Business World, 29 July 2014


Budget Secretary  Butch Abad lied, not once, not twice, but three times — first, before the Supreme Court; second, in Karen Davila’s Headstart; and third, before the Senate Finance Committee hearing — when he said that previous presidents (from Cory Aquino to Ramos, to Estrada, and to Macapagal-Arroyo) had used DAP-like mechanisms in the past. That statement is an outright lie.

The late President Cory Aquino and former President Ramos had what is called Reserve Control Account (RCA). Former President Estrada had none. On the other hand, Mrs. Gloria Macapagal Arroyo had Overall Savings (OS), while President Aquino III had Disbursement Acceleration Program (DAP).

But the RCA and the DAP are not identical. The RCA was an impoundment mechanism, a way of imposing mandatory reserves from the appropriations of agencies and special purpose funds, ranging from 5% to 25% of authorized appropriations, to manage deficits and generate funds for various urgent purposes (say, the Salary Standardization Plan). The idea is that since revenue collection was uncertain, then only X percent of the appropriations may be released to each department or agency. However, should revenue collections pick up later in the year, part of the reserves may be released — but to the same department or agency.

The DAP, on the other hand, is a mechanism for accelerated disbursement. “Contrived” savings were generated and then used even for programs, projects and activities that were not even authorized in the General Appropriations Act (GAA).

In brief, the RCA was designed to limit spending and control the budget deficit, while the DAP was crafted to accelerate spending. Clearly, the difference between the two is stark: black versus white, night versus day.

As former executive secretary and senator Joker Arroyo said, Abad disrespected the memory of the President’s mother, Mrs. Corazon Aquino, by claiming that during her watch she had the Reserve Control Account, which is DAP-like. It is a lie to say that the RCA is DAP-like.

Former President Estrada did not have the RCA as claimed by Abad. He had had no need for it since he was committed to spending every single centavo in the Congress-approved GAA. This was the appropriate fiscal policy stance at that time since the Philippines was recovering from the growth-stopping Asian financial crisis.

In order to move public spending swiftly and transparently, Estrada adopted the What-You-See-Is-What-You-Get (WYSIWYG) budget implementation approach. As a consequence, programs and projects were completed on time and there was no need for disbursement acceleration. It helped also that Estrada had competent and empowered Cabinet members, many of whom worked with the Cory Aquino and Fidel Ramos administrations.

Abad knew that there was no RCA during Estrada’s truncated term, yet he lumped Estrada with previous presidents. He lied about the late President Cory Aquino and President Estrada for having a DAP-like mechanism. The RCA was not like the DAP, and Estrada did not have the RCA.

The proof that Abad was deliberately lying is shown in a recent article written by Abad himself entitled “On the cusp of budget transformation: the work for an inclusive budget process under the Aquino administration,” in the June 2014 issue of the Philippine Review of Economics.

In a footnote, Abad said: “The administration of President Corazon Aquino first imposed budgetary reserves to address the funding requirements of the Salary Standardization Plan, and sustained its use in the context of economic slowdown, political instability, and natural calamities. The Ramos administration continued the use of the RCA to manage the economy, particularly the onslaught of the Asian financial crisis. While the Estrada administration did not impose reserves during its truncated term, it utilized the reserves of the Ramos administration through a congressional resolution extending the availability of appropriations under the 1998 GAA up to 2000.”

First, it is clear that Estrada did not impose reserves during his term. Second, what Estrada did was to ask Congress to extend the availability of appropriations under the 1998 GAA up to 2000, a legal and proper request which was respectful of the congressional power of the purse of a co-equal branch of government.

Abad speculated in his article that Estrada’s decision not to have an RCA is because of the existence of Ramos’s residual RCA. Wrong. The truth is that, with or without the residual reserves, Estrada didn’t believe in imposing one.

Estrada recognized the congressional power of the purse. By contrast, Benigno S. Aquino III, on the advice of his budget guru, usurped the congressional power of the purse.

Budget secretary Abad took an oath during the Senate Finance Committee hearing “to tell the truth, and nothing but the truth.” Since Abad lied before the committee, shouldn’t he be charged with contempt?

Abad should have heeded the first rule of holes, attributed to British politician Denis Healey. It states: “If you find yourself in a hole, stop digging.” In his desperate attempt to extricate himself out of the DAP quagmire, Abad made, and continues to make, ridiculous statements that put him in a deeper hole.

Abad made other false claims — for example, that the DAP spending was responsible for the strong growth in 2012 and 2013, and that the DAP contributed to the Philippines’ credit upgrade — which the senators and the general public should have scrutinized more carefully. The contribution of DAP spending to economic growth is, at best, marginal. Its contribution to the credit ratings upgrade is spurious. In any event, both claims are irrelevant.

The inconvenient truth is that the President and his Budget Secretary may accelerate disbursements without violating the Constitution and other laws. They may do so by planning the budget well (for example, by making sure that no project is included in the President’s budget proposal unless it is implementation-ready) and by making sure that Cabinet members are empowered and competent.

The moral of the story from this sordid DAP affair is simply that the desire to speed up disbursements cannot be used as a license to break the law.