Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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Harnessing LGUs To Increase Investments

            Despite the expected slowdown of the world economy in the next three to five years, it is still possible for the Philippines to attain GDP growth rates of 7% or over annually on the basis of significant increases in both private and public investments.  Private investors are gungho about such big-ticket items as energy, mining, infrastructures, hotels, hospitals, universities, BPOs, office buildings, agribusiness, and food manufacturing.  Funding is not an insurmountable obstacle because the local banking system is very stable and awash with liquidity.  As the Philippines is close to getting investment grade from credit rating agencies, even foreign borrowing can be a major source of funding for these capital-intensive investments.  On the public sector side, the fiscal deficit has been brought down to very manageable levels of 2 to 3% of GDP.  There is enough leeway for larger public sector investments now that the time for an overly cautious concern about corruption is hopefully over.  These conditions seem favorable for the necessary quantum leap of the rate of investment from the very low 17% of GDP to the necessary 25 to 30% if we are going to achieve the targeted 7% growth, the only level at which we can make a meaningful dent on mass poverty.

          The only fly in the ointment is the continuing conservative mood I observe among our national economic leaders.  It is taking them literally forever to launch with the private sector the much awaited Public Private Partnership projects.  The announcement by the Secretary of Transport and  Communication that the Government may undertake some of the big projects like LRTs, MRTs, airports and seaports by using official development assistance (ODA) could mean more delays.  It takes years to unlock ODA funding because of all the bureaucratic steps that have to be taken.  Furthermore, I don't trust the management capability of national government corporations or agencies to implement such big-ticket projects.  Most of these agencies are terribly undermanned.  How can we accelerate public investments?

          One answer is to harness the LGUs in implementing local projects that are so important in attaining the so-called "inclusive growth" that is almost the soul of the Philippine Development Plan, 2011 - 2016.  There are endless lists of local projects that are crying out for funding and implementation.  In my consultancy work with some enlightened mayors and governors, I see every day the need for the relocation of informal dwellers  from dangerous sites as dramatically illustrated in the Sendong natural disaster; farm-to market roads, multi-purpose buildings; flood control; water supply facilities; disaster mitigation; facilities for senior citizens and persons with disabilities; and service vehicles.  In the area of primary health, there is almost universal lack of birthing clinics, ambulances; X-Ray, ECG, CTS Scan and MRT equipment; Nebulizers; BP, Weighing Scales and other medical equipment; incubators; laboratory facilities  In education, there is the perennial lack of classrooms; computer convergence and connectivity;  e-learning centers; furniture; sports and cultural facilities; day care centers; and teacher training institutes.  These are projects that can be immediately implemented and do not need elaborate feasibility studies.

          One concrete initiative that should be on top of the priority list of the Department of Budget and Management is that coming from Oriental Mindoro Representative Rodolfo Valencia, the chairman of the House Committee on Housing and Urban Development and Cavite Rep. Joseph Emilio Abaya, the chairman of the House Committee on Appropriations.  Through House Resolution No. 591, these two congressmen have asked Budget Secretary Florencio Abad to release some P2.06 billion that has been long overdue for the local housing program under the

Comprehensive and Integrated Shelter Financing Act of 1994.  Congressman Valencia emphasized the urgent need to release the overdue amount to give each congressional district an equal opportunity to provide its constituents with socialized housing and eventually help in decreasing the housing backlog of more than 2 million units in the whole country.  The urgency of providing social housing to informal dwellers is quite obvious after the Sendong disaster.  LGU heads are now painfully aware of their responsibility to relocate these dwellers from locations that are at risk from the threat of La Nina in the coming months.  As I have personally observed in the small town of Bani, Pangasinan, the relocation of fisherfolks residing along the shores and exposed to tsunami risks was done in a record time of one year once the funding was made available from government institutions.

          Another major proposal, although more controversial, should also be given enough consideration by our national economic leaders.  This is the one coming from Batangas Congressman and former Batangas Governor Hermilando Mandanas who continues to insist on the implementation of the decision of the Supreme Court in 2004 in a case entitled Province of Batangas Vs.  Romulo declaring that "...Further, a basic feature of local fiscal autonomy is the constitionally mandated automatic release of the shares of local governments in the national revenue."  According to Congressman Mandanas, because of the non-implementation of this decision by the National Government, it now owes the LGUs an accumulated amount of P500 billion of unpaid Internal Revenue Allotment (IRA) for LGUs corresponding to the period 1992 to 2012.  He estimates that in 2011 alone, some P68 billion remained unreleased. 

          As former Chairman of the Appropriations Committee of the House of Representtives, Congressman Mandanas is able to descend to very specific details of how the increased appropriation to LGUs can stimulate investments at the local level:

·      Every LGU should be able to include in its respective 2012 proposed budget the estimated IRA equivalent to at least 250% or 2 1/2 times the 2011 IRA, or an increase of 150% of the 2011

·      IRA.  Cities may have to make some adjustments as a result of the proclamation of new cities.

·     The Governors and Mayors were required to submit their proposed 2012 budget to their respective sanggunians on or before October 16, 2011.

·     With the increased estimated IRA, the Annual Investment Plan should be adjusted and proposed appropriations correspondingly increased in accordance with existing rules of local budgeting.

·      With additional P500 billion, the LGUs will now be able to expedite the delivery of long delayed and urgently needed basic infrastructures and services.

          I don't expect the National Government to accept the P500 billion estimate any time soon.  The appeal of Congressman Mandanas should, however, unlock more funding for LGU projects which can be complemented by soft loans from such government financial institutions as the Development Bank of the Philippines and Land Bank, whose charters mandate them to fund projects at the regional or local level. Thousands of these small projects can add up to significant amounts that can partly compensate for the delays in the implementation of the bigger investments, which are mostly concentrated in the Metro Manila area and other urban centers.  Both Congressmen Valencia and Mandanas are proposing a most effective way of killing two birds with one stone:  increase significantly the rate of investment in the country while attaining inclusive growth.  It is notable that both congressmen have spent many years of their lives in politics as governors of important provinces, making them very knowledgeable about the importance of the LGUs' role in national development.  For comments, my email address is bernardo.villegas@uap.asia.