Money for nothing and your checks for free

Over a decade ago, as I toured Vietville in Palawan (I was involved in the campaign to prevent the eviction of the Vietnamese refugees there), one of the nuns involved in running the place pointed out how the neat sawali houses of the residents had been built by the refugee-residents themselves. Various groups had only supplied plans and materials. “It means more when the people themselves build their homes, it inspires them to value their community and maintain it,” she said. Little did I know that I was seeing a prototype for the Gawad Kalinga of today.

The old saying goes, better to teach someone how to fish rather than hand them a fish; but then again this doesn’t mean that if someone is starving, you should then enroll them in a livelihood course. Feed them first. This means, though, that long-term plans have to be put in place, to prevent a culture of dependence from emerging. The increase in food and oil prices makes short-term relief an urgent matter to attend to; but long-term planning needs to take place, and we all depend on government to do that planning.

The Inquirer editorial today, Money for nothing, looks at the short-term priorities not just of our government, but regional governments, too. Interesting readings can be found here: Waterlogged Jakarta; Malaysia Faces a Succession Crisis (even as Malaysia may sell limited amount of subsidized fuel from next year) ; Truck drivers rally in Seoul over fuel costs; and US floods hit food prices (a little ray of light, at least for some, is Investors pour funds into Asian real estate).

The rise in food and oil prices has led to a debate that revolves around a lose-lose situation for governments: if they maintain subsidies, their bottom line suffers; if they abolish or decrease subsidies, the hold on power of governments may be imperiled. Something has to give, and it seems its the subsidies that are giving way, first. But not enough altogether, some think.

Take Dominic Lawson who says that while politically popular, oil subsidies actually benefit the wealthy the most:

Ban Ki-moon was not, needless to say, acting solely as an emissary for the United States: He was representing the teeming billions in nations as diverse as China, India and Malaysia. Yet if you look at this seizure in the oil market from the point of view of demand, rather than supply, then these same countries have also contributed directly to the problem they have asked Ban to sort out for them.

All have for years had a policy of subsidizing the price paid by their consumers and industry for oil products - and on a vast scale. According to the head of the International Energy Agency, Nobuo Tanaka, such subsidies are currently running at a rate of about $100 billion a year. In other words, these countries’ biggest energy consumers are being shielded from the effects of high oil prices, and therefore are not adjusting their consumption downward - quite the reverse, in fact. So we are seeing the subsidization of the richest in the Third World at the expense of all. This is not unusual: Indeed, it is absolutely standard in the upside-down world of market intervention. It is exactly the same as the global food market, in which subsidies ostensibly designed for the benefit of everyone are in fact disproportionately directed at the richest, paid for by national exchequers which supposedly represent the interests of nations as a whole.

So it’s not just that these poorer countries are building up their national debt to subsidize the use of oil; their economies will ultimately lose out in competitiveness to those in the West, where prices are liberalized. It won’t seem so at the moment to heavy users of fuel in the developed world, naturally: but in the long term, if oil prices stay at these levels, the countries which change the way they use energy will suffer less pain.

But even if you argue that the emerging conventional wisdom, is that government have to at the very least reexamine their subsidies and make them more focused, then at the very least, if our government’s embarked on a whole slew of subsidies, one has to ask if these are the right subsidies and for the right reasons -and with both short-term relief and long-term recovery in mind. In his column, Amando Doronila enumerates the subsidies:

Over the past three months, the Philippines, one of the developing countries threatened by political and social instability, has embarked on a program of subsidies that include: a P2-billion power subsidy program that offers a one-off P500 cash dole to four million families using less than 100 kilowatt-hours of electricity monthly to help cushion the impact of high electricity rates; a plan to offer a P2-per-liter discount on fuel purchases by public utility vehicle drivers in order to forestall a fresh round of fare increases; and a P300 per child subsidy for each family in addition to the P500 subsidy. These cash handouts come on top of the million-peso subsidy for cheap rice imported and stockpiled by the National Food Authority to enable it to sell rice at P18.25 a kilo, against the current price of P40 a kilo in the free market. A fertilizer subsidy is part of a P43.5-billion program aimed at dramatically increasing rice production in the short term.

These subsidies are to be taken from the 12-percent value-added tax, which the government claims is a bounty from one of its key fiscal reforms. The public coffers are claimed to be full because of this revenue.

Are our officials saying, as Doronila seems to suggest, that as far as government’s concerned, it can profit from misery, as was the case in April? Tony Lopez, in his column, argues that the President’s subsidies policy is on the right track:

Mrs. Arroyo, an economist, has deemed it better to give the cash direct to the poor. That way, the rich will continue paying taxes while the poor receive cash benefits.

The President is right. Direct the cash to the poor (who number 26 million). There may be questions as to how the poor will spend the money – pay for their electricity bill, buy more rice, buy clothes and slippers for their primary school kids, reload their cellphones, splurge on Jollibee at Mall of Asia, bet on the lotto or jueteng. To me, it doesn’t matter. The poor know best how to spend extra money. If you have never been poor, you don’t know just how far P500 will go.

Of course, some of the doleouts will be stolen. Graft, say 20 percent, I think, will be manageable. That’s small in terms of opportunity cost. Rice has tripled in price, a 200 percent increase in three months this year or 800 percent in one year. I think those in charge of the doleouts will minimize their greed and pocket just 10 percent.

(Over at Inquirer Current, you’ll find a link to a paper on the lessons learned from past food subsidies programs: the paper helps outline how to evaluate the pros and cons of a subsidy program and figure out how future programs can be improved.)

Lopez discusses Joey Salceda’s out-of-the-box solution:

The Noah’s Ark is a supplemental budget of P315.6 billion over three years (2008 to 2010). The amount could be P441 billion if you include subsidy for the National Food Authority’s rice procurement program (rice bought high and sold low to the poor).

The P315.6 billion includes in three-year totals, P84.6 billion in conditional cash transfers for the poor at the rate of P28.2 billion per year; P58 billion in agricultural production; P36 billion in scholarships; P24 billion in fuel subsidy for public transport.

At present, Salceda notes, most of Arroyo’s interim pro-poor programs have been funded by the VAT collection which could run out.

But will it be a case of trying to squeeze blood from a turnip? Lopez doesn’t say why Salceda thinks the VAT collection would run out, but my non-economist’s mind suggests to me that the reason’s simple: the VAT’s derived from consumption; when times are tough, consumption decreases, and when that happens, so does the VAT. No, you cannot squeeze blood from a turnip.

As it spends and spends, and scuttles some current sources of income (see Arroyo signs tax exemption law for minimum wage earners): according to Tax relief package favors middle class, says Monsod , Solita Monsod seems to be irritated that the tax relief’s being touted as actually helpful to the poor, when what it is is actually middle class relief) it needs to boost collections: Gov’t sets eyes on improving tax collection efficiency. Just as it rattles its saber to discourage profiteering: DTI to charge traders who go beyond 10% of suggested retail pric

To be sure, there are signs of government starting to think in terms of riding things out, medium-term (P4-B subsidies for poor included in budget — DBM), But there’s still some wiggle room. In a recent column, JB Baylon says he found out,

The 2008 budget has a bigger “allocation” for what is called “special purpose funds” than for the 34 line agencies of the national government: P562 billion for the former as compared to P503 billion for the latter…

…Using the 2004 budget, 1 percent went to the Judiciary, another 1 percent went to the Constitutional Commissions (COA, for example); 3 percent went to the Legislature inclusive of the much-maligned “pork barrel”; 27 percent went to debt servicing, and 68 percent went to the Executive department!

So now we know where the pork is.

From whom did he find these things out? You can start poking around this site: The Philippine Center for National Budget Legislation. This should prove to be an invaluable resource as the work begins for proposing and deliberating on, the 2009 General Appropriations Act (due to be submitted by the President in July when Congress reconvenes).

On the political front, Arroyo oversees Lakas-Kampi merger but Villafuerte, others not attending merger meeting of Lakas-Kampi.

And finally… Even as AlterNation101 suspected that it was all a public-relations stunt of the network, and Patricio Mangubat suspected that it’s all a public-relations stunt of the Philippine National Police chief, by 7 p.m. yesterday, ABS-CBN was already polishing its statement to mark the release of Ces Drilon and party from captivity, a moment RG Cruz happily recounts in his blog. Philippine Commentary reported he’d heard that the liberation of the captives was at hand, but mused,

I have no reason to doubt the veracity of this information (which will in any case be proven true or false in a few hours). If true, I would rejoice with the family, friends and associates of Ms. Drilon and company. But if it is also true that a ransom has been paid (as many will surely suspect) I would mourn for the next victims. It would also mean that despite perfervid declarations by both ABSCBN News management and the government authorities of a “no-ransom” policy, it will now be open season on other journalists and potential victims, with kidnappers and law enforcement fully in cahoots. I hope that whatever “story” will be given to explain events is not only credible, but true.

It’s important, I think, to point out it’s not just Ces Drilon who’s regained her freedom, there’s also this news: Lanao Bandits Free Hostages. I’m so very happy for Ces, and her fellow captives. But the story behind her abduction and who was really behind it, has only begun to unfold.

As smoke puts it, once the love-fest ends, it will be time for tough questions. As far as one of her assumptions goes, though, Philippine Politics 04 points out the policy of media embargoes has long been in place -and with official support.