had been gradually getting closer to the relatively high levels of the Ramos administration.

The main problem remains to be how resources are managed. In its twenty years of existence, the Freedom of Debt Coalition (FDC) has been continuously exposing the financial and economic hemorrhage the Filipino people is experiencing due to massive debt service requirements. The taxes collected from the Philippine economy end up not being re-channeled back as social or economic services, but go out of the country as payments for government’s debts.

But the external outflow is not the only problem. An equally important issue is the issue of internal flow. Excluding external expenses, how does the government decide on how much to spend for what? Is the process democratic, transparent, and participatory? Are decisions made by legitimate actors reflected in the real spending of the resources?

Resource Management and the Locus of Power

The single issue that cuts across both external and internal issue of resource allocation is the issue of who controls the funds. Where does the resources raised by the State go? How does it decide its priorities? This necessarily takes us into the assessment of the national government budget as an institution, its processes and values evaluated using certain standards and parameters. 

On this, we believe that the usual parameters of Public Expenditure Management (PEM) – aggregate fiscal discipline, allocative efficiency, technical efficiency [Oliveros (DBM), 2006] – are no longer adequate to measure the efficacy of a budget system. It is at least as important to also determine the locus of power in budgetary institutions. In fact, some literature already put forward the notion of hierarchical or collegial budgeting [IMF, 2006], in order to describe the effects of power distribution in resource management of governments.

Constitutionally, the power distribution as far as fiscal institutions are concerned is biased for the Congress, following the maxim that “the Congress shall have the power of the purse.” Thus, the legislative branch has well-defined powers regarding debt, budget, and appropriations, as stipulated in Article VI, Section 24 which states, ” All appropriation, revenue or tariff bill, bills authorizing increase of public debt… shall originate exclusively in the House of Representatives, but the Senate may propose or concur amendments.” 

There is logic to this. First, the framers of the Constitution may have thought that the Congress, in principle, is the institutional representation of the electorate itself. Naturally, power is supposed to emanate from bottom up, especially for a law of national importance such as that of resource allocation. Second, it will be the constituencies themselves of these representatives who will later bear the cost of revenue-generation through taxes and debt-creation, with debt essentially and effectively being a future tax on future constituencies. Third, it is to serve as the second line of check on an executive which is given leeway in implementing the laws formulated by the legislative, apart from the judiciary’s power to declare the unconstitutionality of policies.

In reality, however, the locus of public finance power is not with the Congress. Governance experts and activists already engaged in the budget process came to a conclusion that the Philippine budget is an “executive budget”. As it stands now, the national government budget is subject not to the representative wills of the people but to the political interests of a very powerful President and the ideological tendencies of the regime’s largely neoclassical technocracy.

Inheriting from Marcos: The Legacy of Fiscal Dictatorship

So why would a budget that places the “power of the purse” on the Congress end up as an “executive budget”? The answer can be found from the legal impediments that prevent the Philippine Congress from effectively exercising their power, thereby emasculating it from providing checks and balances in the public finance process. 
Most of these restrictions are inherited from a Marcosian statute, which emphasized an “executive-biased” budget process. Presidential Decree 1177, or the “Budget Reform Decree of 1977” was decreed by Marcos during the time of Martial Law supposedly because "national interest calls for the institutionalization of budgetary innovation realized during the New Society and developed within the context of the Constitution of 1973", claiming that "the budget process as implemented prior to September 21, 1972 was not able to fully support national objectives and plans". 

The fall of the dictatorship showed a glimmer of hope that the process of liberal democratization would also touch on the aspect of public finance. This hope, however, was quashed when President Corazon Aquino resurrected the public finance infrastructure created by the dictatorship, and inherited the same undemocratic system of budgeting from Marcos. Some of the provisions of the Revised Administrative Code of 1987, as originally instituted by Executive Order (EO) 292, were copied directly from PD1177.

The presidential powers of the budget, which we have seen to usurp the legislative power of appropriation and served as legal restrictions towards financial democracy, is mainly contained in the provisions below:

1. The Power of Impoundment – Contained in Section 38, Book VI of the 1987 Revised Administrative Code as derived from Section 43 of Presidential Decree 1177, this provision ensures that the President can refuse to allocate the money that had been appropriated by Congress.

2. The Power to Reallocate “Savings” – Contained in Section 39, Book VI of the 1987 Revised Administrative Code as derived from Sections 44 and 45 of Presidential Decree 1177, this provision empowers the President to channel savings to cover deficits of other items in the budget.

When the powers to impound and to reallocate savings are combined, it is tantamount to a power to realign appropriations itself.

3. The Power to Line-Veto – Contained in Article VI, Section 27(2) of the 1987 Constitution, which is similar to Article VIII, Section 20(2) of the 1973 Philippine Constitution, this provision above guarantees the power of the executive to veto specific items of the budget while retaining the others, thereby avoiding the possible political impasse that can happen on absolute veto of the budget bill. Thus, since it is the executive which proposes the budget via the Department of Budget and Management (DBM), only to be sponsored by the Committee on Appropriations of the House of Representatives, the executive can simply veto changes that had been made by Congress (both Senate and HoR) on the budget proposed by itself.

4. The Power to Reenact Budgets – Contained in Article VI, Section 25(7) of the 1987 Constitution, which is similar to Article VIII, Section 16(6) of the 1973 Philippine Constitution, this provision effectively shields the executive from exhaustion of funds should the Congress fail to come up with the budget.

5. The Power to Unilaterally Contract Loans – Contained in Article VII, Section 20 of the 1987 Constitution, which is Article IX, Section 15 of the 1973 Philippine Constitution, rhe power to unilaterally contract loans allows the presidency to raise as much money as (s)he can, using future revenue-generation capacity as collateral.

6. The Automatic Debt Servicing Provision – Contained in Section 26(B), Book VI of the 1987 Revised Administrative Code, as copied en toto from Section 31(B) of Presidential Decree 1177, this provision is responsible for the fact that for all post-EDSA governments, from 1986 to 2008, debt service for interest payments alone already averaged around 25.72% of the national government budget. This does not include yet the principal amortization, which eats up even more share of the annual national expenditures.

Thus, automatic appropriation for debt, on top of other automatic appropriations, severely compromise the Congressional “power of the purse“ since only a little amount of the budget is left for Congressional reallocation as Congress cannot increase the budgetary ceiling (Article VI, Section 25(1)). The level of borrowings too, is effectively set by the amount of principal amortization to debts which are to be “rolled over”, since they are not part of the budget but instead deducted to new “financing” of the government.

Consequences of an Executive-biased Budget

Philippine Senate, during Budget Briefing, grilling the DBCC

These provisions combine to create an executive-biased budget which concentrates all fiscal powers in the hands of the president. The congress is denied any real power of the purse, and management of the country’s resources is delegated into the hands of the budget bureaucracy.

What are the consequences of an executive-biased budget? First, in principle, it directly impedes on the democratic dictum of separation of powers. It compromises checks and balances and thus, allows for more discretion on the part of the executive. As we all know, discretion lays the conditions for corruption and abuse, and while corruption and abuse may not actually happen, the suspicion alone that it can wither away the confidence of many on the integrity of the budget process.

Second, it will be more difficult to orient institutional responses to legitimate social interests. While centralization can afford technocratic rationality that cannot usually be generated in more collegial setups, centralization also limits forward and bottom-up transmission of what social needs are and how they can be addressed. When you try to dissociate people from the processes of the government, the more the government will be ignorant of the nature and roots of social predicaments, and the less accurately it will be able to respond to these predicaments. 

Manolo Quezon [2007] presents an interesting insight on this particularly in the localities. He said that especially during the elections, “it makes no sense for local leaders — and that includes candidates for the House — to inform the source of their patronage, the Palace, of the feelings of people on the ground. It would simply tempt the Palace to divert its resources to a more obliging candidate. And so local candidates took Palace resources, promising, of course, to deliver, but carefully avoided the temptation to use up their own political capital giving instructions that would be ignored anyway”.

The same is true in the national perspective. The government, pushed by its own technocracy-imposed administrative constraints towards a contractionary economic policy and a conservative fiscal policy, can only see as a solution to deficits an austere spending program which cuts on social spending [FDC, 2007] and pushes for the implementation-easy indirect consumption taxes, never mind the political and social issues. It is predisposed to ignore or pay little attention to options that run counter to its “macroeconomic projections” such as adjustment of interest payments based on more realistic projections of foreign exchange rate (which is determined by an irrational foreign exchange market), or actions that are more political in nature, such as more stringent cases against corporate tax evaders, a certain degree of property expropriation, and/or debt renegotiation.

Third, an executive-biased budgeting process under a government of a weak state with weak institutions can also result into an arbitrary wielding of tremendous power that can be used for rent-seeking. Without getting into the discourse of the nature of the PDAF, the fact that the executive can impound PDAF and/or Internal Revenue Allotment (IRA) of opposition-aligned solons and Local Government Unity (LGU) officials is a testament to the rent-seeking power a president can use to stabilize its rule.

Thus, it is no surprise that in the Philippines, politicians gain most by aligning themselves with the incumbent President, and they did so. Manolo Quezon [2007] wrote that “from 1941 to 1969 and beyond, to the Batasang Pambansa and to the present, is that House elections have always resulted in an overwhelming administration victory. Without any exceptions. Even if the president running for reelection lost, his party would still win the House; and in cases where presidents were elected from the opposition, they would swiftly ensure that by the next poll, their minority would be an overwhelming House majority. In a sense, the House is so adaptable, so pliable, so dependent on the presidency’s patronage powers that it ends up supporting whoever occupies the Palace — until, that is, the presidency passes on to someone else.” Political analyst Joel Rocamora [2007] agrees and states that this is also true for local candidates, especially in mid-term elections.

Fiscal Dictatorship = Weak State

It is not just the case that concentrated fiscal powers in a state with weak institutions is bad for a society trying to mend the ills of rent-seeking and abuse; concentrated fiscal power may also be bad for the state itself. To elaborate on this, we must take note that the fact that patronage which is strong under an “executive budget” has important implications on our political institutions. 

University of the Philippines Professor Alex Magno [2006] believes that the control of resources inevitably has impact to the development of political institutions, particularly political parties. He observed that “the decline of the plantation-based economic sectors have made local politicians more dependent on the IRA (more precisely, on leakages from that)” and “because the Chief Executive can cause the immediate release of internal revenue allocations or delay the same (or distribute infrastructure investments to supportive localities), the local elected officials more blatantly switch parties after each presidential election. This produces highly personalized allegiances that further undermine the development of the party system.” Magno noted the fact that “so-called political parties now accredited are (merely) shells of previous presidential candidacies”, like LDP of Aquino, Lakas-CMD of Ramos, PMP of Estrada, and just recently, KAMPI of Arroyo. 

What is the effect of such on the Philippine state? Herbert Docena [Bello et al., 2004] explains that in this kind of situation, “the state” becomes “but a prize for a momentarily winning chronic inter-elite rivalry”. David Kang of Dartmouth College elaborates this by comparing South Korea and the Philippines: “Corruption in Korea, although endemic, was constrained by the collusion of a powerful business class and a coherent state. Each major group was able to benefit from its close relationship with the other but neither could ever gain the upper hand… In contrast, corruption in the Philippines swung like a pendulum. As one group or the other gained predominant power, it would busily set about lining its own pockets, aware that in the next round its fortunes might well be reversed” [Kang, as cited in Bello et al., 2004]. 

Thus, ironically, we have a case of a concentrated fiscal power contributing to make the Philippine state weak and vulnerable to the particularistic whims and rent-seeking designs of the ruling faction of the elite. A powerful executive doesn’t necessary translate to a strong state– in fact, we have a case of a powerful chief executive exercising budgetary powers for patronage, thereby corroding further democratic institutions on public finance.

This fact translates to several implications. First, the relative autonomy of the government, which is necessary for the financing of strategic and developmental policies, is compromised by the multiplicity of the elite’s parochial interests, all of which need state resources. Rocamora suggests that “competing demands on government have made it impossible to formulate and implement a coherent economic development policy or to develop political institutions capable of providing a reliable regulatory framework for the economy” [Rocamora, as cited from Bello et al., 2004]. 

Second, the development of an autonomous, independent, and impartial public finance institution is compromised. Our primary bureaucratic agency is rendered highly vulnerable to politicization and executive control, because it is in the political interest of a rent-seeking executive to politicize the agency. The appointment of a Bicolano politician and former administration Congressman Rolando Andaya Jr. as Department of Budget and Management (DBM) Secretary underscores this fact, and is a divergence from the practice of appointing technocrats, such as former DBM Secretary and UP Professor Emilia Boncodin, for the position.

Third, if public finance institutions are weak, then progressive voices from the civil society can easily be muted, their hard-earned reforms conveniently reversed, by a swift action of an unwilling executive. Arroyo’s line-veto of debt service reduction and the non-payment for questionable loans is a proof of this, together with her line-veto in the 2007 budget of the non-allocation of funds for the controversial North Luzon Railways Project.

Theoretically, this can work the other way, if the progressive voices can somehow influence the motives of the chief executive. In practice, however, there is a strong grip of the neo-liberal and neoclassical ideas inside the technocracy of the administration resisting the waves of progressive reform. It is easier for the social movement to register its advocacies in a less monolithic House of Representatives and the Senate.

Fourth, a weak state is more vulnerable to external pressures and foreign dictates. Consider, for example, the conditionalities attached by lending institutions to their loans. The International Monetary Fund (IMF), for example, uses its lending facility meant to rescue governments from fiscal quagmires to take advantage of balance of payments and fiscal crises to impose painful, industry-wide “reforms” acquiescent with the paradigm of neo-liberal globalization – that of liberalization, deregulation, and privatization [FDC, 2008]. 

Fiscal Dictatorship and the Politics of Opportunity

Why do a disempowered Congress continue to perpetuate this kind of fiscal dictatorship? One of the reasons might be that in any given fiscal year, the President retains its patronage power, which can actually be wielded against any initiative to reform the status quo. This is actually a reiteration of our argument earlier that public finance power translates to political power which can be used for rent-seeking.

This explanation, however, fails to explain why Congress sometimes act and decide against an incumbent president, as in the case during the impeachment proceedings of former President Joseph Estrada. Patronage may fail, and it will fail in instances when a rational congressperson realizes that voting against rather than voting for the incumbent increases his chance of reelection and/or election to a higher office.

A better explanation would be taking into account the features of our democracy and the politics of opportunity. With power contested among rent-seeking factions of the elite, most of the factions are actually entertaining the possibility of their group ending up as the ruling one. In this case, no one would want to genuinely dilute the fiscal powers of the presidency – the ultimate holy grail that affords great powers to, and thus maximizes rent-seeking potentials of, the relatively weaker sections of the elite, i.e. weaker compared to other entrenched political-economic clans such as the Lopez patriarchy.

During the pre-martial law period (1935-1971), the budget process is an American-style “democratic” fiscal process, wherein “the ultimate power over public finance belonged to Congress” and budget “decision was a result of accommodation of competing interests” [Montes, 1991]. This intense contestation of power among the elite might have even been the impetus for Marcos to declaration Martial law in 1972 and to subsequently establish a continuing fiscal authoritarianism. This was followed by the reengineering the fiscal process into a more “corporate” one committed to a development program, “with all conflicts internalized in the executive branch”. 

Marcos centralization of powers, fiscal power included, may have aimed to dismantling of the pre-Martial Law basis of political power and the establishing of a different permanent basis for the government. But Marcos ultimately failed to do this because it failed to deliver a genuine agrarian reform program [Montes, 1991]. On the other hand, the Congress (where other sections of the elite thrive) was never able to recover its pre-Martial law powers in appropriation because the 1987 constitution effectively codifed Marcosian powers. Instead, powers are transferred to a bureaucracy managed by technocrats with neo-liberal and neoclassical background.

Thus, Marcos was able to build the scaffolding for a strong state edifice – which is the relatively autonomous and monolithic bureaucracy – but failed to break the back of the original wielders of particularistic power. The first Post-EDSA government then began as a mutated mix of this remnant of the Marcos dictatorship and the resurgent power of competing elitist factions. Add to the mix the constitutional powers granted to the presidency, the partly independent fiscal apparatus is effectively transformed into a coveted instrument of the ruling class which factions take turns in using for rent-seeking purposes.

Our case is different from Thailand, political scientist Paul Hutchcroft elaborates, where “we find an elite traditionally based in the bureaucracy… In the Philippines we find a bureaucracy long subordinated to particularistic elite interests” which have “a firm independent economic base … yet rely heavily upon their access to the political machinery in order to promote private accumulation” [Hutchcroft, as cited in Bello et al., 2004]. In a case of a highly executive-biased public finance process, access to the machinery means ultimate power, which can be used to neutralize (at least for the duration of the presidential term), but not necessarily eradicate, the power base of other elite factions.

Democratizing and Strengthening the Public Finance Institution

Concentration of public finance powers to a president, arguably, may be good in some instances in the hands of a modernizing and progressive leader. Given the elite, rent-seeking nature of post-EDSA regimes, however, we are predisposed instead to minimize any one elite group’s control over the budget process. At this time when the locus of political power still resides in an anarchy of political clans and political celebrities, the best way to develop the public finance agency as an institution that can strategically address the problems of the nation is to institutionally disperse sources of financial power so as to dilute effects of particularistic rent-seeking. 

We cannot, however, go back to the more collegial, pre-Martial Law days of budgeting where decisions were reached “as a result of the accommodation of interests, which… tended to prevent the system from addressing urgent development matters” as “congressmen concentrated their interest on particular items of the budget and lost sight of the total or the trade offs between items”. During that period, the absolute power of Congress over appropriations “superseded all the staff work that had taken place before the budget was submitted” resulting to unnecessary increases on projects or cuts that would make them unviable [Montes, 1999]. 

While the dilution of the power of the presidency over the budget must be endeavored, the integrity and rationality of the budget agency mustn’t be compromised. Whatever level of sophistication the public finance bureaucracy achieved by the centralization efforts during Martial Law, including the methodical linking with economic analysis and the elaborate system of internal consultations, must be protected from the self-benefiting designs of some parochial legislators. 

But this is not to say that the “power of the purse” should be removed from Congress. Whether Congress effectively fulfills its role or not is another matter, but as it now stands, the Congress is the closest thing our current democratic system has to a semblance of institutional representation of the people. In principle, the solution would be to make sure that parliament is genuinely representing the people, not emasculating it because it doesn’t.

Moreover, without Congressional scrutiny, we are faced with the possible repercussion of a well-developed budget agency that is not subordinated to any political institution – bureaucratic inertia and technocratic myopia. Political dissociation may result to ineffective institutional responses, as the statistical inequities that can be detected by technocratic instruments doesn’t necessary reflect the structural inequalities that can only be known through direct political processes. 

This presents us the dialectical task of de-linking the public finance institution both from elite politics and at the same time, from political indifference. We argue that the best way to do this is by shifting the locus of fiscal power closer to the people themselves. The budget agency must be reoriented from an agency that simply calculates on its own the solutions for the needs of the bureaucracy, the society, and the economy, to a one that effectively facilitates people’s direct participation in coming up with these solutions. After all, it’s the people’s money that the budget agency is managing.

In the end of the day, we cannot afford minimum public involvement in a budget process governed by institutions vulnerable to abuse and dereliction – we must instead maximize involvement of the people in order to strengthen these institutions. Only through directly and democratically reflecting the collective will of the people shall the budget genuinely be an instrument of progress and development.


Ending the Fiscal Dictatorship
Towards an Alternative Public Finance System

The Dilemma: Who’s best to decide?

A common critique of the strong Congressional powers on the budget, as in the case from 1935 up to declaration of Martial Law, is that the Congressional powers “superseded all the staff work that had taken place before the budget was submitted” resulting to unnecessary increases on projects or cuts that would make them unviable [Montes, 1999]. Ironically, the tendency of the Congressional intervention on the budget to be particularistic and “ad hoc” is only tempered, by the absolute powers of the president, who can unilaterally reverse the changes made by the Congress on the budget formulated by its technocracy. 

We argue, however, that Congressional intervention can be made to meet with the rational objectives and national development strategies, only if the public finance system supports so. The institutional dispersion of sources of financial power and the preservation of the budget agency’s integrity and rationality are not mutually exclusive objectives. The alternative to bringing back the powers of appropriation to the Congress would be a budget agency impervious to political opinion and social signals, and thus is unresponsive to structural and more political and social causes of the problems of the nation.

We believe that concurrent with the empowering Congress, we should work towards the shifting of the locus of fiscal power closer to the people themselves. The budget agency must be reoriented from an agency that simply calculates on its own the solutions for the needs of the bureaucracy, the society, and the economy, to a one that effectively facilitates people’s direct participation in coming up with these solutions. After all, it’s the people’s money that the budget agency is managing.

Recommendations: Towards an Alternative Public Finance System

Therefore, the following medium and long-term measures are recommended to be implemented, with the end view of democratizing the budget process and strengthening the budget institutions:

1. Clipping of Presidential Powers. The first step towards the democratization of the budget, is for legal impediments for the exercise of the Congressional “power of the purse” to be removed. This can be done by:

a. Overhauling the Revised Administrative Code of 1987 as instituted by Executive Order 292, which includes the removal of the automatic appropriations for debt service (Section 31.B.) and the presidential powers of impoundment (Section 38) and realignment of savings (Section 39).
b. Amending the Foreign Borrowings Act of 1966 (as amended by PD 1939) and the Official Development Act of 1996 to place more Congressional limits and parameters on the unilateral contracting of loans, pending a more favorable condition for a constitutional amendment modifying this presidential power (Article VII, Section 20).

c. Legislating parameters for the line-veto and reenactment, pending a more favorable condition for a constitutional amendment striking out these two presidential powers (Article VI, Section 27.2 and Section 25.7, respectively). 

2. The spatial dimension of the National Budget Preparation must be enhanced by a Revitalized Regional Budget Allocation Scheme (RBAS) project.

The Ramos administration, continuing with the decentralized budgeting approach developed in the Aquino’s term (codified also in the Book VI of the 1987 Revised Administrative Code), pushed for a regional block fund through the RBAS. This is a step higher from the Agency-RDC (Regional Development Council) consultations for agency budget, as instead of just reviewing the allocations determined by the agencies’ central office, RDCs will have the “authority to determine what programs and projects are to be funded and implemented in the region consistent with and in support of the region’s development plan and investment program” [Mercado, 1999]. For all its possible merits, the project was stopped due to a perception by legislators that it is an electioneering activity by the executive.

We believe that the RBAS must be continued, but it should be improved so as to assuage the fears of the legislators of encroachment of powers and so as to make the processes more inclusive and democratic. Thus, the revitalized RBAS, while taking into account pressures for greater fiscal decentralization and autonomy, puts greater emphasis on people’s direct participation, including all the stakeholders. 

As such, the revitalized RBAS must include the following features:

a. Representatives are required to be involved in the final decision making process on the programming and planning stage in the RBAS consultations, so as to extend the Congressional “power of the purse” from merely legislation to that which encompasses budget development itself, minimizing the impetus for “ad hoc” Congressional insertions and realignments. 

This is to address the critique that Congressional participation in the budget process is compromising the work the methodological rigor and rationality with which the budget and planning departments developed the national budget. As it stands, the budget development process involves not only macro-, microeconomic and social planning, but also systematic consultations with stakeholders, decision-makers, and implementers. Individual and “ad hoc” Congressional realignments and insertions threaten to spoil the linking of national development strategy and public finance strategy.

This is a valid claim, as the system does not provide venue for a more rational intervention on the part of the legislator. The “power of the purse”, if exercised fully in the current public finance system, will only bring us back to the pre-Martial Law system of irrational budgeting – something which we cannot afford in the modern era of international challenges and opportunities. We need to reform further the public finance system beyond just the dilution of presidential powers. On this, we argue that the “power of the purse” need not be compartmentalized to the “budget legislation” phase alone. In fact, the “power of the purse” can be more effectively and rationally exercised during the budget planning stage. 

It is thus suggested that representatives of a particular region must directly participate in the RBAS deliberations, with them having the power of final decision and approval. Congressional intervention can happen in the start, rather than in the end, of the process – allowing for more strategic and “big picture” adjustments by the executive without necessarily encroaching on the Congressional “power of the purse”.

b. Citizen’s participation and involvement. The RBAS must also institutionalize a way by which the public, acting through Local Government Units, can register its approval or disapproval of a particular proposed regional budget. The result of the RBAS deliberations must be put into consultations up to municipal-level.

c. Open to public and stakeholders, civil society organizations are involved. The RBAS deliberations must not only be among government officials, bureaucrats and technocrats – civil society and the social movement must be allowed to participate and register their critique if necessary.

3. Institutionalize grassroots people’s participation and involvement in all stages (proposal, legislation, authorization, evaluation) and levels (agency-level, region-level, etc.) of budget development by decentralizing budget decision-making using LGU-level mechanisms. 

So as to allow the government to know the exact needs of the people from the people themselves, we have to institutionalize the participation in the budget process not just of civil society organizations and people’s organizations, but more importantly, of the people themselves, at least with regards to the budget which directly affects them. Existing local government consultation and grassroots participation structures must be utilized in this endeaveor.


The proposals below are more strategic and may require more comprehensive structural changes, but may contribute in the development of public finance as an institution. It is thus suggested that these proposals be considered:

4. Budget-cycle must be increased from one year to a regular Congressional term (currently three years). This will allow for a more long-term budget formulation tied to national development strategies, as outlined in Medium-Term Philippine Development Plan (MTPDP) formulated by the executive and approved by the Congress.

5. Integration of the Department of Budget and Management (DBM), the Department of Finance (DoF), and the National Economic Development Authority into a singular, Constitutional commission-level, Public Finance Commission independent from the executive branch.

Why a Constitutional Commission instead of an Executive Agency? The main problem with a budget agency under a president is, as outlined earlier, its vulnerability to rent-seeking politicization. Therefore, the best way to divorce public finance from patronage would be to establish a semblance of independence from the public finance agency. Instead, the executive branch can submit proposed budgets of agencies to the Public Finance Commission, which it will evaluate and compile and later submit to Congress. The alternative would be to bring the “initiative of the budget” to the Congress, though it wouldn’t have the sufficient information necessary to be able to decide as effectively as the agencies themselves.

Why integrate DBM, DOF, and NEDA? The functions of the three agencies outline the different aspects of public finance. DOF raises revenues, DBM manages expenditures, and NEDA mobilizes foreign financing and crafts developmental strategies. Integrating the three agencies would do well in streamlining the bureaucracy, synchronizing national development policies, reducing complexity, and strengthening accountability measures.

In fact, together with Bangko Sentral ng Pilipinas (BSP, the country’s Central Bank), these departments already convene as Development Budget Coordinating Council (DBCC) which presents to the Committee on Appropriations the current fiscal position and the macroeconomic assumptions on the start of budget deliberations. Institutionalizing this integration would facilitate better alignment of objectives which are actually not separate in the first place.


  • Amojelar, Darwin G. (2008, July 10). Deficit for 2008 may reach P45B. The Manila Times.
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mark said...

The problem with this article is how do you know congress will be more responsible in spending the national coffers? I agree that they know better than the president their local needs and how to best meet them, but it is another question altogether if they will actually do it and if it is in their interest to do so.

During fiesta's or a funeral, politicians are expected to be generous and give for these events. So much so it is impossible to satisfy these demands without being corrupt. The voters often don't realize such corruption can hurt them by reducing investments and weakening rule of law. Not everyone has the time to just think all day and analyze such issues in detail like you or that walden bello guy. Some of them have to earn a living satisfying the needs of consumers. And even with all that time you people still get things wrong! Other times they don't really care to know. All they care about is they get some money!

The question is: why should innocent people have to suffer for the stupidity, ignorance, or apathy of others? And if they should, how can we build a sustainable and prosperous society given the costs of gathering and analyzing such information?

James Miraflor said...

Hi Mark!

It's one thing that we push the locus of power closer to the locale and the grassroots, its another thing to democratize the local institutions of power. I agree with you wholeheartedly - that most of the times local politicos do not act for the interest of their supposed constituencies. But I do not think that that is an excuse for fiscal dictatorship by an overtly powerful executive. The process is dialectical: while you are de-linking the local from the central, you are de-linking the local from rent-seeking and corrupt political players.

You mention a thing about corruption. While it is indeed a genuine problem, I wouldn't think it is the worst. For one, undeniably corrupt countries of Indonesia and Malaysia went ahead towards the future while we had been left to gather dust. Maybe we should think of other structural reasons why we are poor besides corruption.

Nonetheless, it is sad indeed that people feel helpless against the forces of the rent-seeking political elite. But I believe that "business-as-usual" attitude won't get the Filipino nowhere. Now more than ever, there is a need for social involvement and political participation.

Hong Kong proved it when ICAC was created, Singapore did it when they collectively struggled for progress, Cuba did it when they mobilized in millions for social transformation, and Japan did it to leap-frog their economy after WWII devastation.

We do not de-link people from bad politics - we empower them to change the politics into a good one.

Anonymous said...

Excuse, that I interfere, but, in my opinion, this theme is not so actual.