National budget not a Batanes budget

President Aquino’s narrative (a mythical one, as I discussed in my article in Rogue magazine’s June issue) is that his administration is the sequel to his mother’s 1986 people-power government, out to slay the Corruption Dragon.

A corollary to that narrative is that his predecessor President Arroyo left the economy in tatters – a total disregard of the facts, among them: the average economic growth rate from 2001 to 2010 of 4.7 percent was the highest among the past four administrations, and the average inflation of 5.2 percent, the lowest.

Thus, Mr. Aquino’s ideologue, Budget Secretary Florencio Abad quickly reacted to Arroyo’s criticism of the incumbent’s “nobody-home” administration not by showing that there’s really a mind in Malacañang. He goes on the juvenile kill-the-messenger tack by alleging that Arroyo mismanaged the country’s coffers. “Prudent expenditure took a back seat to political survival and political patronage,” Abad said in his statement posted on the Department of Budget and Management’s website. “The country was left with the largest budget deficit to date of P325-billion or 3.9 percent of gross domestic product,” he alleged.

Abad didn’t know what he was talking about, as much as he didn’t know that the same DBM website where he posted his allegations was all praises for Arroyo:

“Under President Gloria Macapagal-Arroyo, the DBM focused its efforts on deepening fiscal responsibility, enhancing the efficiency of public expenditures, and promoting good governance.

“Through prudent spending and vigorous revenue generation formulated by the DBM at the beginning of the Macapagal-Arroyo administration, the government was able to maintain a healthy fiscal position by containing a deficit level of P147 billion, which is within the target 3.8 percent of GNP.”

Abad’s allegations against Arroyo are actually a deep insult to the DBM (and his former colleague in Congress, Rolando Abaya who headed the DBM from 2006-2010) since it was fiscal policy which the DBM managed with precision in 2009 that prevented our economy from slipping into a recession at that time.

Don’t take it from me. It’s the account of neutral observers – even the present National Economic Development Authority.

As explained in an International Monetary Fund Working Paper (“Post-Crisis Fiscal Policy Priorities for the ASEAN-5”), most nations stimulated their economies by incurring fiscal deficits to weather the global economic and financial crisis of 2009, considered the worst since the pre-war Great Depression.

Thus, Arroyo’s government, under its Economic Resiliency Plan, increased its deficit (i.e., spent more than it earned) from 1.3 percent of GDP in 2008 to 3.9 percent in 2009. Still reflective of government’s tight budget management, this level was lower than the 5.5 percent average deficit countries in Asia incurred.

The result, according to the IMF in its 2009 “Article IV Consultations” report: “Fiscal policy easing in 2009 was appropriate and effective… so that the Philippines avoided a recession many countries experienced as a result of the global financial crisis.”

Abad and President Aquino should thank Arroyo’s administration for its economic management that steered the country through the 2009 global crisis. If Arroyo and then Budget Secretary Andaya had thought in the same way Abad does in terms of fiscal policy, Mr. Aquino would have inherited an economy in deep recession, and his economic team wouldn’t be able to boast that rating agencies have upgraded our debt papers. The 7.3 percent GDP growth in 2010 –the highest in the past three decades – was in part due to the surge in investor confidence because the country was one of the few in the world that successfully weathered the 2009 global crisis. It was certainly not because of some mumbo-jumbo cockamamie “Aquinomics.”

Abad should read the “Philippine Development Plan, 2011 to 2016” released last month by the Neda, whose board he is a member of, with Mr. Aquino as chairman, so he will know the facts:

“In 2004-2009, the government implemented reforms to place the fiscal house on a sounder footing. Major reforms to improve the revenue situation during the early part of the period included the revisions of the excise tax on alcohol and tobacco, an expansion of the scope and an increase in the rate of the value-added tax, as well as the enactment of the Lateral Attrition Law. As a result, tax effort rose from 12.5 percent in 2004 to 14.2 percent in 2008.

“The improved fiscal positions of the national government, the social security institutions, local governments, and the government financial institutions translated into a surplus in the country’s consolidated public sector financial position amounting to P21.3 billion or 0.3 percent of GDP in 2007, from a deficit of P235.9 billion or 5.0 percent in 2004.

“The economy expanded at its fastest rate in three decades in 2007, with GDP growing at 7.1 percent… With greater fiscal space from the previous years’ tax reforms … public construction rose 29.1 percent. Notwithstanding the effects of the global financial crisis, GDP in 2009 rose by 1.1 percent, a figure within the target of 0.8-1.8 percent, making the Philippines one of the few economies in the region to register positive performance amidst the recession.”

I hope Abad learns soon enough that the national budget is totally different from the budget of his Batanes province (2007 pop.: 15,974), for which the only thing you need to do is to be parsimonious. Already, the delay in budget releases because of his dogma that all contractors in the past government were corrupt has slowed down the economy, and may even have hampered draining projects, contributing to the recent flooding in Metro Manila.

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