Trust - Part II

Second of four parts

A stimulus package, not

DAP is not a stimulus package as claimed. The theory behind fiscal stimulus depends on three basic factors. In practice it is difficult to have more than two of these met at any one time: 1) provide stimulus through use of idle resources; 2) it should be started quickly and 3) it should perform reasonably well in a cost-benefit test.

In the first place, the slowdown in 2011 was caused by under spending by the same people who put together DAP. There was no recession. There was a slowdown and they knew what caused the slowdown. Act fast; it will stop the slide, right?

Fiscal stimulus only works if it “uses idle resources that would not otherwise be used by the private sector. Using employees and equipment that would otherwise be used by the private sector is of no use; in fact it is detrimental if the private sector projects are of more value than government ones. This “crowding out” of private spending by public spending must be avoided. To avoid crowding out, great care needs to be taken in a fiscal stimulus package to target industries and geographic areas that contain idle resources. Re-opening a closed automotive plant and re-hiring the laid off workers is an obvious way to do so, though in the real world it is difficult to target a stimulus plan so precisely.”

A recession is not a particularly long-lived phenomenon. “Since World War II, recessions have lasted between 6 and 18 months, with an average duration of 11 months. Suppose we are in a long recession of 18 months, with another 6 months of slow growth afterwards. This gives us a 24-month window in which to provide fiscal stimulus. During this period a number of things have to happen: the government has to recognize that the economy is in recession; the government needs to develop a stimulus package; the stimulus bill needs to be made law and pass all the necessary checks and balances; the projects involved in the stimulus package need to be started; the projects, ideally, need to be completed. If they are not completed before the economy fully recovers,” then we will certainly have crowding out.

Ideally, we should get good value for our money so government should spend taxpayer pesos on items of real value to the taxpayer. “Government spending will necessarily raise GDP, because in the calculation of GDP the value of any government project is determined by its cost, not its value. But building roads to nowhere does nothing to increase our true standard of living. There is also the political issue here since projects may be chosen on their political popularity or value to special interests, rather than on their merits.”

Budget Messages
If DAP was in good faith, it should have been in any of the 2011, 2012 and 2013 Budget Messages. There was no DAP but you can see some components of it in 2012 and 2013. What is clear is that there was no policy or program.

2011 was the first financial blueprint of the Aquino administration. They proposed P1.645 trillion or a “meager increase of 6.8 percent from the 2010 appropriations.” “We are seeking new appropriations of P1.0 trillion, inclusive of P66.9 billion of unprogrammed Appropriations.” Further, the 2011 Budget Message said: “Lump-sum funds, such as the PDAF, and the farm-to-market roads and irrigation lump-sump, said to be more prone to corruption than most other funds, will be rationalized. The use of these funds will be justified according to master plans and government priority needs to increase effectiveness and accountability, and to reduce leakages.” Were any of the master plans DAP?

In the case of the “PDAF, we will limit its menu of project options to the Administration’s priority concerns (education, health, social protection, and public infrastructures) to help make this development fund live up to its name and bring sustainable progress, particularly in the countryside.”

By 2012, Benigno Simeon Aquino 3rd proposed “P1.816 trillion, higher by 10.4 percent than the 2011 at P1.645 trillion. Zero-Based Budgeting and the desire to instill transparency and accountability in the bureaucracy have compelled us to flesh-out oft-abused lump-sum funds. We have drilled-down into regional and sub regional allocations, agency lump-sum funds totaling an unprecedented P150.5 billion.” If there was indeed an honest to goodness Zero-Based Budgeting, there won’t be DAP. They could have created new line items from the ZBB.

Again, the Budget Message said: “Lump-sum budgeting delays the implementation of programs and projects, especially critical ones.” Further, “financial accountability studies have also convinced us to similarly tighten the gravely abused generation and use of savings. We have reformulated the General Provision in our proposed spending program that allows the use of savings to strengthen DBM oversight on the realignment of funds across allotment classes, within capital outlays, and over their use for allowances like magna carta benefits.”

Interestingly, the Budget Message also contained an irony in relation to DAP: “The budget must already reflect the best of the operational plans of agencies. We only reiterate the fiscal autonomy and privilege to realign savings granted in the Constitution to Congress, the Judiciary and the constitutional offices.” The proposed 2012 budget was broken down to P1.092 trillion in Programmed New Appropriations and P161.7 billion for the Unprogrammed Fund.

One should bear in mind that the Supreme Court ruled on PDAF on 19 November 2013.

To be continued...