The presidential business agenda: How to finance the program

The business community, caring and concerned as much for the future of our country as any of us, came out with a concrete blueprint for the first 100 days of the next president. Mindful that the 2004 election is a defining moment and possibly the last chance we have to reclaim our future, the businessmen’s suggested guidemap entitled "The Presidential Business Agenda" hopes to serve as a catalyst to actionable growth programs. The ultimate aim it points out is to "uplift the life of every Filipino."

The paper itself is organized into three parts; Part One summarizes the problems; Part II puts forward the business sector’s own set of suggested contributions and plan of action in support of government’s larger goals; and Part III is a 100-day scorecard by which we can assess our progress.

By and large the paper presents an incisive and accurate picture of the ills and malaise of the country that has left the Philippines largely behind, compared to our Asean neighbors, in the journey toward prosperity.

Part I of the paper titled "A Snapshot of Our Country in the Simplest of Terms" identifies the areas that have seriously hampered the country’s ability to catch up with the rest of the region – namely: Crippling Budget Deficit; Ballooning Foreign Debt; Deteriorating Competitiveness; Crisis in Investor Confidence; Widespread Poverty; and Widespread Public Cynicism.

On the Crippling Budget Deficit, it notes that the country has the lowest tax revenue/GDP ratio in Southeast Asia with an estimated 30 percent only of individuals and 20 percent of firms paying the correct taxes. The problem, moreover, is compounded by government’s inefficient spending as well as by rampant corruption. "Simply put", the paper says, "our future is held hostage because of government’s inability to finance economic growth."

On the ballooning Foreign debt, it is observed that more than 31.4 percent of the proposed 2004 national budget will be allocated to debt servicing, siphoning-off, thus, much needed funds away from infrastructure and social services requirements. "Simply put," the paper highlights, "debt servicing is draining the lifeblood from industries and the national economy."

On our Deteriorating competitiveness, it is known all to that the Philippines has ceased to be an attractive investment option and viable production site owing to our poor and underdeveloped infrastructure. "Simply put, the paper concludes, "the Philippines is in danger of drowning in the rising tide of globalization."

On the Crisis in Investor Confidence, it is remarked that political instability as well as peace and order problems have reinforced the negative perceptions of the international investment community. Simply put, the paper indicates, "the Philippines isn’t even on the radar screen of most foreign investors."

On Widespread Poverty, it is obvious that the lack of foreign investment and the dearth of competitive industries have resulted to unemployment exacerbating thereby poverty. Only a small minority of Filipinos can afford three square meals a day. "Simply put, the paper dissects, "every day, hundreds of Filipinos cross the threshold into absolute poverty."

Finally, on Widespread Public Cynicism, it is sad to note that, as the paper simply puts it, "Filipinos have lost faith in their country and government."

As keenly as the businessmen’s paper identifies the problems, it correspondingly offers general, if not obvious, antidote. For the Crippling Budget Deficit, the paper forwards that "we must strengthen government’s fiscal position and improve the quality of public spending." For the Ballooning Foreign Debt, the paper suggests the obvious, that is, "we must ease the foreign debt burden." As to our Deteriorating Competitiveness, the paper likewise proffers the apparent that "we must be globally competitive, sooner rather than later." On the Crisis on Investor Confidence, the paper prescribes that "government needs to enhance macroeconomic stability." On the perennial Widespread Poverty Problem, it is axiomatic that "we must reduce poverty drastically and strive toward a more equitable distribution of wealth." Finally, on Widespread Public Cynicism, the businessmen’s group challenges that "we must transform the spirit of our country."

In part II of the Presidential Business Agenda which identifies the one goal and focus which is to "uplift the life of every Filipino", the paper delves into the specific of "Creating Jobs to Uplift Lives" and to "Establish Law and Order: A Prerequisite to Job Creation."

As a concrete manifestation of the businessmen group’s own bold initiative towards "uplifting the life of every Filipino", the paper suggests that they put up a Guaranty Pool for Poverty Alleviation through a combined fund designed to provide the financing and credit requirements of the poor.

The paper then challenges the government to restore peace and order and to balance the budget enumerating thereon the bold initiatives needed to achieve these ends.

Finally, the paper ends with a call to action addressed to the millions of Filipinos who are willing to do what has to be done to help their country. "Now is a good time as any, for the clock is running out on our nation and our people," the paper ends.

Of course, we fully agree with the business group’s identification of the problem areas of Philippine society as well as the solutions forwarded in response thereto.

However we agree, though, with the proposed programs presented to solve our national problems, motherhood solutions as they are, we distinctly observe that all the remedies interposed can only be implementable and successful with the proper and adequate wherewithal to finance them. For, lacking the monetary component to pursue the above-suggested reforms, the proffered solutions would remain a "wish list" without a chinaman’s chance of implementation or success.

Indeed, we cannot create more jobs and employment opportunities for our people without money to do it. We cannot improve and modernize our infrastructure and utilities without money to finance them. We cannot build roads, highways, ports, airports, hospitals, schools, markets or establish power, water and telecommunications facilities without the requisite money to finance them. We cannot maintain and preserve peace and order and a favorable investment climate without the finances to underwrite the concomitant expenses. Finally, we cannot finance the over-all development of the country with the existing money supply and instead depend principally on foreign borrowings to meet our monetary requirements and, as a consequence, ever more increase our already gargantuan foreign debt.

The ultimate solution, we believe and will pursue as a crusade, is for government to finance now all our financial necessities for growth and development through internal borrowing collaterized against future taxes.

The idea is simply for government to create all the needed funds to finance our total development now by floating long-term, low-interest 30-year bonds with a five-year grace period, which our own central bank shall be mandated to purchase through the creation and issuance of new local money. The internal borrowings shall be secured against future taxes which, like death, are a certainly of occurrence in any case. The gameplan is to build all that the country needs now to modernize with the cost to be recouped thereon through taxes generated as and while the people use and enjoy these facilities.

Without exception, this was the road to industrial success that all the now developed countries trod and followed. It should be no difficult conclusion to arrive at that we must follow the same successful path to modernization.

It should, therefore, be amply clear that the first order of business of the next President of the country is to amend forthwith section 117 of the New Central Bank Law that prohibits the Bangko Sentral from guaranteeing the placement of government issuances of securities. This section absolutely decapitates the power of the central bank to assist government in raising funds on a long-term, low-interest basis in local currency to finance the needed investments in infrastructure and utilities. This has created a very abnormal situation where our own government, instead of running to the BSP for loans for public projects, has to seek funding through continued foreign borrowings. No wonder our whopping foreign debt of about $60 billion as of today.

In fine, the key a successful implementation of the Presidential Business Agenda is financing. As critical as well, in this regard is the proper government accounting method used as it pertains to the national budget.

Our present government accounting policy is antiquated as it lumps together as part of government expenses in the national budget both operating expenses as well as expenditures for capital investments. This should not be so.

Government expenditures for the operations of the government (that is operating expenses) is properly charged to the national budget for the current year. In this category belong the expenses for maintenance and upkeep of the bureaucracy which includes the salaries and benefits of all government officers and employees. Operating expenses is properly sourced from government revenues.

On the other hand, government expenses for capital investments should never be lumped with operating expenses that are chargeable against the revenues of government for the current national budget. This must be so as capital investments have gestation periods that go beyond the current fiscal year.

In this class includes expenses for the infrastructure and utilities that should be built and set up all over the countryside such as roads, highways, bridges, ports, airports, including water, power and telecommunications facilities. These should be amortized throughout the lifetime of the projects, i.e. 25 to 30 years, with only the current depreciation cost being charged to the present year. As importantly, these capital investments should not be charged against the current national revenue but should be sourced through government borrowings that are secured against future taxes. Government should use its power to raise new money through the floatation of 30-year bonds to finance the long-term construction of all our infrastructure and utilities.

The idea is really to put up now all the infrastructure and utilities all over the archipelago since they are urgently needed for the full development of the country. The cost of the development shall be borne by new money that shall be securitized against future taxes. In the meantime, said financial cost shall be paid through taxes as and when the infrastructure and utilities are used.

By way of summary, we repeat our praise for the well thought-out paper for progress of the businessmen’s group. Yet, while we give kudos to them, we join likewise in the effort to contribute our share by adding and insisting that the only feasible way to actually implement these programs is for us now to finance them through borrowed local and new money that shall be securitized against future taxes. As importantly, there is a need to change our accounting method, as it pertains to the national budget, by removing government expenses for capital investments from the current budget as they have long gestation periods and charging only their depreciation cost to the present year.

By doing all these, the next President, indeed, will have a fighting chance to "uplift the life of every Filipino."

You may write your comments / suggestions at 15/F Equitable Bank Tower, Paseo de Roxas, Makati City or through e-mail at [email protected])

(Editor’s note: Atty. Roxas is writing a limited series of articles dealing with financial matters and other important business topics. He is available for speaking engagements on the subject matters of his articles.)