Philippine government left almost broke by ex-president, says Noynoy Aquino

“Our budget for 2010 is 1.54 trillion pesos. Of this, only 100 billion pesos – or 6.5% of the total budget – can be used for the remaining six months of the current year,” said new President Benigno Aquino III in his first State of the Nation address, 26 July 2010. “Roughly 1% of the total budget is left for each of the remaining month.”

At current exchange rates, about 33 Philippine pesos make a Singapore dollar. So, the 100 billion pesos left in this year’s budget is equivalent to S$3 billion, or S$33 per citizen, based on an estimated population of 90 million.

Forcefully accusing the previous administration under former president Gloria Macapagal-Arroyo of mismanagement (more likely, worse), Aquino used about half his speech to bring Filipinos to reality about the state of the country’s finances. His revelations were shocking.

“A calamity fund worth 2 billion pesos was reserved in preparation for anticipated calamities. Of this already miniscule amount, at a time when the rainy season has yet to set in, 1.4 billion pesos or 70% was already spent.” Indeed, in July the country was hit by two typhoons, and more are expected before the year is out.

More pointedly, he revealed that one province alone, Pampanga,  received 108 million pesos from the calamity fund. “Of this, 105 million pesos went to only one district,” he added without naming the district. Virtually all Filipinos know that as her presidency drew to a close, Arroyo chose to stand for election as a representative to Congress from the Second District of Pampanga. She won and now represents that district.

By way of contrast, Aquino said that province of Pangasinan, which had been severely affected by Typhoon Pepeng (September/October 2009), received a mere 5 million pesos, but more interestingly, Aquino noted that “The funds were released on election month, which was seven months after the typhoon.”

Certain to make Filipinos even angrier was his report of payments to officers of Manila’s Metropolitan Water and Sewerage System (MWSS),  even as “people lined up for water. . .  even though the pensions of retired employees remain unpaid.”

Allowances, benefits and bonuses come to many multiples of the salaries MWSS’ employees receive. “In the MWSS, they receive the equivalent of over thirty months pay if you include all their additional bonuses and allowances.”

Remuneration for their board of trustees is even more shocking, said the new president.

“Attending board of trustees and board committee meetings, and you get fourteen thousand pesos. This totals ninety eight thousand pesos a month. They also get an annual grocery incentive of eighty thousand pesos. And that’s not all. They get a mid-year bonus, productivity bonus, anniversary bonus, year-end bonus, and financial assistance. They not only get a Christmas bonus, but an additional Christmas package as well. Each of these amounts to eighty thousand pesos. All in all, each member of the board receives two and a half million pesos a year exclusive of car service, technical assistance, and loans.

“Let me repeat. They award themselves all of these while being in arrears for the pensions of their retired employees.”

He accused the previous government of mandating lower prices for electricity and rail transport in order to win elections, critically wounding the corporations’ bottom lines.

“From 2001 to 2004,” he pointed out, “the government forced Napocor to sell electricity at a loss to prevent increases in electricity rates. The real motivation for this is that they were preparing for the election. As a result, in 2004, Napocor slumped deeply in debt. The government was obligated to shoulder the 200 billion pesos it owed. What the public thought they saved from electricity, we are now paying for using public coffers. Not only are we paying for the cost of electricity; we are also paying for the interest arising from the debt.”

The country suffers from regular brownouts because power generation capacity does not match demand. For years, development economists have pointed out that unless the utilities are allowed to price their output sensibly, there will be no investment in new generating capacity. After all, why produce more and more electricity to sell more and more at a loss? In turn, the unreliability of power supply deters foreign investment — besides annoying citizens — which crimps job creation for a country that badly needs more employment for its exploding population.

Another example of government action that deters investment was the take-over of the Metropolitan Rail Line (MRT) that serves metro Manila. “The government tried again to buy the people’s love. The operator was forced to keep the rates low.” The result however was that the MRT started losing money, and the guarantee given to the operator that it would be able to recoup his investment was nullified, an outcome that would surely make other investors think twice. “Because of this, [state-owned]  Landbank and the Development Bank of the Philippines were ordered to purchase the MRT.”

Rotting rice was the next target of Aquino’s ire. In 2004, the shortfall in the domestic  production of rice was 117,000 metric tons, but the government bought 900,000 metric tons from abroad, seven times more than needed.

In 2007, the domestic shortage was 589,000 metric tons. The National Food Authority (NFA) went out importing 1.827 million metric tons, again much more than what was needed.

“What hurts is, because they keep purchasing more than what they need year after year, the excess rice that had to be stored in warehouses ended up rotting, just like what happened in 2008. Is this not a crime, letting rice rot, despite the fact that there are 4 million Filipinos who do not eat three times a day?”

The result is NFA’s current debt of 177 billion pesos, reported the new president. Giving a sense of the scale of this loss, he gave by way of examples:

  • The budget of the entire judiciary is just 12.7 billion pesos this year.
  • The Conditional Cash Transfers [to the poor] for the following year — 29.6 billion pesos.
  • All the classrooms that our country needs — 130 billion pesos.

Aquino let his feelings rip: “This way of doing things is revolting. Money was there only to be wasted.”

The State of the Nation address was given in Filipino. The English translation, provided by the president’s office, can be seen here.

* * * * *

Critics pointed out that his speech was not as well-received as Arroyo’s last State of the Nation address. Aquino’s speech was interrupted “only” 32 times by applause compared to 126 times for Arroyo’s 2009 address. They also noted that he spent much time attacking his predecessor’s record and outlined few new plans or projects.

It is true; he didn’t.

But can you blame him? There’s no money left in the coffers.

Yet in my view, if you look closely, what he said in the second half of his speech was very much grounded in the first half’s recitations of misgovernance, though he could have explained the connection better. Essentially, he outlined two key planks going forward:

  • thoroughly change the way government works, e.g. proper bidding for contracts
  • rely on the private sector for infrastructure investments

In response to the State’s empty pockets, he said: “The answer to the dearth in funds is a new and creative approach to our long-standing problems. We have so many needs: from education, infrastructure, health, military, police and more. Our funds will not be enough to meet them.” Instead, the Philippines will open up to Build, Operate and Transfer projects, where private investors have a guaranteed term to recoup their investment and make a profit before transferring the assets to the government.

But unless governance culture is changed, no investor will have enough faith to participate. Future revenues risk being squandered like before. So in his address, Aquino put great emphasis on his “determination to stamp out this extravagance and profligacy” and on adopting a “zero-based approach” to budgetting. “Next month we will be submitting a budget that accurately identifies the problem and gives much attention on the right solution,” he promised.

He will also set up a Truth Commission under former Chief Justice Hilario Davide to investigate the previous government’s misdeeds. There will be a new whistle-blower law to protect those who give evidence.

Yet, changing governance culture is going to be far harder than it sounds. His Liberal Party does not have a majority in either house of Congress; he has to depend on defectors from other parties to pass bills and his budgets. Arroyo made hundreds of “midnight appointments” before she left office. The term refers to appointments to the judiciary, various boards and commissions backdated to before 10 March 2010, when her power to make new appointments expired under the constitution. A long list of appointees were only revealed in the waning weeks of her term of office (thus the charge of backdating), but these appointees, many considered her cronies, may resist direction from the incoming president, crippling his effectiveness. See this news story by ABS CBN.

More seriously, Aquino must wrestle with the Ombudsman appointed by Arroyo in 2005. Merceditas Navarro-Gutierrez is considered very close to Arroyo, and as Ombudsman, she has the independent responsibility for investigating wrong-doing by officers of all three branches of government — the executive, legislative and judicial. The incoming administration has pointed out that in all these years, she has hardly pursued any case, despite a tsunami of graft allegations against Arroyo and her cronies. That being the case, Aquino cannot be expected to rely on the Ombudsman to unearth or prosecute any wrongdoing, especially in cases involving Arroyo and her allies.

Yet, the new president cannot remove Navarro-Gutierrez from office either. Congress can impeach her (provided a majority of legislators want to), but the impeachment process may take years. How is the Aquino going to effect culture change in the vast Philippine bureaucracy without a determined graft-buster on his side?

Nor does he have any realistic option of special powers to break up entrenched interests, fiefdoms and corrupt habits. After the experience of Ferdinand Marcos, Filipinos will not agree to emergency powers. Moreover, if Aquino wants to attract foreign investment, he has to demonstrate by example that he abides by the rule of law. The problem is that law in the Philippines works extremely slowly and fitfully.

Looking at the obstacles he faces, it’s hard to say what his chances of success are.

* * * * *

Though I am aware that most of my readers are Singaporean, I have deliberately avoided writing the above through a Singaporean lens. However, I am interested to see how Singaporeans view this conundrum that Benigno Aquino III faces. In Singapore, we have an over-powerful executive, with puny and half-broken checks and balances. Do you think the Philippines has too many checks and balances? If you were in Aquino’s shoes, what would you do?

8 Responses to “Philippine government left almost broke by ex-president, says Noynoy Aquino”


  1. 1 mahb 27 July 2010 at 21:55

    We are lucky in Singapore this is not going to happen as we have market subsidy where the governement triples the price (market) and then gives a 10% discount (subsidy). Like that there is always enough money left!

    • 2 prettyplace 29 July 2010 at 02:08

      But what exactly are they doing with the revenue.
      No one knows the answer to that question.

      It is still plausible to end up like where Philippine is.
      We only see one side of the equation and not the other.
      ‘the other’ is based on trust. Which is questionable.

  2. 3 Mat Alamak 27 July 2010 at 22:18

    It must also be noted that for decades, the Philippines does not have a tradition of good governance, peace and stability. And neither do the other ASEAN countries, with maybe only Singapore being the exception where peace and stability will remain rock solid. Why not, after all only 700 sq km with 5 million all urban population.

    Aquino thus cannot change things overnight or even with more time and good new plans. At best he can only make powerful speeches like the one above attacking what had been wrong. Unless he totally throw out the system and replace with a good clean one. But how to? And where to get a good clean one? For years, many talented and not so talented Filipinos have already gone to seek their livelihood and fortunes in other lands.

    Hence I think it will be status quo for the Philippines for many more years regardless of who is President or how strongly he wanted to push for reforms and other goodies he promised during campaigning.

    The same can also be said of the other ASEAN countries, even if they change their govt or the leaders.

    But for SIngapore there will be no change. PAP will remain the ruling party for another 2 elections at least, according to their wise old Mentor. Where such political forecast is concerned, I give him 100 marks. Because where politics is concerned his track record is real solid. Unmatched by any other leaders.

    • 4 KiWeTO 28 July 2010 at 01:52

      Aiyoh,

      so many forecasts that haven’t come out true, why 100% believe this one from old man?

      More likely ego-wars will arise after he leaves that party.

      E.o.M.

  3. 5 francis 28 July 2010 at 14:23

    The appointment in key and strategic position by Arroyo including the Ombudsman had the effect of shield her from any fall out for her missdeed a very long time, that sounds very familiar, wonder where she learned that from….

  4. 6 prettyplace 29 July 2010 at 02:19

    Too big a nation to control.
    Too many disputes and power struggles.

    I guess, Arroyo did a favour towards a complete bankrupt govt in the near future. In the event of bankruptcy, IMF steps in to clear the exxcesses and provide sound policies.
    Which they have to follow and anyone opposing such policies will be booted out. That will be the way out for such a country.
    Real changes, can only occur when there is a revolution.

    In Singapore’s case old man was, way too smart, he noticed when England went bankrupt and never wanted to be in that situation.
    He chose otherwise, to make sure we are charged market prices and no welfare.

    Now, the govt is too rich and getting fanciful.

  5. 7 Ponder Stibbons 29 July 2010 at 13:26

    Having fewer checks and balances cuts both ways. It can be advantageous in certain stretches of history; but it leaves the country very dependent on a competent executive branch. Once the executive branch rots, it becomes extremely easy to completely destroy the country. Singapore is still in a very early stage of its history, so just because the executive branch has managed to not inflict too much harm so far, doesn’t mean that the situation will continue indefinitely. In fact, it would be a real historical novelty if it did. I don’t see any mechanisms in place to ensure that the executive branch will remain ‘clean’. If you say “the PAP’s continued good judgment”, that just leaves you having to provide a mechanism for the continuation of the PAP’s good judgement.

    A good analogy will be with an inefficient algorithm that is robust to disturbances, versus an efficient one that is easily thrown off course. Singapore is like the latter. It may seem really rosy at this point of history, but there is no mechanism for limiting the possible damage that could be done. A system with checks and balances might meander around more, involve slower economic growth, and so on, but that may be a good price to pay for avoiding the sheer havoc that an incompetent dictator can wreak.

  6. 8 bakkuttehfan 29 July 2010 at 13:35

    This could be Singapore’s future too. What do I mean? Even if we vote in an Opposition govt, the new govt, like Pres. Aquino, may be faced with exactly the same situation. The PAP will spend most of the budget if they think they’re going to lose, leaving behind little money for the new administration. They will ensure the president blocks any new govt’s attemtp to use reserves. They will also leave behind many appointees in the civil service, courts, to block any plans by the new govt.


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