A strong case can be built on political or legal or administrative grounds against the Duterte administration’s proposed shift from the unitary form of government to the federal. But the economic case is the most powerful of the cases that can be brought against the idea of federalism in the Philippines.
The economic case against federalism has many parts, but the most important relate to the composition of the 20 political entities—18 federal states and two autonomous regions—into which the Duterte-created Consultative Committee wants to divide this country, the cost and administrative impact of creating what will in effect be a second bureaucracy and the effect on the nation’s macro-economic fundamentals of the additional fiscal burden that the central government will be called upon to bear.
First, the composition of the proposed 18 federated states. The federated states should, nay must, be composed of provinces that will be more or less economically balanced. Each component province must be able to make a proportionate contribution to the economy of the state and must not be a drag on its finances. The merging of prosperous provinces with provinces that are fiscally weak will lead to resentment and frustration and in time will produce a clamor for disengagement and more equitable partnering. The first-class provinces will soon tire of subsidizing second-class and third-class provincial parties. There is widespread agreement that the areas that will make sense as federated states are NCR (National Capital Region), Central Luzon, Calabarzon, the Ilocos corridor, Western Visayas, Central Visayas and Davao City.
The second part of the case against federalism is the economic logic, in a Third World setting, in creating what in effect is a second bureaucracy below the national/central bureaucracy. A whole army of elected and appointive officials will be put in place to perform the few functions that will not be reserved to the central government (viz., defense, internal security, foreign affairs, monetary policymaking and justice). In recent testimony before the Senate, the nation’s chief fiscal policymaker, the Secretary of Finance, stated that all the new fiscal obligations that DOF (Department of Finance) is being made to shoulder will cost approximately P120 billion, which he said, pointedly, represented the combined salaries of 95 percent of the present government workforce. All told, Carlos Dominguez III, said that the government would see one of the key macro-economic fundamentals, the budget-deficit-to-GDP ratio, rise to 6.7 percent, as against the 3 percent that the government is trying to maintain.
Às the leader of the team of economic managers, the Secretary of Finance is concerned—as he must ever be—about the impact of a sharply higher budget-deficit-to-GDP ratio on the Philippines’ credit rating, which influences the rates of interest that foreign lenders charge on loans to this country. Asked by the Senators what would happen to the Philippines’ credit rating if the budget-deficit-to-GDP ratio will rise to 6.7 percent, Mr. Dominguez curtly replied, Ït will go to hell.”
The Secretary of Finance summed up his Senate testimony thus: “The draft federal charter could lead to massive job losses in the public sector, reduce funds for the government’s ambitious infrastructure program, widen the budget deficit and downgrade this country’s credit ratings … (It) could result in dire, irreversible economic consequences.”
This is the economic case against the proposed shift from unitary government to federalism. It is a very powerful case. Effectively communicated to the people of this country—especially to the millions of Filipinos who attach the highest value to economic growth and political progress—it is a winning case.
