Fixing Philippine Public FinanceIs Federalism the Answer?

Ronald Umali Mendoza, PhDAteneo School of Government

Two lost decades…

500

1000

1500

2000

2500

3000

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Tradeliberalizationandimportsubstitution

Exportpromotion

Economicexpansionandprivatizationofstate-ownedenterprise

Postponementofliberalizationonsomesectorsand

increasingprotectionism

Debt– drivengrowth

Expansionofservicesectoranddeclinein

manufacturingRapideconomic

growth

Garcia Macapagal Marcos C.Aquino RamosEstrada

ArroyoAquino

Duterte

TWOFOLDINCREASEINTHEECONOMY,1960TOPRESENT

TextMONOPOLY + DISCRETION – ACCOUNTABIILITY = CORRUPTION

Text

• THINDYNASTY • FATDYNASTY

POST-MARCOS ERA:

RISE OF MINI-DICTATORSHIPS?

TextRationale for Decentralization

§ 1991 Local Government Code devolved substantial spending, taxing, and borrowing powers to local government units.

§ Governance closer to the people to increase efficiency and welfare gains.

§ Challenge to match resources (i.e. own source revenues and transfers) with expenditures at the LGU level.

§ Where are we now? IMPERIAL MANILA VS DYNASTIC COUNTRYSIDE

Text

Is imperial Manila the problem?

Text

What is “imperial” about Manila?

TextRevenue composition, by government level (2014)

Source: Department of Budget and Management, http://www.dbm.gov.ph/wp-content/uploads/BESF/BESF2016

82%

4%8% 6%

NationalGovernment

Provinces

Cities

Municipalities

TextGovernment Expenditure breakdown (2014)

Source: Department of Budget and Management, http://www.dbm.gov.ph/wp-content/uploads/BESF/BESF2016

18%

31%

33%

18%

82%

CentralOffice&NCRDepartments

RegionalDepartments

SpecialPurposeFunds(NetofTransferstoLGUs&DebtService)

LGUexpenditure

NationalGovernmentexpenditure

Text

60% of GDP concentrated

in only 3 regions in

Luzon

RegionalRealGDPperCapita,Philippines(2016)

13,35326,736

35,72037,26139,15339,82541,48643,10645,48449,461

63,87465,83768,64969,39075,279

94,826232,836

78,712

0 50,000 100,000 150,000 200,000 250,000

ARMMBICOL

CARAGAEASTERNVISAYASCAGAYANVALLEY

MIMAROPAREGIONWESTERNVISAYAS

ZAMBOANGAPENINSULASOCCSKSARGEN

ILOCOSNORTHERN MINDANAO

DAVAOREGIONCENTRALLUZONCENTRALVISAYAS

CARCALABARZON

NCRPHILIPPINES

RealGDPperCapita(inPhp atconstant2000prices)

Source: Philippine StatisticsAuthority

TextInequality in Human Development

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

ThailandNCR

PhilippinesBasilan

MyanmarLanao del Sur

SuluNigeriaARMM

Tawi-tawiMaguindanao

ZimbabweAfghanistan

TextInequality in Life Expectancy

66.968.8 69.6

61.9

72.975.6 75.9

62.9

50

55

60

65

70

75

80

Philippines NCR Region I ARMM

Life

Exp

ecta

ncy (

in y

ears

) at

Birt

h 20

10-2

015 Male

Fem…

Text

IMBALANCED LOCAL GOVERNMENT

FINANCE

Text

If Imperial Manila is a problem for development, then is the dynastic

countryside any better?

TextAverage Dynastic Share (2007 – 2016 Elections)

Position Dynastic share (in %) 2007 2010 2013 2016

Governor 69.6 82.3 86.3 81.3 Percentage increase/decrease 12.7 3.97 -5 Vice Governor 62 70.9 75 81 Percentage increase/decrease 8.87 4.11 6.01 Representative 75.3 78.7 75.3 77.5 Percentage increase/decrease 3.44 -3.46 2.25 Mayor 57.6 67.2 67.5 68.8 Percentage increase/decrease 9.6 0.3 1.3 Vice Mayor 40.6 51.2 52.6 56.9 Percentage increase/decrease 10.6 1.4 4.3

81% of Governors. 78% of Congressmen. 69% of Mayors. 57% of Vice Mayors.

Text

Violent political competition in Masbate. Four Congressmen assassinated between

1989 and 2005.

Meanwhile, 1 in 2 Filipinos in Masbate live below the poverty line…

RIZALINA SEACHON-LANETEgovernor and dynasty matriarch

ANTONIO KHOformer congressman and dynasty patriarch

53.5666 56.3266 51.3231

0.00

14.25

28.50

42.75

57.00

71.25

2006 2009 2012

Povertyincidence(%

of

popu

latio

n)

DATA SOURCE: PHILIPPINE STATISTICAL AUTHORITYPHOTO SOURCE: ABS-CBN NEWS ONLINE

TextTextDinagat Islands is dominated by Ecleo Clan, 2016 Election

ECLEO,10

VARGAS,3ABIS,2

ELUDO,2

FERMILAN,2

LLAMERA,2

LONGOS,2

LUIB,2

VILLAROSA,2

Distributionofdynastiesbasedonnumberofelectedclanmembers

Source:Authors’calculationsbasedondatadevelopedbyMendozaetal(2012;2016).

Text Snapshot of Inequality – Ecleo Castle and fishing village in Dinagat Islands

TextPolitical Dynasties Lead To Deeper Poverty

"PoliticalDynastiesandPoverty:IllustrationofMeasurementandInitialEvidenceofLinkagesinthePhilippines"OxfordDevelopmentStudies 44(2):189-201.

Mendoza,Beja,VenidaandYap(2016)examinethelinkbetweenpovertyanddynasties,usingacomprehensivedatabaseofpoliticaldynastiesinPhilippinelocalgovernmentcovering2000-2013;

CONCLUSION: More fat dynasties cause greater poverty, notably outside of Metro Manila.

Text

Source: Author’s elaboration drawing on Llanto (2012) and Manasan (2004).

Aligning Resources with Accountability:

A Proposal for a Public Finance Graduation Mechanism

HIGHINCOME

MIDDLEINCOME

LOWERINCOME

POORGOVERNANCE

BETTERGOVERNANCE

BESTGOVERNANCE

Conditional Transfers / Grants

Unconditional / Matching Grants

Debt instruments for LGUs; Municipal Bond Markets

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For further data and research visit: http://buildinganinclusivedemocracy.org