THE apparent inability of majority of Metro Manila local governments to respond quickly and fully to citizen requests for asset disclosure records of local officials, as well as documents on education, health, public safety and other essential services may well be a reflection of the Aquino administration’s own dithering over a Freedom of Information (FOI) law.

Yet while even President Benigno Simeon ‘Noynoy’ Aquino III himself seems unsure just how much he wants his government to be transparent, the World Bank, a solicitous donor of the Aquino administration, recently released a document that explicitly proposed that the government “put forward a Freedom of Information Act for legislative approval.”
At the same time, the latest results of a transparency and accountability drive of the Department of the Interior and Local Governments (DILG) show local governments outside of Metro Manila outperforming those in the National Capital Region.

Not one of the dozens of local governments that has so far been cited by the DILG as being “ehemplo” or good examples in planning, sound fiscal management, transparency and accountability, and valuing performance information came from Metro Manila.

A recent audit conducted by PCIJ revealed poor performance by Metro Manila local governments – more than half of which are headed by Aquino’s partymates and political allies – in fulfilling citizen requests for specific documents on the most basic services.

Most made accessing documents imbued with public interest a serious test of patience, stamina, resources, and will, with many ignoring deadlines for action imposed on them by law.

DILG honor roll

Not surprisingly, not one Metro Manila local government unit (LGU) has made it to the DILG’s latest “Good Housekeeping” honor roll that lists those from Anilao, Iloilo; Balete, Aklan; Balilihan and Catigbian in Bohol; Damulog, Bukidnon; Datu Paglas, Maguindanao; Leon B. Postigo and Tampilisan in Zamboanga del Norte; Pitogo, Quezon; Mobo, Masbate; Naawan, Misamis Oriental; San Agustin, Surigao del Sur; Santol, La Union; and Sto. Domingo, Albay.

Just last March, the DILG also cited 15 high-performing LGUs, mostly from Mindanao, “good housekeeping” such as those in Alilem in Ilocos Sur; Quezon, Isabela and Saguday in Quirino; Mataas na Kahoy in Batangas; Camaligan in Camarines Sur; Banaue and Lagawe in Ifugao; Amlan in Negros Oriental; Maribojoc in Bohol; Kawayan in Biliran; Calamba in Misamis Occidental; Dujali in Davao del Norte; Cagwait and Carrascal in Surigao del Sur, and San Jose in Dinagat Islands.

These LGUs, according to DILG Secretary Jesse Robredo, have had “no adverse” report from the Commission on Audit.

The uneven observance of transparency and accountability across LGUs – and government agencies – lingers apparently because of the absence of uniformed and clear procedures on how public officials should respond to citizen requests for documents vested with public interest that a Freedom of Information Act should have offered.

In fact, just a few weeks before President Aquino delivered his second State of the Nation Address in which FOI was among the most striking omissions, the World Bank had weighed in on the issue that civil-society organizations and some of Aquino’s allies deem of utmost importance for good governance.

The Bank last month put forth in a 349-page “Philippines Discussion Notes: Challenges and Options for 2010 and Beyond” a vigorous recommendation for Aquino to see after the passage of the FOI Act if he so wishes to achieve “inclusive growth,” as well as stamp out corruption and poverty in the land.

Big challenges

The document produced by the Philippines Country Team, World Bank and The International Finance Corporation East Asia and Pacific Department, noted that the Aquino administration “faces significant opportunities as well as considerable challenges: an opportunity for new policy directions and new coalitions to push the development agenda forward with renewed vigor, but a need to overcome the inertial forces that slow down decision making and program implementation during a transition.”

The authors said the document aims “to support the creation of a shared focus among government, civil society, business groups, and development partners on the key elements of a long-term development strategy focused on inclusive growth.”

“Deliberately selective in their coverage, the Notes offer sectoral and thematic analyses to identify key challenges, and recommend a prioritized set of actions for consideration by the new government” yet also “draws on extensive international experience and worldwide best practices, as well as past experience with what works well in the Philippines and what does not,” the authors said.

They then pointed out that in the Philippines, “breaking down the hold that vested interests have over governance requires action on multiple fronts.”

Strong signal

The authors argued: “The Administration could contribute significantly to governance reform by putting up for legislative approval a Freedom of Information (FOI) Act, as neighboring countries such as Thailand, Indonesia and India have done over the last decade. In addition to being an integral part of an open governance system, the Act would also send a strong signal that the government is committed to transparency.”

Nonetheless, even before the law is passed, the World Bank document said, “the President could immediately ensure the highest standards of public disclosure in the Executive branch of government through an Executive Order.”

Aside from stressing the need for the FOI Act to be passed, the Bank also exhorted Aquino to “select a strategic agency widely perceived to be corrupt and launch a comprehensive reform plan” to provide “a credible, though not necessarily easy, starting point for a government’s anti-corruption campaign.”

Obama project

Interestingly, despite its reticence to state clearly its position on the FOI bill, Malacañang has unfurled its efforts to promote greater transparency on the world stage.

Since mid-2010, the Aquino administration, represented by Budget and Management Secretary Florencio “Butch” Abad, has signed on to and, in fact, now sits on the steering committee of the Open Government Partnership (OGP), a multilateral, eight-country initiative launched by US President Barack Obama.

Obama’s project supposedly aims “to secure concrete commitments from governments to promote transparency, empower citizens, fight corruption, and harness new technologies to strengthen governance.”

Under the OGP, the signatory states have committed to produce results along four benchmarks – disclosure of budget documents, disclosure of asset records of public officials, passage of an FOI Act, and engagement between government and civil-society groups.

By the admission of some Cabinet members themselves, the Aquino government may claim to have achieved some progress on the first two OGP benchmarks; on the last two, little or no progress at all.
This has prompted the Bantay FOI! Sulong FOI! network of 157 civil society groups and individuals to remark: “Malacañang must understand: Its desire to assume an honored place on the world stage as one of the leading lights of transparency in the world will not fly, unless it commits to the immediate passage of the FOI Act in the Philippines.”

Practical tips

In the meantime, the seven college student interns who helped conduct PCIJ’s audit of transparency regimes in Metro Manila have drawn up some practical tips for those who may want to access information from LGUs in the absence of an FOI law:

• Put your request in writing. Most local governments require requests for information be put in writing. Many also want the request to contain the name of the person or agency making the request, as well as the purpose for the request. The City of Navotas, for instance, even has a memorandum that explicitly asks for these.
• Verify beforehand which department would be handling your specific request. Otherwise, one may well be passed from office to another, and then from one personnel to another. To save time and spare one of fits of frustration, check the LGU’s website first to see which office or official would be best to handle the request, or call or visit the LGU’s information office before writing and submitting your request letter.
• Note the name and position of the staff member who received the request. Misplaced letters and sudden attack of amnesia abound in LGUs when follow-ups are made regarding requests for information. To avoid being passed around from one staff member to another, one should record right away the name of the personnel who received the request and, if possible, that person’s contact number. It may also be wise to do this in his or her presence, with other staff members as witnesses.
• Check beforehand for dress codes, as well as specific protocols and procedures. Such information is usually available on the LGU’s website. One can also call the LGU prior to submitting the letter of request. Some LGUs do have uniform procedures and processes. Parañaque, for example, requires that all letters of request be addressed to the mayor first for approval. In Marikina, guards bar those in shorts and/or slippers from entering its city hall.
• Be aware of the time limit imposed by law on LGUs to comply with requests for information. Remind LGU personnel as well of such deadlines since they may not be aware of it themselves. Under the law, LGUs are given10 working days to act on requests for Statements of Assets, Liabilities, and Net Worth (SALNs) and 15 working days to act on requests for all other types of documents.
• Do follow-up calls. This will not only alert LGU personnel of your continued interest in your request, but will also remind them constantly of the need for them to act on it. If there is some delay, ask the reason for it; it may well be that the next step requires another letter to another office. Always ask the name of the staff handling the call, so that there is a “personnel trail” established while you track the progress of your request.
• Once the documents are provided, double check if these contain all the information requested. Just because an LGU hands over a hefty volume of paper does not mean those data sets have all that you asked for. Go over the documents before leaving the city or town offices. If there is any information lacking, ask why. It could well be that another office is responsible for a particular piece of data that had been part of your request.
• An incomplete response calls for a follow-up letter. Should there be no response within the period set by law, submit a follow-up letter reminding the LGU of your request – as well as the LGU’s duty to act on it within the legal deadline. (After receiving such a follow-up letter from PCIJ interns, the Office of the Mayor of Muntinlupa called within the day to say that the information could be had from the City Planning and Development Office.)
• Be nice and keep your cool. It may be the LGU’s duty to serve the public, but any transaction is easier to accomplish when the atmosphere is kept pleasant. For sure, a smiling citizen’s request is more likely to be processed quickly while a demand that comes with a snarl is bound to be treated with contempt and left unattended as a result. – With additional research by Anne Jeanette O. Priela, Krystal Kay S. Jimena, David Faustino T. de Castro, Essen Mei M. Miguel, Henor G. Gotis, Eric H. Rivera, and Stephanie Directo, PCIJ, July 2011

POLITICS and government, business and finance, education and culture. In all these and more, the national capital region, Metro Manila, is supposed to lead the rest of the nation. Here, bureaucrats and politicians thrive, mostly schooled and steeled in the art of governance and advisedly, the liberal ramparts of transparency and accountability.

It seems fair for citizens to expect that in Metro Manila, more than anywhere else in the Philippines, the people’s right to know and to access official information and documents would be respected. But that could well be plain wishful thinking for now.

Indeed, while President Benigno ‘Noynoy’ C. Aquino III has once more failed to reiterate a commitment to freedom of information (FOI) in his latest State of the Nation Address, the results of a recent survey by the PCIJ of access to information practices in the 16 cities and sole town of Metro Manila show that majority of the local officials and employees in these Metro Manila local government units (LGUs) continue to linger in the dark ages of closed, opaque government.

Most of the LGUs, in fact, took their sweet time in responding to requests for specific documents, unmindful of deadlines for action set in law. And if they did act at all, they disclosed only some, not all, the documents requested. The city of Caloocan even recorded net zero action, failing to take full action on any of the requests up until the end of the audit. This was even though that city’s officials had approved, orally and in writing, at least a third of the PCIJ’s requests.

Documents for citizens

Beyond simply tracking the transparency regimes obtaining in NCR, the PCIJ audit purposely zeroed in on documents with great and grave impact on the welfare of the citizens. From April to June 2011, the Center deployed seven college student interns who filed requests for six major types of documents, including the asset disclosure records of the LGU officials, as well as the budget and development plans of the LGU. The audit also focused on documents pertaining to education, health, public safety, civil registry and property, and doing business.

Surprisingly, however, the most basic documents regularly produced by LGUs proved the most difficult to get. For instance, among the 17 Metro Manila LGUs, only Makati gave complete documents on education, while a mere four – Quezon City, Parañaque, Navotas, and the San Juan Health Department Unit 1 – provided complete documents on health.

On average, only a fourth of the 17 LGUs provided their development and investment plans, and copies of the proposed and enacted budgets. The rest took no action.

Still, of all the documents requested by the PCIJ, the statements of assets, liabilities, and net worth (SALNs) were easily the most tightly guarded and thus, the hardest to obtain. In the mold and manner of national politicians, the local politicians of Metro Manila apparently hold their asset disclosure records close to their chests.

Only two cities – Marikina and Makati – willingly shared the SALNs of all their local officials. Quezon City and Navotas, meanwhile, gave the SALNs of their respective mayor and vice mayor, but came up short when it came to those of their councilors. San Juan released its vice mayor’s SALN, but not its chief executive’s; it also gave incomplete asset records of its councilors. In the rest of the LGUs, the SALNs remain sub rosa or kept under lock and key by local officials who insist on their confidentiality, in apparent indifference to, or ignorance of, the law.

Most LGUs also required requestors to secure the mayor’s approval before all the requests could be granted. This caused bureaucratic delays and most probably is a major barrier to accessing documents in the NCR.

Least opaque

In the PCIJ audit, not one of the LGUs provided all the requested information. Even Quezon City, which came out as the friendliest to access to information requests, took full action (within the 15 working days’ deadline in law for all the documents requested) on only 75 percent of all requests filed by PCIJ.

Next came Marikina, which scored 57 percent, while Pasay, Parañaque, Navotas, and Makati all granted about half of all of PCIJ’s requests. Ten other LGUs (Las Piñas, Pasig, Mandaluyong, Muntinlupa, Taguig, Valenzuela, San Juan, Malabon, Manila, and Pateros) acted only on 12.5 to 37.5 percent of all requests filed.

On average, the LGU offices that gave documents took about 10 days to do so. But the Business Permits and Licensing Office (BPLO) of Las Piñas stood out by taking only a day to respond and provide complete documents related to doing business in the city.

To do the audit, the PCIJ interns personally filed simultaneous request letters for documents with the 17 LGUs, monitored all related follow-up activities (request letters sent, phone calls and field visits made to the LGU office), and logged all activity details (name and position of responding personnel and officials, speed and nature of action or referrals made; and the type or nature of documents given or withheld).

In addition, the enrolled deadlines set in law for government agencies to act on such requests – 10 working days to act on requests for SALNs and 15 working days to act on requests for all other types of documents – were used as reference for rating the performance of the various LGUs in this audit.

The audit stretched across a two-month period – one month for fieldwork and data gathering, and another for follow-up activities and data collation. In all, the PCIJ interns filed with the 17 LGUs a combined total of 135 request letters, made 437 phone calls, and received 266 referrals for many requests were tossed around two or more offices in the same LGUs.

The requests were filed with the LGU departments and units that are the custodians of the documents, including the Office of the Mayor, the Health Department, the Public Order and Safety Department, the Business Permit and Licensing Office, and the Civil Registry Department.

Public interest

The documents requested are clearly imbued with public interest because they enroll information and data that should benefit public weal and welfare:

• For education, the PCIJ asked for two sets of data: statistics or the number of schools and teachers in each LGU, as well as on plans and projects to construct new school buildings, hire new teachers, and acquire new learning materials and copies of contracts.
• For health, the PCIJ requested information on the actual expenses the LGUs spend on medicines and the volume of medicines distributed per barangay; number of hospitals and medical personnel; and projects undertaken by the health department.
• For public safety, the PCIJ sought data on the number of police officers and other public order personnel, how the police coordinate with barangay officials, how the police or barangay respond to cases, protocols on public-order incidents, and the number and the amount LGUs spend to build and maintain lampposts.
• For civil registry and property, the PCIJ asked about the types of civil registry and property documents, how to obtain these documents, fees and timetable involved in obtaining documents.
• For doing business, the PCIJ requested details on the documentary requirements, request and application process, LGU departments in charge, number of processing days, and fees involved. In addition, the PCIJ sought information on how to locate records of a business establishment, which office tracks records of registered and non-registered businesses in the LGU, and the benefits of registering a business.
• For other basic, premise data on the LGU and its officials, the PCIJ requested five documents: the SALN and personal data sheet (PDS) of the mayor, vice mayor and councilors; local development plan; local investment plan; proposed budget; and enacted budget.

How and why the citizens must be entitled to these documents, and could benefit from them, are matters affirmed in law and validated by the contents of the documents themselves.

The Local Government Code of 1991 mandates each LGU to prepare a local development plan and a public investment program, which would outline a city or a municipality’s development and budget priorities and serve as basis of its programs and projects for the year.

Useful details

These documents would significantly help citizens to understand the local government’s plans for the city and the barangays and how it intends to spend public resources. These documents would clearly enable citizen participation in policymaking and governance.

For instance, the 2011 Annual Investment Program (AIP) provided by Quezon City states that the city’s development priorities are disaster-risk mitigation, environment management, socio-economic services to empower the poor, tourism development, and effective city management.

To achieve these plans, Quezon City’s AIP outlines its budget allocation for each program, project, and activity, as well as the office or agency assigned to implement each sector.

For 2011, Quezon City has allocated P15.75 million for maternal health care for pregnant and post-partum mothers, and routine care for newborn infants. Residents, especially mothers and expectant mothers who do not have enough funds to avail themselves of private health care services, would find this information useful.

Quezon City has also allotted P2.49 million to provide services to physically, mentally, and socially disabled persons 0 to 60 years of age in order to enhance or develop their capabilities for self-reliance and productivity. Families with a disabled member may then inquire about this program and seek assistance from Quezon City’s Social Services Development Department.

In the meantime, citizens may find information pertaining to education useful so that they themselves can assess and audit education projects of their LGUs.

Makati, which was the only LGU that provided complete documents on education services, gave copies of the contracts that the city government signed with contractors to build new school buildings and to improve or maintain existing ones.

The contracts offered details on the amount of the project, project scope and timetable, and the duties and responsibilities of the contractor. With these data on hand, parents of students in a school may actually be able to check if the project had been fully implemented.

And then there are the SALNs, which are considered to be key in monitoring the wealth of public officials and in discouraging corruption. Yet most Metro Manila LGUs found reason to keep SALNs of certain officials away from the public eye.

The officials of Malabon’s Human Resource Department, for one, insisted that SALNs are “confidential” documents. Navotas, for its part, was quick to approve the release of the SALN of the mayor, but uncertainties on the part of the councilors resulted in their failure to hand over their SALNs.

Pasay was as problematic in the release of the SALNs and personal data sheets of its senior officials supposedly because the request letter had been misplaced.

In Pateros, the head of the Municipal Personnel Office said all 14 town councilors would have to unanimously agree first before any of their SALNs could be released to the PCIJ. Some councilors agreed, while the others refused. Because the personnel officer has imposed an all-or-nothing rule, not a single SALN of Pateros’s local executives was released.

(By contrast, Marikina, which ranked second to Quezon City as the most transparent city in NCR, provided the SALNs of its local executives within just five days from receipt of the PCIJ request.)

Most opaque

The four least transparent cities (Malabon, Manila, Pateros, and Caloocan) actually shared one thing in common: Their personnel showed a common tendency to refer requestors to other LGU departments within the same city halls, needlessly prolonging the process of obtaining documents.

In quite a few cases, too, many LGU personnel seemed totally clueless about their obligations in the Constitution and in Republic Act No. 6713 (the Code of Conduct and Ethical Standards for Public Officials and Employees) to be transparent in all their actions involving use of public funds, and in handling documents vested with public interest.

In Caloocan – the least transparent among the Metro Manila LGUs — only the police department and the civil registry office responded to the requests within the 15-day deadline set in law. All the other agencies of Caloocan either ignored or denied the other requests.

Unfortunately, even the offices there that promised to release documents, including those on education and health services, and those pertaining to doing business in the city, have yet to do so as of this writing. The police department in particular said it had misplaced the PCIJ’s request letter, causing interminable delays.

In Pateros, NCR’s lone municipality, the PCIJ filed requests with eight various departments. The town’s civil servants generally had an accommodating demeanor, but this failed to compensate for the insufficient documents they eventually released. Four offices took action but only one gave a complete set of documents requested. Pateros ended up being the second least transparent LGU in NCR.

Manila, NCR’s oldest and premier city, is the third least transparent. While its officials approved action on 57 percent of the PCIJ’s requests, they actually gave complete documents on only 14 percent of all requests filed.

The PCIJ sent request letters to seven offices of Manila City Hall but only four responded within the 15-day deadline set in law – the Mayor’s Office (SALNs), the business department, the City Civil Registry, and the assessor’s department. Manila’s police and health departments have yet to respond to the PCIJ’s requests, while the mayor’s office has yet to act on a separate request for data on education services.

Malabon, the fourth least transparent city, actually approved up to 83.33 percent of the PCIJ’s requests within four to 11 days. But it released the complete documents requested for only 16.67 percent of the requests, within the lawful deadline.

Malabon and Pateros cited the “confidentiality” status of certain documents for refusing the requests.

Among those that performed better than the bottom dwellers, the need for the mayor’s go-signal before certain documents are released was revealed to be a major block for those seeking access to public data. In Parañaque City, Mayor Florencio Bernabe Jr. had even issued a memorandum that in effect gave him sole power to approve all requests for information. The memo was supposedly based on a provision in R.A. No. 6713, which states that public offices are given the discretion not to disclose any information on the grounds of public safety and “undue advantage.” Out of the 10 requests that the PCIJ filed, only five were granted within 15 working days.

Politics & revenues

The practice in Parañaque prevails as well in Taguig, Pasay, Las Piñas, Mandaluyong, and Navotas even as no written memorandum requiring the mayor’s approval has been issued.

In Pasig, basic documents and those pertaining to education services could not be released simply because during the month-long data gathering for this audit, Mayor Bobby Eusebio was often out of the office. His deputies said there was no definite schedule when he would report for work.

Political rivalry also got in the way of accessing documents in Taguig. Majority of the requests were denied there supposedly because the documents had to be kept “confidential” on account of an ongoing court case between Mayor Laarni Cayetano and her losing rival in the May 2010 elections, retired Supreme Court justice Dante Tinga.

Only the documents from Taguig’s BPLO, the Assessor’s Office, and the City Health Department were provided. Requests filed with the Mayor’s Office, the Public Safety and Order Office (POSO), and the City Budget Office were not granted within the 15-working day deadline set in law.

Documents pertaining to civil registry records and on doing business in Metro Manila were the easiest to secure across the metropolis. In fact, all 17 LGUs provided information on various civil registry and property documents, as well as the procedures, fees, and number of days it would take them to process requests.

As for doing business, 14 of the 17 LGUs gave information on the documentary requirements, the process for applying for business permits and registering business establishments, and the fees involved. In many cases, the data were enrolled in brochures and pamphlets published by the LGUs.

These two offices (Civil Registry and BPLO) conduct regular transactions with citizens every day; releasing documents thus seems almost routinary to them. In addition, these transactions are triggers of revenues (processing and permit fees) and take on the nature of business processes beneficial to the LGUs. - With research and reporting by Karol Anne M. Ilagan, Anne Jeanette O. Priela, Krystal Kay S. Jimena, David Faustino T. de Castro, Essen Mei M. Miguel, Henor G. Gotis, Eric H. Rivera, Stephanie Directo, and Jessa Mae B. Jarilla, PCIJ, July 2011.

The question is which Arroyo will show up to deliver the SONA: A boastful, triumphant Arroyo, who will take credit for the Philippine economy’s uninterrupted expansion during her watch or an apologetic Arroyo, who has caused so much pain and misery for a lot of Filipinos and has managed to damage, in varying degrees, existing democratic institutions?

Surely, she will try to take full credit for the performance of the economy during her decade-long reign. That strategy is both risky and inappropriate. Risky, since the economy after growing at its peak in 2007 is now heading south – 3.8 percent GDP growth in 2008, and is projected to slow to zero growth in 2009 and to 2.0 percent in 2010.

The economy therefore grew at an average of 4.09 percent during the 10-year period. That, however, is much less than Estrada’s performance of 4.7 percent (3.4 percent GDP growth in 1999 and 6.0 percent in 2000), and slightly better than Ramos’s average of 3.6 percent from 2003 to 2008 or Aquino’s average of 3.34 percent from 1986 to 1992.

But a comparison of economic performance on the basis of GDP numbers as the only criterion is inappropriate for a number of reasons. First, the terms of office of post-Marcos presidents are uneven. Arroyo would end up serving for 9.5 years or almost a decade, followed by Aquino (seven years), Ramos (six years), and Estrada (2.5 years). Second, the national income accounts system was revised twice during Arroyo’s watch, which means the GDP numbers in recent years may not be comparable with those in earlier years. Third, Professor Felipe Medalla of the U.P. School of Economics has raised several methodological and measurement questions on recent GDP numbers. To date, his questions have yet to be answered by government statisticians.

More importantly, though, the government cannot claim full credit for the country’s economic performance because there are factors that affect economic growth that are beyond its control. The government doesn’t control the weather, which affects agriculture immensely in monsoon Asia. A devastating El Nino or a La Nina could spell a big difference on whether agriculture output would be robust or weak.

The more open the economy, the more it is subject to the vicissitudes of the outside world.

While the rest of the world was on a rapid, sustained growth, the Philippine economy benefited through galloping overseas remittances, stronger exports, and higher foreign direct investments. This happened during Arroyo’s watch and she’s been trying to claim credit for it. But she has nothing to do with the sustained global expansion. And with the sudden reversal of fortune, when the financial bubbles burst, and with the world economy now in a full-blown economic crisis, the Philippine economy has significantly slowed. Unfortunately for Arroyo, this also happened during her watch.

The world economic crisis exposed the long-term reforms that any Philippine president should have addressed seriously and which Arroyo failed to do: the diversification of Philippine exports, the overdependence on overseas migrant workers, the rapid population growth rate, agricultural modernization, and fiscal sustainability.

At the very least, a meaningful way of evaluating economic performance is whether a particular administration has met its own targets. The assumption is that at the time the targets were set, government authorities have enough information to know the available resources, technology, and government capability to meet the targets.

Using this performance criterion, the economy grew much less than planned levels, except for 2004 and 2007, both election years. But the ongoing economic crisis, the gap between the planned level and projected level will be much more serious during Arroyo’s final years: 2008, 2009, and 2010.

An even more important way of evaluating economic performance is whether the people’s well-being has improved. For the common man, the impact of the economy on employment, poverty alleviation, and hunger mitigation is more important than the GDP number.

Better or worse?

An appropriate question is: are Filipinos better off now than when Arroyo took power in 2001? Do they have decent, stable jobs or are they either unemployed or underemployed? Are they poorer or richer? Do they eat regularly or do they go hungry occasionally?

In her first SONA, Arroyo spoke about her “vision of winning the war against poverty within the decade.” But after almost nine years, she is fast losing that war. Poverty worsened from 2003 to 2006 using official government statistics. And with high inflation and food prices in 2008 and rising joblessness, it is reasonable to expect poverty to worsen in 2009. At current expectations of slow recovery, it is highly unlikely that the Millennium Development Goal (MDG) of halving poverty by 2015 will be met, even as neighboring countries (Vietnam, Thailand, and Indonesia) succeed in rapidly reducing poverty.

Arroyo promised to create 10 million jobs or about 1.5 million jobs annually from 2004 to 2010. She’s way short of her target. Worse, the decent jobs in manufacturing continued to disappear while more part-time, less secure jobs were created.

On her first SONA she promised food on every table, but that also did not happen. Instead, the Philippines became the world’s number one importer of rice. And almost nine years after that first SONA, hunger incidence has reached its peak at 23.7 percent, according to a recent Social Weather Stations survey.

Unemployment, poverty, and hunger are interrelated. Survey results show that unemployment and hunger go together. This reveals the weakness of the Philippine social-protection program, which provides very little protection for those who are needy, including those who lose their jobs. The incidence of hunger is a problem that has been exacerbated by the ongoing economic crisis, and it has progressively worsened under the Arroyo administration.

Budget mismanagement

But should all these surprise us? Despite the large increases in the national budgets during the last nine years, education, health, and public infrastructure did not get the priority they deserved. From 2000 to 2009, funding for public infrastructure has been modest at less than 1.5 percent of GDP.

President Arroyo undermined existing budget institutions. The budget process should be transparent and predictable. Yet Arroyo revealed her disrespect for the constitutional process by habitually operating on reenacted budget. None of her nine regular budgets were approved on time; usually, there is a full quarter delay. In three of her nine years, she ran the government for the full year without an approved budget. She has pushed executive action to its limits by exercising the power of the purse under the shroud of secrecy.

Grading Gloria

In her earlier SONA, Arroyo tried to sum up her vision of governance using a catchy phrase, Beat the Odds (B for balanced budget; E for education for all; A for automated elections; T for transport and digital infrastructure; T for terminating NPA/MILF hostilities; H for healing the wounds of EDSA 1,2 and 3; E for electricity and water for all; O for opportunity to create 10 million jobs; D for decongest Metro Manila; and DS for develop Subic-Clark hub).

Let’s rate President Arroyo on whether she has met or likely to meet her Beat the Odds goals and objectives using the U.P. grading system: 1(Excellent), 1.25, 1.5(Very Good), 1.75, 2.0(Good), 2.25, 2.5(Satisfactory), 2.75, 3.0(Pass), 4.0(Conditional Failure), and 5.0(Fail).

Balanced budget: Arroyo incurred large national government deficits during her early years: P211 billion in 2002, P200 billion in 2003, and P147 billion in 2004. And after cutting the budget deficit to P12 billion in 2007 (aided by severe spending compression and hefty one-time privatization proceeds of P91 billion), she is expected to exit with a large deficit of P250 billion this year and another P200 plus billion deficit next year. As a result, national government public debt would more than double: from P2.2 trillion as of end 2000, it will balloon to a new high of P4.5 trillion to P4.75 trillion by end June 2010. Preliminary final grade: 5.0

Education for all: Arroyo neglected basic elementary and secondary education during her first six years. As a result, despite her catch-up plan, progress in education has been slow and uneven. Key MDG targets will surely be missed. Net enrollment ratio has worsened – from 96.8 percent in 2000 to 83.3 percent in 2006. Translation: 17 out of 100 children of school age are out school. What would these children do in the future? The Arroyo administration is in denial and confuses inputs (school buildings, textbooks, etc.) with outputs and outcomes (better test scores, higher literacy). Grade: 4.0

Automated elections: The Commission on Elections failed to do it in 2004 and 2007. There is a fair chance that the 2010 national and local elections will be automated. But the poll automation is the responsibility of a separate, independent constitutional commission. Still, it could be Arroyo’s positive contribution to the democratic process if the 2010 elections, against all odds based on her past electoral behavior, turn out to be honest, orderly, and peaceful. Grade: Incomplete. (This is work in progress.)

Transport and digital infrastructure: The government has underinvested in public infrastructure. The promised additional light rail transit systems in Metro Manila have yet to be started. The existing three systems are not even linked, though work has been started. The digital infrastructure is happening through private telecommunication firms, which suggests that there was really no need for the corruption-laden NBN-ZTE project. Grade: 3.0

Terminating NPA/MILF hostilities: Both NPA and MILF remain capable of harassing government troops. Mindanao remains to be a battleground for Muslim rebels and government armed forces, and there appears to be no end to the conflict. The probability of having peace in Mindanao is much lower now than when Arroyo assumed office in 2001. Grade: 5.0

Healing the wounds of EDSA 1, 2 and 3 forces: But the country is more divided now than in 2001. There is even a serious rift within EDSA 2 forces. Grade: 5.0

Electricity and water for all: No additional power capacity was built during Arroyo’s term. Intermittent power failures are already being experienced in parts of the Visayas and Mindanao. And a return of the power crisis is likely in 2011. It could be sooner where it not for the severe economic slowdown, which muted demand for power. Water supply in Metro Manila has improved, but that was the outcome of decisions made during the term of Ramos (no credit for Arroyo). The appointment of a politician as head of the Local Water Utilities Administration is a negative. Grade: 3.0

Opportunity to create 10 million jobs: The government’s goal is to create 1.5 million new jobs every year. But from 2005 to date, only about 600,000 jobs were created yearly, and only 430,000 jobs if unpaid family workers were excluded. Decent jobs, mostly in manufacturing, were lost. These jobs were replaced by part-time, less paying jobs in agriculture and the informal service sectors. The rising number of overseas workers is proof that all’s not well in the domestic economy, and that the government has failed to provide enough jobs for Filipinos at home. And by being the top importer of rice, we’re giving up jobs at home and creating jobs for Vietnamese and Thais. Grade: 4.0

Decongest Metro Manila: The idea is not well thought out in the light of the ongoing world economic crisis. The trend for the future is to have denser cities, where people live where they work. The growing urban centers, however, have to be connected to the lagging rural areas. Yet since the idea to relocate the Department of Agrarian Reform to Iloilo, the Department of Tourism to Cebu, and the Department of Agriculture to Davao, is senseless, the failure to implement it may not be bad after all. Grade: 3.0

Develop Subic-Clark hub: The hub was thought out by Ramos, funded under Estrada (through the Obuchi Plan), and implemented by Arroyo. It is a worthwhile project. But project implementation was delayed and financed at large cost overrun, a characteristic of many GMA projects. Grade: 2.75

Preliminary Final Grade: 3.86 or 4.0 (Conditional Failure). Arroyo’s dismal performance supports the view that the EDSA 2 political adventure was a monumental mistake. It has set back the country’s democratic process and poverty reduction programs by almost a decade. As a society and a people, we’re worse off now than when Arroyo took power in 2001 – while our Asian neighbors continue to march forward, despite the world economic crisis.

Governance scorecard

Arroyo’s failure to move the economy and the government forward on a lot of government’s goals and objective may be attributed to various aspects of governance. What was the Philippine governance rating before Arroyo took power and what is it now?

On voice and accountability, in 2000, the Philippines’ rating was 54.3-percentile rank (that is, the Philippines was better than 54.3 percent of all countries in the study). By 2008, the rating had regressed to 41.3 percent. Political assassinations, incidents of summary killings, unfavorable reports on human rights violation by UN agencies, and many attempts to muzzle the press have not helped the Arroyo administration.

On political stability, there was a sharp drop in rating: from 26.0 percentile rank in 2000 to 10.5 in 2008. The Philippines is better than only one out of 10 countries among the 212 countries and territories surveyed.

On government effectiveness, there has been an improvement from 49.3 percentile rank in 2000 to 55.0 in 2008.

On regulatory quality, there has been a regression from 56.6 percentile rank in 2000 to 51.7 in 2008.

On the rule of law, there has been a slight improvement: from a 36.7 percentile rank in 2000 to 39.7 in 2008. But, the Philippines hit rough patches during the early years of the Arroyo administration. The rule of law dipped to 36.2 percentile rank in 2002, 33.3 in 2003, and 33.8 in 2004, a reminder of the extra-constitutional way by which Arroyo was installed to power.

On control of corruption, the deterioration was quite severe: from 36.4 percentile rank in 2000 to 26.1 in 2008. The 2008 ranking was a slight improvement compared to the 22.2 ranking in 2007, when congressional investigations of high profile allegations of corruption such as the NBN-ZTE and fertilizer scams were at their peak.

During Arroyo’s watch, there has been a serious deterioration in four of six aspects of governance. The governance ratings are not just numbers, unfortunately. Better governance, according to the World Bank study, strengthens development, and not the other way around.

Poor governance has an impact on how poorly the Philippines fared in its fight against poverty and its desire to improve the living standards of Filipinos.

Lost decade

The state of economic affairs is one where people’s welfare has been set back for about a decade. More people and families are poorer now than when Arroyo assumed power in 2001. More workers are jobless and underemployed now than before. And more people are likely to go hungry now than a decade ago.

As a result, people are dissatisfied with Arroyo as shown by her negative net satisfaction rating during the second half of her decade-long term. She has the worst net satisfaction rating among all post-Marcos presidents.

Ten years after, government finances are on shakier ground. Taxes-to-GDP ratio is much lower, going back to levels seen in the Marcos years, and national public debt would have more than doubled. In 2000, every Filipino had a debt burden of P25,991. By July 1, 2010, the amount is expected to double to P50,492. Under an unchanged condition, with the huge chunk of the national budget going to debt service, Arroyo’s successor can do very little to improve the people’s welfare.

As President Arroyo exits Malacanang, she will transmit to her successor a nation that is on the brink of financial collapse, hardly able to fund any program that would feed, educate, and take care of the health needs of its people.

Dr. Benjamin E. Diokno was budget secretary during the term of President Joseph Estrada. He is currently a professor at the University of the Philippines School of Economics.

Also see this perspective piece by Dr. Benjamin E. Diokno, former Estrada budget secretary and current UP School of Economics professor, on Arroyo’s economic record.

The coverage of the 2009 SONA continues at the PCIJ blog:

• Critics’ SONA: Arroyo ‘guilty’ as charged of ‘high crimes’
• 2009 SONA technical report

Also check out our multimedia packages:

• Grading Gloria
• Video: 2009 SONA sights and sounds

Second of Two Parts

RAPID economic growth in recent years, perhaps one of President Gloria Macapagal Arroyo’s few and widely acknowledged achievements amid the steady slide in her popularity ratings, could turn out to be as debatable as her devotion to good governance and anti-corruption.

As Arroyo delivers her ninth and presumably last state of the nation address on Monday, she is again expected to highlight her past economic achievements – even as the economy is poised to either shrink for the first time since 1998 or grow at its slowest in at least seven years. Already, gross domestic product, a measure of economic output, dropped by 2.3 percent in the first quarter from the previous period.

Yet, as if to remind everyone of Arroyo’s solid economic record in spite of the current downturn, full-page newspaper advertisements appeared last month showing how the economy did much better under her, compared to the terms of other Philippine presidents.

According to the advertisement, economic growth under Arroyo, “the cute economist,” averaged 5.6 percent so far compared to 4.1 percent under “the actor” Joseph Estrada, 3.9 percent under “the general” Fidel Ramos, 4.1 percent under the “housewife” Corazon Aquino and 3.2 percent under the late “lawyer” Ferdinand Marcos

Vintage Gloria

This is typical Arroyo, the country’s only president with a doctorate in economics. Her spokesmen often belittle allegations of irregularities against her administration by pointing to her economic record. Her past annual addresses to Congress had been occasions to tout her government’s economic successes, including fiscal reforms in 2006 and the 30-year high gross domestic product growth of 7.1 percent in 2007.

Even independent economists have acknowledged that the economy grew faster under Arroyo though they quickly point out that people’s well-being seem to be lagging behind. There is consensus on a central point: Poverty incidence worsened between 2003 and 2006, a surprising turn of event considering that GDP has been growing faster.

Small wonder then that now, Arroyo’s touted economic successes are coming under question. Recent growth could be “overstated,” according to economists at the University of the Philippines School of Economics, where Arroyo studied for her PhD.

In the June 2009 issue of the Philippine Review of Economics, a peer-reviewed journal published by the Philippine Economic Society and the UP School of Economics, Felipe Medalla, professor at the School of Economics, and Karl Robert Jandoc, a PhD candidate, subject the country’s recent economic performance to more exacting analysis.

Inconsistent data

Beyond noting the contradiction between faster growth and worsening poverty, the two authors explore more deeply and rigorously the inconsistencies in government economic data. They ask the hard but logical question: if two sets of data are inconsistent, perhaps one of them is not as reliable as we think it is.

In contrast to many of its neighbors, the Philippines posted higher economic growth after the Asian financial crisis. From 1999 to 2007, GDP grew by an average of 4.94 percent, or 1.45 percentage points higher than growth between 1989 and 1997.

The conventional view about higher GDP growth in recent years is that it was being driven by consumption and led by the service sector, which, in turn, could be traced to rapid rise in remittances, the emergence of the call-center industry, and fiscal reforms.

“We take a different view,” Medalla and Jandoc write. “We ask why is it that if economic growth is being correctly measured, many indicators and data sets are at odds with the supposedly high economic growth. Moreover, we find that Philippine growth patterns – shrinking growth of domestic absorption, exports and imports accompanying rising output growth – do not fit the pattern in other Asian countries.”

Medalla and Jandoc note that the Philippine growth pattern is unlike other Asian countries where growth rates of household consumption, government spending, capital formation, export, and imports rose or fell in tandem with GDP growth. Here, faster GDP growth was associated with slowing growth in domestic demand, exports, and imports.

GDP vs demand

“The Philippines’ uniqueness is more a reflection of its weak national income accounting system than the resiliency of its economy,” conclude the UP economists. “Furthermore, since trends in many other indicators outside the national income accounts seem to contradict it, it is very likely that GDP growth after the Asian financial crisis (and after 2000 in particular) has been overstated.”

Medalla and Jandoc cite an important clue to the possibility that there was something wrong with the data – the contrary direction taken by growth in GDP, on one hand, and domestic demand, on the other.

In seven other Asian countries, combined growth in personal consumption, government spending, and capital formation dropped as GDP growth fell. In the Philippines, GDP growth went up in spite of the slower pace of expansion in domestic demand.

Indeed, lower imports growth mainly accounted for faster GDP growth in the Philippines. Again, this contrasts with what happened in other Asian countries. “It is also at odds with studies showing that in most countries GDP growth moves in the same direction with the growth in imports,” Medalla and Jandoc write.

Consumption vs income

Another sign of possible data problems was the inconsistency between growth trends in personal consumption expenditures, on one hand, and family income and expenditures, on the other.

Estimates of the consumption spending are made by the National Statistical Coordination Board (NSCB) each quarter and are based on production statistics. Family income and expenditures data come from surveys done by the National Statistics Office (NSO) once every three years. Economists expect the direction of growth in the two indicators to be consistent. Instead, the growth patterns diverged, especially after 2000.

Medalla and Jandoc note that consumption growth rates surged to their highest after 2000 while the rise in family income and expenditures was slowest in the same period. The two economists point out that growth in family income and expenditures was above growth in consumption spending before the Asian crisis, but fell below afterward.

Slowing growth trends in energy use, net domestic credit, and ratio of investments to GDP “also lend to the belief that the economy is not as robust as the NSCB paints it to be,” say Medalla and Jandoc. “Even some of the indicators that government trumpets to show a healthy economy (such as the fall in inflation and interest rates) may be partially due to the fact that economic growth is not as high as the NSCB says it is.”

Amid the inconsistency between the national accounts-based consumption expenditure data, and the family income and expenditure numbers, which are generated from a survey conducted once every three years, the authors lean on the side of survey-based data.

Besides, they point out many weaknesses in the gathering and estimation of production value added in agriculture, industry and services that go into the national accounts.

For example, in agriculture, they note that value added in that sector has been growing by 1-2 percentage points faster than population growth rate in the last decade compared to the previous one. This suggests that agriculture labor productivity has been increasing, which does not square with shortfalls in public investments in the sector.

In industry, Medalla and Jandoc say that while the national accounts show that the sector maintained its contribution to GDP growth after the Asian crisis, data from the monthly survey of manufacturing of selected industries “point to a weakening, not a growing, manufacturing industry.”

Even the services sector, the most important driver of GDP growth after the Asian crisis, turns up a few data problems. Two-thirds of the rise in services value added came from only two subsectors – wholesale and retail trade, and transportation, communication and storage, which seem apparent from the surge in the number of cell-phone subscribers over the last few years.

But the two economists find this “rather puzzling … given the low growth of both expenditures and income in the family income and expenditures survey after 2000.” They also note that the bulk of growth in the service sector “is accounted for by two subsectors where output is hard to measure and where a significant part of the value added in inputed.”

Very weak database

The two economists do not suggest that the possible overstatement is deliberate on the part of the NSCB or the government. Indeed, the analysis covers the post-Asian crisis period, which include the years between 1998 and 2000 when Medalla was economic planning secretary of then President Joseph Estrada.

But they complain about the NSCB’s “very weak database,” which makes it difficult for independent experts to validate imputations that affected some of the values used in the national income accounts. They also described as “ad hoc” the changes that the NSCB made in the estimation methodologies.

The PCIJ emailed NSCB Secretary-General Romulo Virola for a comment and he responded to say the NSCB is still in the process of writing a comprehensive response to Medalla and Jandoc’s paper. Virola added that his terribly undermanned staff is simply overwhelmed with other tasks, including preparing the national accounts estimates for the second quarter of 2009, which are due out next month.

In an article dated April 2009 and published on the NSCB website, Virola tried to clarify some of the issues raised by Medalla in earlier media interviews and presentations. He said that consumption expenditures in the national accounts are conceptually different from family income and expenditures. “If these terms are conceptually different, why should their growth rates be the same?” he wrote. “Simple arithmetic should be able to explain why not.”

Virola, however, also acknowledged that the terms are “conceptually close to each other,” and proceeded to show that the growth trends of the two data sets are consistent if one used current figures rather than real or inflation-adjusted numbers.

But Medalla and Jandoc also take issue with Virola’s comments. The two remark: “Given the obvious weaknesses of the national income accounts, it is quite alarming that the head of the NSCB could argue with alacrity that the divergence between the growth rates of real expenditures in the FIES and NIA is not an inconsistency just because the relationship between the nominal growth rates of FIES expenditures and personal consumption expenditures seems to show a nice fit.”

They add: “The first lesson that one is taught in any introductory undergraduate course in microeconomics and macroeconomics is that the effects of inflation should always be sorted out from real changes in economic variables; and that from the point of view of measuring welfare, expenditures, and output, it is real variables – not nominal – that matter.”

The debate is not esoteric as it sounds; the real-world implications are serious as they are plenty. Two chiefs of the Bureau of Internal Review (BIR) have already been fired for failing to meet tax collection targets based on GDP growth forecasts, point out the economists.

In recent years, Luzon was saddled with excess power generating capacity that was built to address supply shortfalls implied by rising GDP growth. “It is now fashionable to attribute the failure of electricity shortage to materialize to low elasticity or responsiveness of demand for electricity to output growth,” Medalla and Jandoc say. “But again, it could very well be that output has not grown as fast as the NSCB estimates.”

Quality of stats

The reliability of GDP data also bears on the government’s economic strategy and anti-poverty programs. If growth numbers are dependable, then the problem becomes the quality of economic expansion or translating growth into more jobs and incomes. If not, boosting economic growth in the first place is a major concern.

“It seems there is enough evidence to at least make government and analysts reexamine the quality of economic growth statistics before they try to answer these policy issues,” Medalla and Jandoc write.

It’s not just academics who are complaining about the reliability of the national income accounts. Big revisions in fourth quarter 2008 GDP growth estimates, announced by the NSCB when it reported this year’s first quarter numbers last May, triggered shock and some angry comments from international analysts who help clients make investment decisions.

The NSCB initially reported in January that quarter growth in the fourth quarter reached one percent. Four months later, in May, it revised the estimate and said growth was likely only 0.3 percent.

“Speaking frankly, this is the kind of release which makes an economist feel sick in the stomach,” wrote Nikhilesh Bhattacharyya, an associate economist at Moody’s economy.com, a unit of the U.S. credit rating agency, in a blog shortly after the NSCB announced first quarter GDP results. “The major source of discomfort is at how the National Statistics Coordination Bureau has conveyed the information that the Philippine economy is performing so poorly, having previously given the impression it was performing so well.”

He continued: “With no reliable retail sales releases or other indicators of consumer spending, one has to rely solely on GDP figures for gauging household consumption, which makes up over 75% of total GDP. Prior to today, data showed resilient household spending had led to the Philippine economy to expand 1% quarter-on-quarter in the fourth quarter, probably outpacing growth in China, India and Indonesia. Evidently, it turns out the Philippine data (were) way off the mark.”

Resilient, complacent

Bhattacharyya surmised that the NSCB’s high GDP growth estimates late last year may have convinced government planners that the economy remained resilient and lulled them into complacency.

“Policy makers took their foot off the stimulus accelerator,” he wrote. “Monetary policy rate cuts were tempered, while the government was confident about achieving growth at the higher end of its 3.1%-4.1% growth target and did not announce any new spending measures.”

NSCB’s Virola, in an emailed response to a request for comment on the complaint of the Moody’s.com economist, said, “The quality of the national accounts estimates and their revisions (are) very much a function of the data used. The data come from the data ‘providers’ – households, establishments/enterprises in the private sector, the government, etc. If these data providers do not cooperate (do not respond to surveys, delay their data submissions, do not provide accurate responses/data, etc.) the quality certainly suffers.”

The NSCB admits that the GDP estimates need improvement, and is now taking steps to address the weaknesses. In April, it got a grant from the World Bank to strengthen the agency’s ability to revise the national accounts system, and to improve its quality and usefulness.

Questions about faster GDP growth may chafe the politician in Arroyo, especially because it could undermine one of the few remaining pillars propping up her legitimacy. But perhaps the PhD economist in her would be intrigued enough to also look into the issue more deeply, and allocate more funding to help the NSCB do a proper job of measuring the real state of the economy and of the nation. – PCIJ, July 2009

HER HANDLERS portray her as a hardworking president, but after eight years in power, Gloria Macapagal Arroyo is looking more like being long on show and short on substance.

Indeed, while critics and observers alike acknowledge specific successes by her administration, they point out that more fundamental concerns were neglected in the pursuit of achieving these.

The emphasis on high-profile projects and ‘feel-good’ programs became even more pronounced after the ‘Hello, Garci’ scandal broke out in July 2005 and lent credence to allegations that massive cheating, vote-buying and other poll irregularities had marked the 2004 elections. Critics say this led Arroyo to become more preoccupied in proving her administration’s legitimacy.

As a result, economists Benjamin E. Diokno and Solita C. Monsod, both of whom teach at the University of the Philippines School of Economics, gave Arroyo an overall failing mark in the 10-point agenda she set out to accomplish between 2004 and 2010.

Using the University of the Philippines grading system, in which 1 is “excellent” and 5 is “fail,” Diokno gave the president an average of 3.86, rounded off to 4, for Conditional Failure. Monsod, in a 1 – 100 rating, gave Arroyo an average of 47.17 where 50 percent is the passing mark.

But Diokno and Monsod differed in grading Arroyo – who earned her PhD in economics at UP — on her goal to achieve a balanced budget. Diokno, who was the budget secretary of Arroyo’s immediate predecessor, Joseph Estrada, gave the president a failing grade of 5 for the large deficits from 2001 to 2005 and ending her term with record-high deficits of at least P250 billion by yearend and another P200 billion plus in 2010. By contrast, Monsod generously gave her administration a perfect 100 rating for being on track on its deficit projections in 2007 and 2008.

Beat odds or beaten?

One hundred days after she was sworn into office anew in 2004, Arroyo had unveiled her Medium-Term Philippine Development Program (MTPDP), the road map to realize her 10-point agenda presented in the catchphrase: “BEAT THE ODDs.”

Each letter stood for a goal, thus: B – balanced budget; E – education for all; A – automated elections; T – transportation and digital infrastructure; T – terminate hostilities with the MILF and NPA; H – heal the wounds of EDSAs I, II, and III; E – electricity and water for all; O – opportunities for livelihood and 10 million jobs; D – decongestion of Metro Manila; and DS – develop Subic and Clark.

J. Nereus Acosta, a professor at the Ateneo de Manila University School of Government and the Asian Institute of Management, says that the administration “can rightfully boast” of a few areas where it can claim moderate to large success: a balanced budget, some big-ticket infrastructure projects, and the meeting of some targets for education, such as more computers in schools and the construction of new classrooms and school buildings.

But the former three-term congressman who was on Arroyo’s side during her first three years in office also notes that the administration’s infrastructure projects have been plagued by overpricing and corruption.

Economist and Freedom from Debt Coalition Vice President Rebecca Malay meanwhile criticizes what she says is Arroyo’s “obsession” to balance the budget by reducing expenditures for basic social services like health and education and increasing the “easy” taxes, particularly the Reformed Value-Added Tax (R-VAT) that raised billions of pesos for the government since 2005.

During the Estrada administration, the per capita expenditure for health was at P201. Under the Arroyo presidency, it went down to P184. On education, annual per pupil expenditure was at P5,830 under Estrada, and down to P5,467 under Arroyo. According to Malay, the effect could be nothing less than “deleterious.”

Education is central to development and a key to attaining the Millennium Development Goals (MDGs) and the Education For All (EFA) commitments to the United Nations. It is deemed the most powerful instrument for reducing poverty and inequality.

Unfortunately for the president, even some of her allies in the House may agree with Malay’s assessment.

‘Academic crisis’

Quezon Rep. Danilo E. Suarez, who chairs the House oversight committee that monitors and reviews the president’s SONA commitments, for one says that while Arroyo may have met her targets on construction of classrooms and reducing the density between classrooms and students and the number of teachers per students, her efforts to address the “academic crisis” are far from what is desired.

This is particularly true in the area of access to information technology, says Suarez, who points out that only 20 percent of the population is computer literate. “If you have 80 percent illiteracy in this particular field,” he says, “you have an academic crisis.”

He clarifies though that the fault is not entirely Arroyo’s, since she inherited the problem from previous administrations.

Nueva Vizcaya Rep. Carlos M. Padilla, for his part, says that prioritization of limited state resources is key to meeting the country’s targets on assuring access to education to all children of school age.

“If funds are not forthcoming, you can never improve the quality of education,” says the former educator, noting that the United Nations Educational, Scientific and Cultural Organization (Unesco) sets the minimum share of education in the national government budget at six percent of the Gross Domestic Product (GDP).

In the 2009 budget, the allotment for education grew by almost P20 billion from the previous year. In terms of share of the national budget, however, the amount received by education actually shrank to just 11.87 percent, from 12.2 percent in 2008. This represented a drop to only 2.36 percent of GDP, from 2.5 percent in the previous year. On a per student basis, the investment on education has been declining in real terms.

Enrolment in public elementary and secondary schools grow at an average of 1.8 percent a year, but per student budget declines by an average of 0.3 percent, according to the 2008 – 2009 Philippine Human Development Report.

Batasan Hills Elementary School. Photo by Tita C. Valderama.

Jobs: Goal failed

A study commissioned by the National Economic and Development Authority (NEDA) says that the government needed to infuse P44.2 billion more to education this year to be able to meet the EFA goals.

To Padilla, ensuring quality education means providing sufficient funds for quality instruction, facilities, and curriculum. But he says, “The situation we have now is that we can’t even provide for higher salaries for teachers to be able to attract the best talents to the teaching profession. We can’t capture the best minds among our high school graduates to take up education course and become teachers because of the pitiful salary rates.”

The same data show that more than 4,000 newly-hired teachers have left the country, majority of whom went to the United States. Teachers began leaving the country in significant numbers in 2000. A total of 241 teachers opted to seek better employment overseas that year, according to POEA records.

While President Arroyo has repeatedly said deployment of Filipinos overseas is not her government’s policy, one of the reasons she has given for her frequent travels abroad was to help enhance the overseas market for Filipinos.

Creating at least one million jobs a year is another goal the Arroyo government has failed to achieve. If at all, what has been generated were temporary employment and in small-scale businesses under programs called OYSTER (Out-of-School Youth Serving Towards Recovery) and CLEEP (Comprehensive Livelihood and Emergency Employment Program).

According to National Statistics Office (NSO) Administrator Carmelita N. Ericta, employment rate stood at 92.5 percent in April 2009, a slight improvement from 92 percent in April last year. By comparison, unemployment decreased from eight percent last year to 7.5 percent this April. This was based on the quarterly labor force survey that placed the number of employed persons at 37.8 million out of 59.1 million in the labor force who are 15 years old and older.

But the assertion raised several eyebrows at the House, especially the data showing the highest employment rate of 98.5 percent and the lowest unemployment rate of 1.5 percent in the poorest region in the country, the Autonomous Region in Muslim Mindanao (ARMM). Metro Manila had the lowest employment rate of 86.5 percent and the highest unemployment rate of 13.5 percent.

Paranaque Rep. Roilo Golez was even moved to remark that the poorest region in the Philippines has a far higher employment rate than the whole of the United States, where the corresponding national figure is at some 10 percent amid the global economic crisis.

In truth, there seem to be several sets of “official” labor numbers floating around, all of them depending on how a particular agency defines or sets the parameters of terms like employment, unemployment, and underemployment.

Even Congressman Padilla has apparently become so confused that he is now questioning the huge disparity in the number of jobs created between 2004 and 2008 as it appears in the reports of the Presidential Management Staff (PMS) and NSO.

Discrepancies in stats

According to the PMS, 11.4 million jobs were created in the last five years. The NSO report, however, puts the figure at less than four million. Comments Padilla: “I would have let it pass if it was just a difference of, say, up to 10 percent, but the disparity is almost three-fold. It really puzzles me.”

“I am not trying to be malicious,” he says. “I don’t want to embarrass the president if she says there were 11.4 million new jobs created since 2004. I just want them to explain why they have this claim.”

Congressman Suarez, though, says that the congressional oversight committee reviewing Arroyo’s SONA commitments would use the NSO data. He says these are consistent with the figures from the labor department and the pension agencies. The PMS data, says Suarez, took into account jobs generated in the small and medium enterprises that obtained loans from government financial institutions.

The PMS may have also factored in other data, if figures given by Trade Secretary Peter Favila are to be considered. According to Favila, the government’s lending program for micro, small and medium enterprises (MSMEs) has lent some P305.57 billion to some 5.6 million beneficiaries since 2004 and in the process created 2.5 million jobs. If that figure is added to the NSO statistics, that would still mean the PMS new-job count is in excess of some five million.

To some, however, such statistical discrepancies are par for the course for an administration that has long been accused of glossing over its shortcomings and creating diversions instead of squarely facing the mounting allegations of fraud, graft, and corruption. In the process, the search for real solutions to the country’s many problems has been forgotten altogether.

Governance sacrificed

Opposition Senator Benigno C. Aquino III, who says the Arroyo administration has “sacrificed” governance “for political expediency and sheer survival,” cites one particular example.

“In the four years since renewable energy was used to smokescreen the ‘Hello, Garci’ issue, and the country’s well-being was sacrificed, it is only reasonable to expect that the government has accomplished its goal of turning renewable fuels as a sustainable source for our energy needs,” says Aquino. “However, the government opted for solutions, such as the use of the jathropa plant as a source of renewable fuel, which ended up needing further study.”

Acosta’s assessment of the Arroyo presidency is more biting: “No amount of BEAT THE ODDS variable successes can compensate for the larger ‘political economy’ sins of the present administration: far-reaching institutional damage across government and an overall, nationwide sense of malaise and social distrust.”

“The latter, I believe, is foundational,” explains Acosta. “Social trust is fundamental when we particularly speak of governance. Programs and projects can be individually celebrated, and subject to ‘spin’ for media mileage and political capital, as it were. But if the government is distrusted, institutions are instrumentalized for political gain, and and leadership labors under a persistent cloud of doubt over its legitimacy, it cannot be judged as having served the public weal.” – PCIJ, July 2009

A performance undertaking is a guarantee issued by the Republic that the state agency involved in a project will comply with all its obligations to the contractor, typically a private company.

In many past projects, such undertakings have compelled the government to either assume the multi-billion-peso debts or allot huge budget subsidies for obligations incurred by the agency.

Performance undertakings issued during the Ramos administration for at least two projects – the Metro Rail Transit system and the Casecnan multi-purpose dam have turned from contingent into actual liabilities that required direct budgetary appropriations.

The government is now in talks to buy back the MRT system from its creditors for $600 million to $1 billion, so it may avoid paying the annual subsidies. The private contractor MRT Corporation spent only $655 million to build the 17-kilometer elevated rail line.

Financial risk

Should things turn just as bad for the Laiban deal, the biggest dam project in the 131-year history of the MWSS, the required performance undertaking could expose the government to even bigger financial risks.

The Philippine Center for Investigative Journalism (PCIJ) has not seen a copy of the confidential joint venture agreement between the MWSS and San Miguel but references to some provisions are contained in a memorandum of the Office of the Government Corporate Counsel (OGCC) to the MWSS Board of Trustees.

Under the term sheet or Annex C of the Bulk Water Sales Agreement, the OGCC memorandum states that, “MWSS is obliged to submit the performance undertaking of the Republic of the Philippines to secure MWSS’ performance of its obligations (including but not limited to payment obligations and buy-out obligations under the Agreement).”

The required performance undertaking could attract extra scrutiny from economic policy-makers, particularly the Department of Finance, which issues performance undertaking instruments, for the joint venture deal.

By tradition, before issuing any performance undertaking, the DOF secures the recommendation of the inter-agency Investment Coordinating Committee (ICC) that is chaired by the Finance department with the National Economic and Development Authority (NEDA) as secretariat.

At bottom, however, performance undertaking matters are the call of the Finance secretary, official sources said.

NEDA nixes it

Already the Laiban dam project has turned contentious because of a “take or pay” provision that the NEDA, in a letter to the MWSS, says constitutes a direct government guarantee, which is prohibited for unsolicited proposals like San Miguel’s offer to build and operate Laiban dam.

The OGCC disagrees, and insists that a direct government guarantee refers only to “an agreement where the government guarantees to assume responsibility for the repayment of debt directly incurrent by the project proponent in implementing the project in case of a loan default.”

All government agencies are being assisted by the OGCC, particularly in relation to negotiation of project contracts.

Performance undertakings and take-or-pay schemes share one thing in common: a bad reputation.

During the Ramos administration, performance undertakings and “take or pay” schemes proliferated in the power sector, twin sweeteners invariably offered to independent power producers or IPPs that were tapped to ease the power supply shortfall.

Napocor bankrupt

Soon after the brownouts ended, what came to light was a dark result: the excessively high power rates drove the National Power Corporation (Napocor) to bankruptcy years later.

The state commitments, which call on the government to ensure that the state power company complied with its payments and other obligations, were blamed for unduly increasing the government’s contingent and actual liabilities.

The government later assumed P500 billion of Napocor’s debts and had to privatize the state power company’s generating plants and transmission assets to repay the assumed debt.

Lawyers say the law does not prohibit performance undertakings, pointing out that these are sometimes necessary to ensure that a government agency, corporation or unit complies with its obligations in public-private partnership contracts.

Performance undertakings are different from direct government guarantees, which require the government to assume the liabilities of a private proponent if it defaults on debts to creditors. The law does not allow direct government guarantees for unsolicited proposals, such as San Miguel’s offer to build and operate Laiban dam.

Aversion, attraction?

To be sure, the Arroyo administration has shown an aversion to issuing performance undertakings, and even more, to extending direct government guarantees.

Shortly after coming to power in 2001, it adopted a policy of generally avoiding performance undertakings to prevent a further build-up in the government’s contingent liabilities or future possible obligations.

In a statement issued on April 2, 2003 on contingent liabilities, Arroyo’s Department of Finance said: “It has been the policy of the Arroyo administration to refrain from issuing performance undertakings and similar commitments except in extra meritorious cases subject to very tight scrutiny.”

The department added that contingent liabilities generally consisted of direct guarantees to the borrowings of government corporations and “indirect guarantees primarily from
performance undertakings and other similar commitments of support that have been issued in relation to BOTs, its variants, and other private sector participation (PSP) projects such as joint-ventures.”

In those days, it was very difficult for agencies to get performance undertakings from the Finance department and Malacanang, recalls as former Trade and Industry department official tasked with attracting private investments in infrastructure projects.

“Then-Finance Secretary (Jose Isidro) Lito Camacho and Presidential Chief Legal Counsel Avelino Cruz were very careful about these things,” the official adds.

By its conduct, the Department of Finance then pursued a policy of avoidance of performance undertakings.  It tried to generally veer away from commercial or market risks, which are at the heart of “take or pay” schemes, and to just take risks that government can manage such as regulatory issues.

OGCC plays safe
Similar circumspect drives the guidelines of the NEDA and the Investment Coordinating Committee that also discourage the issuance of performance undertaking and schemes that require state agencies and corporations to provide subsidy and market guarantees, especially for unsolicited proposals.

As matter stand, the OGCC seems to want to play it safe. It has posed no objections to the joint venture agreement but wants MWSS and San Miguel to elaborate on the matter of the performance undertaking that the agreement requires.
In its memorandum, the OGCC urged the MWSS and San Miguel to “define and clarify” the performance undertaking provided for in the term sheet “in order that said provision will not be construed or taken to mean as a direct government guarantee barred under the 2008 NEDA Joint Venture Guidelines.”

It looks unlikely if MWSS and San Miguel have complied with the OGCC instruction and elaborated on the performance undertaking to avoid turning it into a direct government guarantee, however. The MWSS Board of Trustees passed the resolution calling for challenges to the deal on June 17, or just a day after the OGCC issued the memorandum, leaving the water agency no time to revise the agreement.

By all indications, the MWSS felt no rush or saw no reason to clarify the term even as it launched the challenge process on July 2, 2009. The OGCC itself said the two parties can define and clarify “within the period stated in the joint venture agreement,” which could refer to the one-year “financial investment decision” period. During the FID period, the two parties should firm up the take or pay agreement and bring the two private concessionaires on board, the OGCC advised.

OK with OGCC

There is hint of consent in the OGCC memorandum as well. It noted, for instance, that the joint venture agreement “does not per se provide for a direct government guarantee … in the event of default.”

Instead, the agreement outlines a mutual buy-out scheme where the defaulter is obliged to sell its interest in the project to the other party at only 80 percent of the appraised value. Alternately, the defaulter must buy the other party’s stake at 120 percent of the appraised value.

The OGCC thus concluded: “Nowhere does MWSS’ possible default … result in the National Government’s assumptions of responsibility for repayment. In other words, it appears that the draft JV agreement, as the parties intended and worded, does not result in a direct government guarantee in favor of MWSS.”

More than a mere disagreement over the correct definition of a government guarantee, the dispute between the OGCC and MWSS, on one hand, and the NEDA, on the other, is at heart a debate on whether the government should agree, once more, to take on commercial risks.

The trade-off is assured water supply for Metro Manila. With Laiban in place, the capital region will have a second and more secure source of water that can supply an additional 1,900 million liters per day (MLD). The entire volume, however, may or may not be needed by the time the dam is completed in 2015. The concessionaires are projecting they will need at most  4,450 MLD of water only by 2015,  instead of the 5,600 MLD that is being projected by the MWSS.

It’s not easy weighing the trade-offs. It’s just too bad that Filipino taxpayers – who may be saddled with multibillion-peso obligations on account of Laiban dam – are just starting to get into the discussion even as the MWSS is moving closer, faster to awarding the deal to San Miguel.  – PCIJ, 2009

MWSS officials address the apparent haste in the tender of the Laiban dam project.

MWSS officials talk about ‘take or pay’, and whether the company explored all possible options to secure the best deal for consumers.

Check out the PCIJ’s coverage of the Laiban dam project:

• MWSS: Laiban deal with SMC ‘may or may not be best option’
• Video: MWSS officials address Laiban project
• Costliest dam project also biggest resettlement bill
• Laiban deal requires RP’s performance undertaking
• Ahead of contract, San Miguel starts to court Laiban residents
• Video: Sweat of the Sierra Madre
• MWSS keeps Laiban dam tender secret, even to NEDA
• Sidebar: MWSS execs: On sick leave, out of office, mum on Laiban
• New joint-venture rules allow little oversight, more abuse
• Secrecy, rush mark tender of biggest MWSS dam project

Also see:

• View the MWSS Laiban Dam Project Information Sheet
• 2008 NEDA Guidelines on Government Joint Venture Agreements
• MWSS press release (July 16, 2009)
• Chronology of Events (Laiban dam project)
• Agency Justification for the Construction and Operation of the Dam Project
• Comparative Analysis: GPRA, BOT and JV
• Diocese of Antipolo statement
• Green Convergence letter to MWSS

In the course of our conversation, the barangay captain of San Andres also kept telling us that her people will not leave this village unless they are paid proper compensation by San Miguel.

Then it hit us. Kapitana Sofia, we said, we are not from San Miguel. Media po kami.

Ay, akala ko San Miguel kayo, she apologized, and the room seemed to brighten just a little bit more.

The kapitana’s apparent hostility toward a name we normally associate with malted barley and hops and happy hour stems from the fact that San Miguel Bulk Water Company, a subsidiary of food-beverage giant San Miguel Corporation, has submitted an unsolicited bid to undertake a joint-venture project with the Metropolitan Waterworks Sewerage System (MWSS) to build the Laiban dam here in Tanay, Rizal.

The Arroyo government recently revived plans to build the 113 meter-high dam at the fork where the Limutan and Lenatin rivers merge into the Kaliwa River, which then merges with the Kanan River before roaring off to the Pacific. That means that after almost three decades of having their fates on hold, residents of San Andres and seven other barangays in Tanay and Quezon are again faced with the prospect of eviction.

The dam was conceptualized in the late ’70s to provide Metro Manila with an additional 1.9 billion liters of water a day and generate some 25 megawatts of electricity. But according to opponents of the dam project, some 10,000 residents will be displaced when the proposed dam submerges the barangays of Laiban, San Andres, Sto. Nino, Sta. Ines, Mamuyao, Tinucan, and Cayabo in Tanay, and Barangay Limutan in Quezon.

Many of these residents are members of the indigenous Dumagat and Remontado, who consider this watershed as part of their ancestral lands and have lived in these parts for centuries. In fact, the kapitana herself is half Remontado, but that may not keep her safe from eviction. According to the kapitana, village chiefs of the affected barangays have already been meeting with representatives of San Miguel Bulk Water.

Last week, the Philippine Center for Investigative Journalism revealed how unusual secrecy and haste mark the MWSS’s tender for the P52-billion project.

Rival bidders were given only five days to submit counter-offers to San Miguel Bulk Water’s bid. But San Miguel already seems so unusually far ahead in the race to win the dam bid.

It is not clear how far the talks with officials of affected barangays have progressed. At the same time, even before any potential rival in the bid could buy bid documents, San Miguel also seems to have been already dealing directly with the residents.

A staffmember of a division of San Miguel Bulk Water confirmed this to PCIJ recently. The staffer, who asked not to be named, said that representatives from the company have been engaged in talks with the affected residents this year. In fact, the staffer said, the talks may have begun as early as last year. The staffer, however, refused to reveal what was on the table for discussion or how far the talks have gone.

The MWSS, meanwhile, has taken a more low-key role. The kapitana said that MWSS representatives are afraid to come to their barangays for fear that angry residents would take things into their own hands.

And coming to these remote barangays is no easy feat – not for visitors, not even for residents. To get to the more accessible barangays like San Andres, one has to drive down steep, slippery roads that probably disappear with the first hint of rain. The community sprawls out from the barangay center, marked by a large multipurpose hall and an elementary school building. The rest of the structures in the barangay look like they just grew out of the ground.

And that’s San Andres, the barangay that’s easy to reach. The most populated barangay is Laiban, with at least 2,000 residents. To reach it, one has to ride a monster jeepney that crams people inside and on the roof, before lumbering gingerly down a slide of a mountainside and navigating through rivers and creeks like a water buffalo.

That one monster jeepney plies the route to the Tanay town proper only three times a week. The rest of the week one is stuck in or out of Laiban. It’s that kind of a barangay.

Opposition to the dam has apparently been pretty effective, at least up to this point. After almost three decades in the making, the dam project has left behind a trail of false starts. A set of massive water diversion tunnels has already been built from Barangay Laiban to nearby Barangay Daraitan. Also, some of the original residents have already been given compensation in the 1980s, according to Tanay Development Officer Adorable Sunga.

The problem, Sunga said, is that when the project was shelved, many of those who accepted the money did not leave the area, and instead grew deeper roots and created even larger families. Also, new families have settled in the watershed area in the last 30 years or so. The government expected to resettle 4,000 people in the 1980s; today, that figure has climbed to 10,000, all of whom now have to be paid and resettled.

The kapitana admitted that many residents had already been paid, some with 40 percent, others with 100 percent. No one seems to know just how much money people here were given by previous administrations. But the kapitana said this project with San Miguel will be a new deal altogether, with a new generation of claimants to consider. She didn’t say exactly how much the residents are asking in total, but said that the figure would run up to the billions.

Compensation certainly appears to be a prime concern in this barangay, at least among the local barangay officials. The kapitana said the village chiefs have already passed a resolution pegging compensation for displaced families at P3 million to P5 million each.

Village officials have also been rather loudly asking that they be given additional money by the project proponents for their troubles in reaching out and informing people about the revived dam project. Making like a walking calculator, the kapitana said that perhaps another P200,000 per barangay would do.

But then she mentioned that there are residents, especially the older ones, who would rather be buried here than be moved out. Ancestral roots are deep, and while some roots can be dug out for the right amount, other roots would rather die in place.

Curiously, part of the reason why the watershed area is so undeveloped may also have to do with the fact that the project has been perpetually in suspended animation.

Sunga noted that the dam project has hung over these eight barangays like a sword of Damocles for close to two generations. Since local businessmen and politicians know that these barangays may end up going underwater if government insists on pushing the dam project, no one is willing to pour much money into developing these areas. Schools built for children may just end up being inhabited by schools of fish.

The kapitana herself said that she was only 12 years old when residents of San Andres were told they were being moved out to make way for the dam. There was a lot of bitterness at that time among the local residents and the tribes, but it was bitterness tempered by the reality that the government would get its way in the end.

Now 42, the kapitana said that she would have no problem moving out, even though her father is a Remontado; she has another house in the upper portions of Tanay, where she can resettle.

But resettlement for the thousands of other residents may be a big headache that no one has yet factored into the equation.

When the project was conceived in the late ‘70s, the government went as far as to identify a resettlement site in San Ysiro, Antipolo. Sunga, however, pointed out that it’s been so long since the project was conceived that the resettlement site for the Laiban Dam evacuees has already been filled up with people from other communities.

In other words, the dam has a ready home, but the people it will displace do not. – PCIJ, July 2009

Like the rest of the public, the National Economic and Development Authority (NEDA) has been kept in the dark regarding the details of the proposed joint-venture agreement.

MWSS has yet to comply with the NEDA’s request for a copy of the proposed deal, according to a senior economic planning official who also sits in the joint-venture selection committee organized by the MWSS to evaluate San Miguel’s proposal. A private sector observer in the committee also said he was never shown or given a copy of the joint-venture agreement.

The deadline for initiating a challenge to the San Miguel proposal passed last July 8, but MWSS has refused to respond to questions about it. Efforts by the Philippine Center for Investigative Journalism (PCIJ) to get updates on the tender have also been thwarted by the absence of key MWSS officials who could speak on the matter.

MWSS engineering division manager Lerma del Rosario said that nobody other than “upper authority” officials is authorized to say anything about the ongoing tender. But these officials were either on leave or out of their office when PCIJ tried to contact them. (See sidebar)

No rival bids

Insiders privy to the deal, though, say that MWSS received no letters of intent from other proponents.

Still, it’s one thing for the MWSS to ignore the press. It’s another for it to do the same to NEDA.

Indeed, the MWSS action – perhaps the first for a large-scale infrastructure project – underscores the diminished role for NEDA and the inter-agency Investment Coordinating Committee (ICC) in approving big projects carried out through a joint-venture deal between state units and private investors.

The government last year approved new guidelines that effectively exempted joint venture projects from the close scrutiny of NEDA and ICC.

The draft guidelines prepared by NEDA in consultation with other agencies provided for ICC’s approval of joint-venture projects, treating them no differently from foreign-assisted projects and build-operate-transfer (BOT) and related schemes.

Gloria rebuff

President Gloria Macapagal Arroyo, however, reportedly rejected the provision because the ICC approval process is said to be time-consuming. Instead, a NEDA representative was required to sit in the selection committees of government entities entering into joint- venture deals with private parties

The MWSS joint-venture selection committee, composed of water officials, representatives from NEDA and Office of Government Corporate Counsel, and observers from business or civil society groups, was tasked with evaluating the draft deal negotiated by the water agency and San Miguel, and make a recommendation to the MWSS Board of Trustees.

The committee submitted a resolution recommending approval of the negotiated joint- venture deal with San Miguel to the MWSS board in early June. But the value of that resolution is now coming under question because some members of the selection committee have not seen the agreement itself, making a thorough and intelligent evaluation of it virtually impossible.

Ruben Reinoso, NEDA Assistant Director-General for Infrastructure, Regulation and Contract Review Services and the planning body’s representative in the MWSS joint venture selection committee, said he did not sign the resolution because the water agency has not sufficiently addressed a number of questions about the soundness and fairness of the agreement. Neither was NEDA given a copy of the joint venture agreement, he added.

Confidential deal?

“We have been asking for that proposal since the start, since they convened the joint venture selection committee,” Reinoso recounted in an interview with PCIJ. “But they said it was confidential. They could not give it to us.”

A private sector observer who sits in the MWSS selection committee also said neither he nor his alternate had seen a copy of the joint-venture agreement. “We were just shown a power point presentation on the summary of the proposal but never the copy of the agreement itself,” Manolito Madrasto, executive director of the Philippine Constructors Association, told the PCIJ in a phone interview.

Reinoso, meanwhile, said that NEDA had a number of concerns and questions on sharing of risks between MWSS and San Miguel, and the role of the two private water concessionaries, Manila Water Co. and Maynilad Water Services Inc.

He said MWSS’s failure to address these issues kept him from signing the joint-venture selection committee’s resolution during a meeting on June 10.

Yet despite the absence of Reinoso’s signature on the resolution and NEDA’s pending questions, the MWSS board of trustees moved to firm up the dam deal with San Miguel.

On June 17, the trustees approved Board Resolution No. 2009-124 that pushed the process to the next stage: subjecting the negotiated joint-venture agreement with San Miguel to competitive challenge from other proponents.

NEDA’s concerns

In the meantime, having gotten unsatisfactory response from MWSS, NEDA took more explicit steps to communicate its concerns to the water agency. On June 26, Economic Planning Secretary Ralph Recto wrote to MWSS Administrator Diosdado Jose Allado to clarify NEDA’s position on a number of outstanding issues regarding the Laiban dam deal.

Foremost is a possible “take or pay” provision that could require MWSS or the two private water concessionaires to pay for raw water from the San Miguel-led joint venture regardless of whether they used it or not.

After all, similar provisions in power-purchase agreements of the National Power Corporation are blamed for the power company’s massive debts that were eventually transferred to the national government and for the country’s excessively high power rates that are the second highest in Asia.

Again, MWSS did not respond to, or address, the NEDA’s concerns. Instead, on July 2, it published a notice in a newspaper inviting proposals to challenge the agreement negotiated with San Miguel, giving potential bidders only five working days, or until July 8, to submit a letter of intent and buy bid documents for P1 million.

Recto snubbed

During meetings on July 7 and 9, the MWSS trustees – whose exceptional diligence in holding twice a week meetings is legendary perhaps because of generous per diem allowances – reportedly took up Recto’s June 26 letter but downplayed its importance, according to MWSS insiders.

NEDA officials may rightly begin to feel slighted by the MWSS snub. Some complain that the water agency provided its junior staff and consultants with copies of the San Miguel proposal but would not extend the same courtesy to more senior NEDA officials.

But the matter goes beyond bureaucratic relations and inter-agency courtesy. NEDA’s concerns about the joint venture deal negotiated by MWSS and San Miguel go right into the heart of the economic soundness and fairness of the agreement. The terms and conditions of the deal, and the manner it is being up for challenge, also have important implications for similar joint-venture agreements in the future.

Recto’s June 26 letter shows that the MWSS is acting on the basis of what NEDA believes is a misreading of the provisions of the build-operate-transfer (BOT) law on government guarantees, which are disallowed for unsolicited proposals. The bone of contention is whether a “take or pay” scheme constitutes a government guarantee or not.

Gov’t guarantee?

The Office of the Corporate Government Counsel (OGCC), which advises the MWSS, believes that “take or pay” is not tantamount to a government guarantee because it does not explicitly guarantee debts of the private-sector proponents.

NEDA insists that it is. “In our review,” Recto said in his letter to Allado, “direct government guarantee does not only pertain to debt payments but other guaranteed undertaking by government as well, including but not limited to guaranteed payments for the output which may or may not be used by the government entity. Clearly market guarantee or guaranteed payments for specific volume of water can be construed as direct government guarantee with government guaranteeing market risks by the private proponent.”

Aware of the legally contentious nature of market guarantees, MWSS and San Miguel agreed to give themselves a year from the award of the joint-venture contract to firm up a “take or pay” arrangement, as well as to sign up Manila Water and Maynilad for a proposed bulk-water sales agreement.

San Miguel favored

But NEDA also raised a number of problems with the so-called “financial investment decision (FID)” period, pointing out, in effect, that it stacks the odds in San Miguel’s favor. For one, potential bidders may be discouraged from challenging San Miguel’s proposal by the uncertainty over the eventual status of the proposed “take or pay” provision, it said.

For another, NEDA added, if San Miguel is not challenged or prevails over a rival offer, the MWSS could be constrained to guarantee the purchase of the joint venture’s raw water output or risk the brewer backing out. Recto reminded MWSS in his letter that San Miguel has stated it will withdraw its proposal without the proposed “take or pay” provision. “Should San Miguel Bulk Water Co. win the bidding, this may already dictate the decision with respect to the ‘take or pay’ scheme, rather than its merits,” the NEDA chief warned.

Recto urged MWSS to settle all the outstanding issues “prior to the competitive challenge,” rather than postpone making the hard decisions a year from the award of the contract.

The big question is why the MWSS gave potential bidders only a week to begin a challenge and a month to come up with a full-blown proposal for a P52-billion project when it is allowing itself and San Miguel a year to resolve all the contentious issues.

But based on the water agency’s past and present actions, an answer is not likely forthcoming. – PCIJ, July 2009

Since the afternoon of July 8, the deadline set by the MWSS for counter-bids for its multibillion-peso Laiban dam project, the PCIJ has been calling up and moving mail to the MWSS officials and Selection Committee members to get an update on the tender. As of press time, the MWSS has made no official response, while those authorized to speak on the matter were unavailable.

The committee chairman, MWSS Deputy Administrator Isaias Bongar, was said to be on sick leave. His boss, MWSS Administrator Diosdado Jose Allado, was also supposedly on leave. Allado has, in fact, not responded to any of the PCIJ’s requests for interview for over a month now.

Allado’s staff advised PCIJ to contact MWSS Senior Deputy Administrator Macra Cruz. PCIJ called Cruz’s office at about 11:15 a.m. Friday, but was told she had yet to arrive.

On July 9, the PCIJ sent a letter to Allado by mail and fax to get an update on the tender. But with Allado on leave, his staff decided to forward the letter to Cruz – who forwarded it to the supposedly indisposed Bongar. Cruz said she has no authority to speak on Laiban dam’s tender because Bongar is in charge as Selection Committee chair.

Interestingly, MWSS’s notice of invitation for rival bids to San Miguel Corporation’s unsolicited proposal for the Laiban dam project had been buried in the inside pages of just one newspaper. The notice said that interested parties should submit a letter of intent and buy tender documents worth P1 million by July 8, or last Wednesday, or a mere five working days after the ad ran.

When PCIJ checked the agency’s official website (www.mwss.gov.ph) on the morning of July 3, the invitation had yet to be posted there. But on Sunday, July 5, it suddenly appeared online with this notice: “Date Posted: July 1, 2009.”

A PCIJ check with content servers, however, showed that the notice was posted on the MWSS website only on July 2 GMT (Greenwich Mean Time), which is about afternoon of July 3 in the Philippines.

Under the new guidelines and procedures on joint venture agreements between government and private entities issued by the National Economic and Development Authority (NEDA) in April 2008, the invitation to apply for eligibility and to submit a proposal must be advertised in a newspaper of general nationwide circulation, and posted continuously for a period of seven days, starting on the date of advertisement on all these platforms: the website of the government entity concerned, if available; the website of the government entity’s service provider, if any; and any conspicuous place within the premises of the procuring entity.

The Guidelines further state that private sector participants shall be given at least 30 days from the last date of publication of the invitation to apply for eligibility and to submit a proposal. But they also say, “Notwithstanding, the Government Entity concerned may adjust said period as may be appropriate for the nature, scope, size, and complexity of the proposed JV activity. Provided, that the principles of transparency, competition and accountability are observed.”

While the NEDA’s new rules are clear and facile, it certainly seems like transparency in the tender of Laiban dam does not rank high among MWSS’s priorities. But then MWSS’s reluctance to share information with media is not really new to PCIJ.

In 2007, the PCIJ launched a six-month review of official documents covering 71 projects funded with Official Development Assistance (ODA) from various bilateral and multilateral donor agencies. The MWSS was among the government agencies queried by PCIJ for documents. PCIJ asked from MWSS various papers pertaining to the Angat Water Utilization and Aqueduct Improvement Project and, yes, the Laiban dam venture.

Then MWSS administrator Lorenzo H. Jamora denied the PCIJ’s request saying, “the implementation of the said projects is part of the ongoing top-level discussion between MWSS Management and its Concessionaires” and that “all documents thereto are still subject to further review and study by the Steering Committee on New Water Resources.”

Still, the MWSS gave PCIJ permission to make copies of the executive summaries of the two projects. But when PCIJ showed up at the MWSS doorstep to do so, Jamora’s staff said their boss had changed his mind. It was only after PCIJ sent more letters and made more phone calls that the MWSS released the documents – more than a month later.

In total, to secure the MWSS documents on the two projects, PCIJ made 12 phone calls, sent three letters, and dealt with three referrals, in a span of 29 working days.

Yet given MWSS’s recent efforts to seemingly shroud its joint-venture deal with San Miguel, PCIJ can only consider it lucky that it already had some material on the Laiban dam project. – PCIJ, July 2009