Posted on 2006

Celebration of Accountancy Week
Government Association of Certified Public Accountants
Grand Ballroom, Hotel Intercontinental, Makati City
The Senate Needs A New Brand of Creative Leadership

Commissioner Espino,
Distinguished Officers and Members of the Government
Association of Certified Public Accountants,

Ladies and Gentlemen:

My warm greetings to you all and to the general membership of the Philippine accounting profession whose relevance to the nation is underscored by the financial crisis we are going through right now.

I am very much honored by your kind invitation to be your keynote speaker today on the theme: Extra Challenge Amidst These Changing Times.

Frankly, we need a break from so much of divisive politics and from the state of confusion that has marred the landscape of our lives.

Hence, it is a refreshing change to celebrate the Accountancy Week, to be with professionals who deeply cherish the values of integrity and excellence and to speak of a larger problem that goes beyond the echoes of controversial tapes and compact discs.

I believe that it is not a mere coincidence that we are celebrating the Accountancy Week precisely at the time when the institution of government is under siege. There is a growing popular clamor for accountability and transparency in governance. The whole public sector bureaucracy, from the highest official to the lowest government employee, is being judged according to the moral standards of an enlightened citizenry.

Indeed, the people of the Philippines through such popular channels of communications as grassroots organizations, organized civil society, mass media, and many groups of legitimate stakeholder are evaluating the performance of government on their terms. Thus, it is not enough to announce an improvement in revenue collections, the coming of new foreign investments or the construction of additional infrastructure projects.

The bottom line is – has the quality of life of a majority of Filipinos improved at all? How many new jobs or employment opportunities have been created? Has the number of those living below the poverty line decreased at all? How many of those who graduated from high school this year were able to enroll in college? Or how many of those who finished grade school recently managed to start their secondary education?

Whatever happened to the sick, the homeless and the hungry? What is the condition prevailing the government hospitals? How effective and adequate is the low-cost housing program of PAG-IBIG? When will so many squatter families in urban areas have lots of their own?

Who will feed millions of malnourished children?

I raise these disturbing questions not as an indictment of the government of which I am a part. Rather, I present them in this important forum to emphasize the need for a sense of urgency with which to address them.

Admittedly, the lack of money is a major cause of all these pestering problems. But even if we should have all the resources available, still our troubles will persist unless we have our priorities in place.

The sad truth is – we are not in a financial position to respond adequately to the most basic social concerns I have just mentioned. And this reality is conveyed by the content and structure of our national budget.

Let us consider the 2005 budget. Or the entire program expenditures, 33 percent goes to the debt servicing. Only a negligible one percent is set aside for health services. Whenever I go through the budget of the Department of Health as Chairman of the Finance Committee of the Senate, I can’t help but think of the impact of an additional 1% or 9.0 B on our people. How many lives can be saved.

The same is true for education. It only gets 13% of our budget. One percent (1%) can eliminate our classroom backlog. Another one percent (1%) or P9.0 B can significantly improve our state universities and colleges who gets only P16.0 B. Such a gross disparity in the division of the budgetary pie has become the norm in the design and management of the nation’s budget.

Take note that we are focused on this year’s budget only. We have not yet factored into our discussion the projected percentage increase in the budgetary allocation for debt servicing. More government borrowings from both the local and international financial markets coupled with the depreciation in the value of the peso will simply mean an increase in the level of the total obligations of the public sector.

The implications for us to leave no room for comfort. It is bad enough that the current level of government debts is already staggering. Additional borrowings will make the situation worse

Since the amount of money dedicated to debt servicing is a great reduction in the share of social services, any additional debt burden is an impairment in the ability of government to help meet the basic need of those who have nobody else to turn to.

We cannot pass on to the next generation a regime of continuous budgetary deficits and a worsening debt burden. To do otherwise would be morally irresponsible. We must leave behind a legacy of hope, not a cloud of despair.

Where do we go from here and how do we get there?

Timely and valuable lessons can be learned from other countries that went through challengers similar to ours. I refer in particular to Argentina and India.

In a recent trip to Buenos Aires, I was given a glimpse of a working model of a results-driven budget discipline. Argentina has adopted a multi-year budgeting framework with specific, measurable, attainable, realistic and time-bound performance indicators.

Part of Argentina’s policy and practice of fiscal prudence is the Integrated Financial Information System that generates accurate and timely data for budget preparation. There is a sustained close monitoring of budgetary expenditures to detect any variance between specific allocation and the actual disbursement. This is the task of the Office of National Audit which gives periodic reports to the Argentine legislature through the Joint Parliamentary Audit Committee. No less than the legislative body asserts its authority to insure that the recommendations of the auditing office are implemented by the government entities that have been audited.

Bear in mind that not to long ago Argentina was severely shaken by the full impact of a colossal debt. And yet with a clear vision, a strong sense of purpose and an irrepressible passion to overcome the curse of profligacy, Argentina is now on the road to recovery.

We are too familiar with the typical images of poverty in the India of the recent past. But the Indian socio-economic landscape is gradually changing. Today India is very much associated with information technology hubs, agricultural innovations and high-tech industries. It is now a major player not only in Asia’s economy and trade but also in the global trading game.

To our enlightenment, India’s budget is focused on addressing the life-time concerns of millions of Indians. In his budget message in 2003, the Prime Minister of India announced the commitment of his government to improve well being of its citizens in such concerns as housing, education, health insurance and equal employment opportunities. Disabled Indians, senior citizens, pensioners and those who have retired from military service also enjoy benefits from budgetary programs.

The Argentine template of budget management and the Indian approach to social development can be applied in the Philippines. However, adopting the models that work very well elsewhere does not guarantee success here. Behind the impressive performance of either Argentina or India is a strong fiscal discipline and a firm resolve to pursue a collective national dream.

Going back to our situation, we cannot perpetuate the culture of living beyond our means, of spending more than what we earn. To keep on borrowing to cover shortfalls in our earnings is downright suicidal unless there is a commensurate improvement in our overall productivity. Like a bubble, our debt burden cannot be expanded without stretching the limits of endurance. The point at which the debt bubble will burst is too much close for comfort.

Even assuming that we have a moratorium on additional borrowings, still the interest payments alone for 2006 on outstanding debts owed by the government are estimated at P334.4 billion which is P34 billion more than the 2005 level. This amount represents one third of the national budget.

With one third of the budget scheduled for the payment of interests on government loans, what happens now if we include the amortization of the principal? According to the Department of Finance, combining interest payments and amortization would eat up at least 70 percent of the proposed 2006 budget.

Under this ongoing scenario, there is no way by which a large majority of Filipinos can be liberated from the clutches of poverty. The debt burden is the fuse that unless neutralized with decisiveness, will trigger the explosion of the social volcano.

Truly, the challenge before us is far more important and urgent than changing the Constitution and shifting to a new form and structure of government. The issue is our economic survival and the stability of our society.

How do we extricate ourselves from the quicksand of the debt burden?

Perhaps we should find encouragement in the decision of the Group of 8 composed of the top rich countries of the world to condone the debts of poor African nations. Since we are not as poor as these African countries are, it is too far fetched to imagine a writing off of our own obligations.

What we must pursue is a proactive and creative economic diplomacy with our creditors is a good presentation of our case for understanding and sympathy towards a possible write off of a mitigation of interest payments.

The perfect example of a highly questionable loan-funded project is the Bataan Nuclear Power Plant which has not been commissioned and, therefore, has not generated a single megawatt of energy for its intended beneficiaries. Unfortunately, we have paid so much in terms of interest costs. The regular interest payments go on to the prejudice of the nation.

We need to create a good team of the country’s top negotiators and pleaders so that we can argue our case before the appropriate forum using all the tools of effective advocacy work.

Likewise, we must review our total loan portfolio to find out exactly what transaction is above board and beneficial to the nation. Items that are irregular can be the subject of a case for debt moratorium of modification.

As a corollary effort, the policy of fiscal prudence must be practiced in every branch and unit of government both at the national and local levels. This requires a life of simplicity and austerity which is made more valid and real through authentic examples and not by means of empty pronouncements. Our shared sacrifices will lead us far.

To make more people productive, we must actively promote the dissemination of entrepreneurial ideas and skills. We must broaden the base of entrepreneurs so that a critical mass is reached for an entrepreneurial revolutions.

Private sector initiative gains added momentum only in a policy environment that encourages creativity and daring. This calls for a radical paradigm shift in the mindset of those in government. Public and civil servants must be driven by a genuine desire to serve and to make it easy for ordinary people to set up small enterprises.

Lastly, we must declare a total and unconditional war against corruption both as a moral imperative and an attempt to stop the diversion of public fund to the pockets of the greedy and away from the mouths of the needy.

There is a roadmap to a better future for all of us. Let us take the road less traveled to make a difference in our nation’s life.

May God bless our country!

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