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More Groups Join Call to Weigh Cost and Risk in Shift to Federalism

At this time when financial markets in developing countries are being roiled following the difficulties of Venezuela and Turkey, it is all the more important that all sectors are seen as solidly behind the call of our economic managers for fiscal prudence, more dialogues and a well-considered approach in the shift to a federal form of government. Both the private and public sectors cannot be perceived as lacking in resolve on the fiscal front, seeing how financial markets are so sensitive. Hence, the ongoing meltdown occurring in some beleaguered markets.

For this reason, many other organizations join the 7 large business organizations in calling for legislators to weigh carefully the costs and risks associated with the proposed monumental shift to a federal system of government.

The latest groups consist of 19 organizations, they are: (1) Alyansa Agrikultura, (2) Asia Pacific Real Estate Association (APREA), (3) Bankers Association of the Philippines (BAP), (4) Foundation for Economic Freedom (FEF), (5) Institute of Corporate Directors (ICD), (6) Investment House Association of the Philippines (IHAP), (7) Judicial Reform Initiative (JRI), (8) National Real Estate Association (NREA), (9) Organizations of Socialized Housing Developers of the Philippines (OSHDP), (10) People Management Association of the Philippines (PMAP), (11) Philippine Constructors Association (PCA), (12) Philippine Institute of Certified Public Accountants (PICPA), (13) Philippine Women’s Economic Network (PHILWEN), (14) Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI), (15) Shareholders’ Association of the Philippines (SharePHIL), (16) Subdivision and Housing Developers Association (SHDA), (17) Tax Management Association of the Philippines (TMAP), (18) UP School of Economics Alumni Association, and (19) Women’s Business Council Philippines (WBCP).

Last August 12, 7 large business groups, the Cebu Business Club (CBC), the Employers Confederation of the Philippines (ECOP), the Financial Executives Institute of the Philippines (FINEX), the Makati Business Club (MBC), the Management Association of the Philippines (MAP), the Philippine Chamber of Commerce & Industry (PCCI) and the Philippine Exporters Confederation, Inc. (Philexport) urged legislators in a joint statement to consider the implications of the shift to federalism on the country’s finances.

The group cited reports indicating an alarming cost to the would-be multi-level government under a federal system. Preliminary estimates range from P72 billion of the Philippine Institute for Development Studies (PIDS) to P130 billion of the National Economic and Development Authority (NEDA). The fiscal deficit is estimated to reach 6.7 percent of the gross domestic product, which is way beyond the sustainable 3 percent target of our fiscal managers, an internationally recognized prudential limit. The groups worry about the dire consequences that such fiscal imbalance could have on the economy and the flagship Build Build Build program of the Duterte administration.

“We, too, believe in the need to adhere to the public finance principle ‘funds follow function’. Accordingly, we echo the concerns of fiscal and economic experts about the ambiguous provisions on the division of revenue and expenditure responsibilities between the proposed federal government and its federated regions,” the groups said.

The groups commended the NEDA, the economic managers in the Department of Finance, the Department of Budget and Management, the Bangko Sentral ng Pilipinas, as well as the researchers in the PIDS for their transparency in openly sharing their analysis and airing their concerns to the public. The groups supported and joined their call for a more detailed analysis of the fiscal impact of federalism to serve as a basis for the deliberations in Congress.

The business groups stressed that “We encourage full, open, and dispassionate dialogues on this proposed shift in form of government, keeping in mind its long-term impacts on future generations of Filipinos. As always, the business community stands ready to work with our political and economic leaders to bring about sustained and inclusive economic growth in the country.”

A news release published on August 15, 2018