Transparent As a Moonless Night: The Budget Process and Spending

MANILA, Philippines (Philippine Human Rights Reporting Project / June 22, 2009) - With national and local elections now less than a year away, presidential hopefuls have been speaking out on one issue after another.

Yet none of them has so far mentioned anything at all about the national budget process which independent observers claim provides huge opportunities for corruption.

Given seemingly endless allegations of fraud and financial mismanagement of public funds that plague the Philippines and see it scoring so poorly in all number of international reports and surveys, one could be forgiven for expecting contenders for the highest public office to volunteer their ideas and plans for reform: At the very least one might expect them to be challenged to provide them by a media that constantly finds itself reporting on one financial scandal after another.

With the issue of corruption so inextricably linked into the issue of transparency and accountability –people are asking why budgetary reform is not already a key election issue – and how it could be made to be.

It is the main question being asked by the likes of Social Watch Philippines (SWP) – a nongovernmental group pushing for national budget reforms in Congress. It leads the Alternative Budget Initiative (ABI), a campaign involving 60 NGOs which has been trying to monitor the budget process in the legislature since 1996.

SWP claims that public money is routinely stolen for election campaigns, thanks to a less than transparent budget process that government has done nothing to address.

This year’s budget is an all-time high of PhP 1.415 trillion (USD 21 billion) and was set and allocated in a bid to stir economic activity in the midst of a global financial crisis. It includes an economic stimulus fund, which can easily be morphed into a re-election fund, according to SWP co-convenor Leonor Magtolis-Briones.

About 30 per cent of PhP 300 billion (USD 6.4 billion) earmarked for economic stimulus measures has been allocated for non specific infrastructure projects. Such an allocation is on top of what has been provided for the Department of Public Works and Highways (DPWH), which is perceived to be one of the most corrupt of government agencies. The agency is thus enjoying an increase of PhP 17 billion (USD 361 million) in its budget, making it the biggest gainer this fiscal year.

The national budget also includes PhP 3.4 billion (USD 72 million) in additional so-called ‘pork barrel’ allocations to individual legislators to essentially spend as they see fit.

Budget process

According to SWP, the country’s annual budget process is so lacking in transparency and oversight it effectively helps to ensure huge amounts of public money is lost through corruption and mismanagement.

The budget cycle is a long process that for the most part is hidden from public view: Given the space and time it subsequently devotes to covering alleged financial scandals, the media has shown surprisingly little interest in scrutinizing it in any serious way.

Budget preparation runs from January to July when the administration engages in vigorous planning and debate with the different government agencies.

“The President determines the allocation and those who are close to the President get a better deal,” says Magtolis-Briones.

Former budget secretary Emilia Boncodin adds that while agencies are free to propose their own budgets, it is the chief executive who calls the shots. Usually, this depends on the President’s priority programs for the year, the expected revenue targets, and amount of debt the government can source out to fund the budget.

Aside from the allocation granted to DPWH, budgets of the Departments of Agriculture and the Social Welfare and Development also increased by 61 percent and 114.3 percent, respectively this year.

In 2008, the budget was about sustaining economic momentum, according to Malacanang Palace. This came as the Philippines posted a gross domestic product growth rate of 7.3 percent a year earlier, making the country one of the fastest-growing economies in Asia.

The budget was consequently strong in investments for infrastructure, education, health, housing, as well as for science and technology.

The authorization stage of the budgetary process for the following year runs from August through to December when it is presented to and piloted through Congress.

Under the Constitution, Congress is given the “power of the purse.” In reality however, only a few legislators scrutinize the entire budget. It has been widely observed that the Arroyo administration has a very compliant Congress with the majority of members allied to the President.

To all extent and purposes therefore, from a practical point of view, by the time it reaches Congress, the real work has been done and only amendments are made.

“As long as they get their pork barrel, they’re okay. They don’t look at the total picture. The result is a blank check for Malacañang,” claims Magtolis-Briones.

“Only the chairs of the Senate committee on finance and of the House appropriations committee meet regularly to discuss the budget,” she says. “There are no minutes of these meetings.” As a result, serious mistakes are sometimes made – like that of the controversial C-5 Road Project, which was reportedly twice awarded PhP 200 million (USD 4.2 million) within the 2008 budget.

January to December is the execution stage when the budget fort that year should have already been approved, released and used as appropriated by Congress.

The accountability stage is supposed to run concurrently – and yet it is often disregarded because by then the agencies are busy preparing for the new budget: So the budget cycle starts all over again.

Reenacted budget

Even if a noncompliant Congress rejects the budget, the President is allowed a veto. And in the event no budget is approved, the administration can, under the Constitution, reenact – re-spend- the preceding national budget.

At the end of the day, it remains the President’s budget. And a reenacted budget favors the chief executive even more than one that is approved.

“A reenacted budget is like getting away with murder,” says Bukidnon Rep. Teofisto Guingona III.

Apart from the fact that a reenacted budget no longer conforms to the cost of goods and services of the current year, it also leaves new projects unfunded.

In cases of those projects that have already been funded the previous year, it means the allocated funds appear automatically as savings. Yet these savings are not necessarily channeled back to the national treasury. The sitting president is instead allowed to use these ‘savings’ to fund things which may not be identified in the national budget. This can be done without first securing Congressional approval.

Since President Arroyo stepped into office in 2001, there has not been a single year that her administration did not operate on a reenacted budget for at least part of the time. For six years -including 2009- the government operated on a reenacted budget for up to four months of each year. The three other years -- 2001, 2004 and 2006 -- the government used a reenacted budget for the entire fiscal year.

For Rep. Guingona, a reenacted budget is a “badge of shame” for lawmakers. Given the many working hours, it’s a shame that they are not able to pass a very important legislation, the General Appropriations Act, he says.

“But this is purposely done. It’s with a sinister purpose, and not out of laziness,” claims Guingona.

2001 was when then president Joseph Estrada was ousted from power and vice president Gloria Macapagal Arroyo took over. 2004 was an election year. It was the same year when Arroyo ran for the presidency and was declared winner, but not without subsequently facing impeachment claims and charges that she was responsible for engineering a massive electoral fraud. 2006 started the campaign season for the 2007 elections.

“You can only guess where the savings of the reenacted budget went,” claims Guingona.

Impounded budget

Alongside the reenactment of budget, impoundment is another common practice that can be used as a mechanism to funnel funds into savings, all for presidential use.

Impoundment is the refusal of the Chief Executive to release and spend funds that have already been appropriated.

Typically, when the phrase ‘savings,’ are mentioned, it is not so much about funds that have been managed so effectively that there remains money left over – but that the money has not actually been released to pay for what was intended.

During the Arroyo administration, the highest savings were registered in 2005 and 2007 -- 17.36 and 16.71 percents, respectively, of the national budget.

In 2007, over-all savings totaled PhP 106 billion (USD 2.2 billion).

According to Dr. Rosario Manasan of the Philippine Institute for Development Studies, the Millennium Development Goals (MDGs) in that same year were under-funded by PhP 95 billion (USD 2 billion).

MDGs are of course the eight international development goals that 192 United Nations member-states including the Philippines have agreed to achieve by the year 2015.

The MDGs include the eradication of extreme poverty and hunger, providing primary education services to all, promoting gender equality and empowering women, reducing the incidence of death among children, improving maternal health, fighting diseases like HIV/AIDS and malaria, ensuring environmental sustainability, and developing global cooperation for development efforts.

These are not controversial goals. They are seen to offer real improvement in the lives of millions of poor Filipinos. That year, the fiscal gap could have been easily met by the budget “savings.”

Mis-prioritization

Budget reform advocates also complain about the mis-prioritization of funds and claim the practice is rampant.

In 2008 for example, PhP 100 million (USD 2 million) was allocated in the budget for the Department of Health for the purchase of autoclaves –machinery for sterilization- in public hospitals.

For reasons that are not fully clear, the President did not release the funds, and automatically that went into her savings for that year.

That same year, President Arroyo spent PhP 1.2 billion (USD 25 million) on two presidential helicopters that were not in the budget.

“You can see where the real priorities are,” laments Guingona.

It comes as no surprise to many observers why the Philippines has fallen behind the United Nations' benchmark to spend five percent of gross national product (GNP) on health, and six percent on education.

The Philippines spends 2.5 to 3 percent of the GNP on health, and no more than 3.8 percent going on education.

With school classes here again, Rep. Mong Palatino of the party-list group Kabataan blames the sorry state of public education on government mis-prioritization.

Data from UNESCO’s Institute for Statistics show that Philippine classrooms are among the most crowded in Asia. Their figures reveal that class size in the Philippine public elementary schools (43.9), pales in comparison to Malaysia (31.7), Thailand (22.9), Japan (28.6) -even India (40).

According to Palatino, the national classroom shortage last year was estimated to be 41,905. “This figure will surely balloon as students of age to attend school increase by 2.3 percent yearly.”

Department of Education data shows that public schools nationwide are in decrepit conditions. Some 80 percent of them have no running water, 60 percent have no toilets, 40 percent have no ceilings and 50 percent have no electricity. And there is a need for 30,000 additional teachers.

Corruption

The problem of mis-prioritization is aggravated by rampant corruption. The Philippines routinely scores very poorly in international surveys on corruption and transparency in government, and the government was recently warned that future loans from the World Bank would be at risk if improvements are not forthcoming. Ironically of course, the Asian Development Bank has its headquarters in Manila.

The Presidential Anti-Graft Commission (PAGC), a government body tasked to investigate and hear administrative cases and complaints against erring presidential appointees, claims that 20 percent of the country’s annual budget is lost to corruption.

PAGC chairperson Teresita Baltazar says that money could have done “a great deal to fund spending for social services like education, healthcare, housing and livelihood capital, and infrastructure.”

The poorest who depend the most on public services are also the hardest hit according to the United Nations Development Program.

In its 2008 Asia Pacific Human Development Report, the UNDP says many forms of corruption are hidden and get less media attention than they should.

“These include the passing of laws and regulations which allow corruption to be conducted within legal bounds,” it says in its report entitled “Tackling Corruption, Transforming Lives.”

Pork barrel

So-called “pork barrel,” – the Priority Development Assistance Fund (PDAF) is widely seen as an old-style fiscal instrument still employed in the budget that helps to foster continuing graft and corruption.

Every year, members of the House of Representatives receive a PDAF worth PhP 70 million (USD 1.4 million) each. A senator meantime receives PhP 200 million (USD 4.2 million). The money is for wholly discretionary spending.

As the name suggests, the PDAF is intended for priority development projects such as clean water, education and health care, and poverty alleviation. However, many legislators end up spending their allocations on trivial projects like waiting sheds or basketball courts.

Trivial or worthy, the use of pork barrel funds allows ample opportunities to defraud the state by irregular contracting procedures; by inflating prices – or by agreeing and securing kick-backs – where the winning contractor will illegally return a percentage of the funds paid out.

Yet according to Guingona, the country’s pork barrel is merely the tip of one enormous problem as it represents around one percent of the entire national budget.

Look at the beef too

There is a much more consequential instrument in the national budget – the Special Purpose Funds: These are lump-sum appropriations governed by special provisions and their release is again subject to presidential discretion.

“The beef has always been that SPFs, being ‘lump–sum’ rather than ‘line budgeted’ items, are less transparent and are one of the main faults why a national budget can become less effective, less ethical and less equitable,” according to Zoilo Dejaresco III, Financial Adviser of the Philippine Center for National Budget Legislation.

From 2002 to 2008, the trend in the administration was to increase the amount that came under the category SPFs.

According to Guingona, had it not been for the World Bank which stepped in to criticize the practice, the percentage of funds allocated under SPFs would have increased this year.

“The World Bank intervened and told the Philippines to reform. The government listened for it is beholden to the World Bank. It’s where we get our loans,” says Guingona.

Un-programmed funds

Dejaresco says that so-called Un-programmed Funds sit within the questionable SPF allocations and that these are standby appropriations which authorize additional agency expenditures for priority programs and projects in excess of the original budget.

Like everything inside SPF, they require presidential approval.

In 2008, Un-programmed Funds hit a record high PhP 114 billion (USD 2.4 billion), representing a hefty hike from only PhP 67 billion (USD 1.4 billion) in 2007. 2009 however sees it drop to PhP 76 billion.

Making the SPF more controversial is the Contingency Funds, which are separate from Un-programmed Funds. PhP 800 million is available in this Fund for 2009.

We made repeated attempts to reach Budget Secretary Roland Andaya to solicit his comments on the budget process and current allocations. Unfortunately neither he nor his office responded to any of our requests for an interview.

Budget reform bills

Former Budget Secretary Boncodin emphasizes the faulty budget process originated from budgetary laws passed during the years of martial law which have not yet been repealed.

“The law has never been amended, benefiting not just President Arroyo, but all the presidents starting with Ferdinand Marcos,” she says.

Budget reform bills have been filed in Congress, but none have yet been passed. The bills include those aiming to prohibit un-programmed funds, bills providing guidelines for reenacted budgets and for national budget savings. There are also bills seeking transparency in bicameral meetings – as well as a bill that pushes for people’s participation in budget deliberations.

“Ownership of the budget must be returned to the people by enabling them to take part in the budget process,” says Magtolis-Briones.

But since these bills are expected to clip the powers of the President, and as majority in Congress are allies of the incumbent chief executive, advocates of reform do not hold out much hope of seeing any change before 2010.

But from the sounds of it, those vying to replace her do not appear to be impatient to challenge a process that encourages massive waste and corruption.

One reason of course may be the huge power of patronage it provides the lucky incumbent.

According to former Budget Secretary Benjamin Diokno who believes a delayed economic crisis is about to hit the Philippines, it is crucial for any presidential “wannabe” to understand what may lie ahead and to realize that serious budget reforms are essential in saving the economy.

“The best-case scenario: a new set of leaders is elected in 2010 in a relatively honest, open, and peaceful elections… the new administration has a strong, forward-looking, reform agenda that includes tax and spending reforms to ensure fiscal sustainability, and has the political will to implement the same,” he says.

But the question is how can we make such a scenario happen? (Claire Delfin / Philippine Human Rights Reporting Project. The author is a television news reporter of GMA Network, Inc. and is a regular contributor of special reports on women, children, education, health, human rights, and the environment to the network’s news website GMANews.TV.)