CSC Forum, the final cut

Sounds like a movie sequel but it is not. This final installment of my presentation was intended to prick or tickle the imagination and creativity of personnel involved in the operation of LOEs on how to enhance the revenue generating capacities of their enterprises.

Funding sources. There are only two main sources that LOEs can operate on namely, their own internally-generated income from user fees or charges like rental of stalls, market tickets, sale of medicines, occupancy fees for patients, etc.; and subsidy or advances from the General Fund. Normally, the latter constitutes the biggest source of operational fund. Guimaras Provincial Hospital for example, is heavily dependent on this subsidy, constituting 79% of its operating budget. LGUs can also request financial assistance from their legislator's Priority Development Assistance Fund (PDAF) or other special purpose funds in the GAA. The capitation fund from PhilHealth can also be a potential source to augment the operational needs of hospitals. Loans from GFIs or DOF's LOGOFIND can likewise be resorted to. Aklan has tapped the LOGOFIND to finance the construction of its multi-storey hospital building. Bond flotation similar to the one initially done for the Caticlan and Boracay Jetty Port can also be replicated by other LGUs. Build-Operate-Transfer scheme and its variants as well as Lease-to-Own scheme can be a potential funding sources for capital expenditures.

Tax exemption as a Subsidy. I emphasized the fact that LGU owned enterprises are tax exempt. If these were operating as private entities, these could have been paying real property taxes and the mayor's permit and related fees, ergo, this privilege if monetized is a form of LGU subsidy.

Policy Considerations. There is a need for LGUs to take a closer look that their existing fiscal policies related to LOEs. For example, there should be a cap or conditionality on subsidy, grants or advances by limiting the utilization to deficit financing (loan payment), and meeting the cost of development projects or capital expenditures. There should likewise be policy on how much rate of return should be remitted to the General Fund once LOEs' operation is stabilized.

This complete my four-part series on LOEs. Hope my readership will find worthwhile this sharing of information.

CSC Forum, Part 3

This is not related to the topic but as a proud Pinoy, I can't help but join the euphoria of Sunday's abbreviated demolition of Eric Morales by our compatriot Manny Pacquio. So swift and precise as a surgeon was Manny's 3rd round victory that even put to shame Madam Auring's prediction that the bout was going to last 12 rounds with Manny eventually winning by a KO. Seems like Manny taught Morales a moral lesson: "A punch speaks louder than a boast".

Now back to the highlights of my presentation in that CSC forum. I emphasized that restructuring existing economic enterprises seems to be a more viable option for LGUs. By restructuring, I meant transferring and or consolidating existing enterprises under a separate organization unit - either as department, division or section under the local chief executive branch. Some desireable outcomes that can be derived from this shift are:

Shift fiscal responsibility - income generated is first applied to operation of LOEs, and funding gaps will come in the form of subsidies or advances from the General Fund to be explicitly justified.

Pinpoint accountability - financial results of operation can easily be ascertained since transactions are not co-mingled with the General fund.

Unburden the General Fund - in the long run, more funds can be channeled for other services since the General Fund is freed from
provision for large subsidies.

Provide solution to PS limitation - a big portion of the PS cost will be transferred from the General Fund to the LOE's budget.

I'll save the best for last . . . Part 4 is coming soon!

The CSC Forum, part 2

I'm okay now, the voice is back to normal thanks to Vir's (MBO of Duenas and our procurement training facilitator) advice to take a tablespoon of oregano juice extracted from fresh leaves. Tastes awful but it works!

As promised, here's the gist of my presentation on the funding source and fund utilization of LGU economic enterprise.

What it is. I first made a pitch about my own perception that treating all enterprises as economic is a misnomer because they are not there to earn money for the LGU but primarily, to deliver a service or provide a facility for the people. I prefer to call them LGU-owned Enterprises or LOEs.

What can be considered as LOEs? They can be classified into: (1) Economic Enterprises in the sense that they are created to improve production and delivery of basic goods and services for a specific market or client group. These include public markets, slaugtherhouses, sports complex, cemeteries and even hospitals; (2) Public Utilities that provide basic need or service to the general public that cannot be adequately provided by the private sector - Examples: waterworks, garbage collection, public transport, passenger terminal, and ports.

Features that characterizes LOEs. Just the more important ones: (a) a business with social objectives, combining entrepreneural skills with strong social purpose; (b) possessing a corporate culture, subject to public service administration and financial controls but operates outwardly in commercial manner; (c) separate unit in the bureaucracy; (d) have comparative advantage in the market with almost monopoly status; (e) heavily subsidized, a considerable consumer of public funds; (f) profits if any, are re-invested for improvement of facilities and operation.

Sorry, this has got to go on piece-meal. I'll post the rest next time.

CSC Forum overstretched my vocal chords!

Yesterday (Nov. 14th) I was privileged to be one of the speakers and panelists of the forum: "Challenges in the Effective Administration of Local Economic Enterprises" sponsored by the Civil Service Commission. It was quite a fruitful one but too taxing for me as I have to shuttle from Punta Villa Resort where I made an almost three hours- presentation on Module 1 of the Generic Procurement Manuals before the 200 plus participants of our last batch of procurement training - to Grand Hotel, the venue of the forum. I had only about an hour's rest between two engagements. That must have aggravated my already strained vocal chords, hence, the consequence of a hoarse voice and occasional outburst of dry cough. No regrets, anyway.

My talk was about funding sources and allocation of funds for economic enterprises owned by LGUs. Details of which will be posted next time I get enough time to write. Meanwhile, I need to be back to Punta Villa for a lecture on Alternative Modes of Procurement for Goods.

Civil society's alternative budget - will govt. bite?

Non government organizations spearheaded by former National Treasurer Leonor Briones of Social Watch Philippines are pushing for an alternative budget in lieu of the Php 1.13 T President's 2007 budget already approved by the House of Representatives and now under scrutiny by the Senate.

How does civil society's alternative budget differ with the one that government prepared particularly the DBM? In a nutshell, the civil society version merely proposes for a realignment of some Php 22.7 Billion out of the President's budget with corresponding 50% cut in Intelligence and Confidential expenses, and status quo level on the funding for Philhealth Indigents Subsidy and School Feeding Program.

The realigned funds (I'm using the term realigned from a layman's view, although technically, no realignment can yet be made since the budget is not yet approved) according to Professor Briones, shall be used "to augment appropriations for MDGs-related activities under critical sectors like education, health, agriculture and environment".

Beneficiaries of this alternative proposal are DepEd by P6.3 billion for new teaching and non teaching positions, school buildings, alternative learning system, teachers training, school’s MOOE; CHED (P882 million for scholarship; DOH by P8.5 billion for primary health care, child survival, reproductive health,etc.; Agriculture (P3.7 billion)to fund irrigation, water-resources development, farmers training, farm-to-market roads and post harvest; among others.

My own gut feel: I'm inclined to support this NGO-led initiative not just for tranparency and participatory purposes, but also for this government to provide more focus on its spending towards addressing the Millennium Development Goals (MDG). Latest survey (my post of Oct. 17th) shows that we are lagging behind in several MDG indeces.

Will the government bite? Probably a compromise can be made considering that the Senate may support the proposal. Otherwise, we are heading for another impasse and may end up with another re-enacted budget.

A gold credit card holder . . .

It's not the usual credit card like Visa or Mastercard. It's World Bank's latest ribbon pinned in the breast of the country's economic performance. "The Philippines is joining the ranks of gold credit card holder", declares Joachim von Amsberg, World Bank's country representative.

And what prompted the World Bank to confer this distinction? Mr. von Amsberg attributes this to the country's fiscal outturns and government's commitment to achieve its consolidation on target. Basically this is the same consideration that credit rating agencies like Standard and Poor, Fitch and Moody's used in upgrading our standing from negative to stable. So what else is new?

This is the catch: With this good fiscal performance, World Bank will commit more loans to the already credit-saddled Philippines. Business Mirror, in today's (Nov. 10th) issue reports that a fresh loan is in the offing from World Bank to the tune of 250 M US Dollar. That's 12.29 B in Philippine pesos using today's exchange rate of Php 49.95 to the US dollar. The advantage of the said loan is that it is not a tied loan, not much conditionality except to provide for GOP counterpart - that is, the government can use the proceeds for any purposes it may deem and free of the usual compliance to certain policy reform or structural adjustment.

2.5 per cent on a scale of 0 to 10!

The stat does not refer to the growth of our GNP nor GDP. It's the Philippines' rating on the corruption perception index (CPI) recently released by Transparency International.

To go on further, the country ranked 121st in the 2006 CPI among 163 countries worldwide - sharing the same rank with Russia, Rwanda Nepal, the Honduras, Swaliland, Benin, Gambia and Guyana. Is this something to worry about? Definitely, yes! Looking at historical records, in the 2005 survey, we ranked 117 and in 2004, the country is at number 102. Meaning we have gone down four notches this year compared to 2005, and (my golly!) 19 notches reckoned to 2004.

It seems, despite all the governance reforms put in place so far, no positive impact has been felt to combat corruption and rent-seeking activities in the bureaucracy. In the words of Senator Drilon, Senate Finance Committee Chair: "the perception index of Transparency International indicated that we are not improving at all. In fact, we are deteriorating".

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What's so special about Moody's rating?

It's all over in the major dailies! Business World reports: "Moody's lifts RP outlook to stable from negative". Business Mirror's headlines reads: "Moody's tag on RP credit now "stable". Not to be outdone, Inquirer, the country's most widely circulated newspaper posts in its Nation-Headlines: "RP credit outlook gets upgrade". But the most flattering of all the news on the credit upgrade is the one posted over the gov.ph website: "Moody's upgrade a vote of confidence for govt. economic reforms - PGMA".

To borrow a line from the rock opera, Jesus Christ superstar: "what's the buzz, tell me what's happening, what's the buzz". For one, the U.S-based Moody's Investor Service, a global debt watchdog is considered the most pessimistic about the Philippines among credit rating outfits - which includes the likes of Standard & Poor's and Fitch. The last two agencies have upgraded their ratings on the Philippines earlier this year to stable ("BB-" and "BB", respectively).

Thus, Moody's "B1" rating is some sort of a vindication or as the President puts it, a vote of confidence. It's positive effect on the economy can be summed up: (a) expected to boost financial market's confidence on Philippine stocks; (b) result in lower borrowing cost for both government and private companies; (c) strengthen the peso even more.

Why the upgrade? In a statement from Singapore, Moody's Vice President Mr. Thomas Bryne said "Based on fiscal performance through the first three quarters of 2006, it seems likely that the government will readily meet its deficit reduction target for the year as a whole".

The Moody's report also cited certain challenges that the country is confronted with, thus: "the economic necessity of trying to lure investors by way of putting up infrastructure would place additional pressures on the government's budget"; the Philippine remains highly indebted compared with other countries; and political will and strong support form Congress are necessary to sustain recent accomplishment.

Will the credit rating further improve? Moody's prescribes that "there needs to be a continued significant deficit reduction and decreased reliance on external financing by the public sector".

A Country of employers, less a country of jobseekers!

That is the desired end result of House Bill 5486, authored by Rep. Lorna Silverio (third District, Bulacan) which the House of Representatives recently approved on third and final reading. The said Bill, according to the author seeks to "enhance the human and intellectual capital of the government and its employees and to make sure that every employee will be self-reliant and more productive even after their stints in the government service". It assures that even retiring employees and those retired will extended assistance should they decide to engage in business after their government service. Just hope the bill gets enacted into law in time for the implementation of rationalization plans of national agencies.

Entrepreneurship among government employees is nothing new actually. In every agency or local government unit we witness a prevalence of employees (even teachers) who double as sales agent of insurance companies, housing subdivisions, memorial parks, Time Life, Tupperware, etc., or as reseller of signature women's undies and perfumes, jewelries, longganisa, tapa and other consumables or food items. There also are employees cooperatives, credit unions and even "paluwagans" in most offices. Some highly successful like the ones in Tubungan, Iloilo and the Province of Negros Occidental.

I haven't entirely read the bill, but on surface, it merely legalizes these already existing entrepreneural activities in government offices and might encourage a hoard of other employees to follow suit - in the process, jeopardizing delivery of services to the general public and "crowd out" the private individuals or entities already engaged in similar business dealings.

To be released in 2 tranches . . .

I'm referring to the IRA differential of LGUs . Central Office has finally issued a directive on the manner of releasing the differential based on the P14.843 B IRA supplemental budget. The Memorandum, dated 31 October 2006 directs DBM ROs to (1) compute the 80%-20% IRA shares; (2) issue the corresponding NCAs for November and December; (3) release/deposit the funding checks to the account of the respective provinces, cities, municipalities and barangays on the following dates:

• November shares (50% of the differential): 80% on November 10; 20% on November 27
• December shares: (remaining 50%) : full on December 12
  
  

We hope this will dispel any negative speculation that the release of IRA differential will be withheld up to next year.