Decelerating
Decelerating
FIRST PERSON - Alex Magno (The Philippine Star) - March 9, 2019 - 12:00am

Benjamin Diokno is one lucky man. He takes over the helm of the BSP at a time when inflation is clearly decelerating. There is less pressure on the central bank to continue on its hawkish anti-inflationary stance.

Over the past few months, the BSP raised interest rates a cumulative 1.75 percent to cool inflationary forces. The aggressive stance produced results sooner than expected. Inflation cooled to well below 5 percent for the month of February. Further downward movement is expected.

In his first speech as governor, Diokno forecast an inflation rate of 3 percent in the near- and medium-term. That is right smack in the middle of the 2 percent to 4 percent inflation target range traditionally maintained by our monetary authorities.

The aggressive interest hikes undertaken the past months to fight the inflationary surge could also dampen investments if maintained too long. Our economy grew impressively the past several years due to cheap money in the financial system. More expensive money will intimidate potential investors.

Diokno is not an unknown quantity in the arena of public policy. As an academic economist and as a seasoned technocrat, he is known to favor an expansionary fiscal policy. He frowns on government under-spending as this denies the opportunity to stimulate economic activity. He prefers interest rates low to facilitate investment decisions. He fully grasps the long-term gains for the economy of investments in infrastructure and human development.

Today, however, Diokno finds himself cast in a role that might be the opposite of his policy disposition. Few roles in government are as antithetical as the Secretary of Trade vis-à-vis the Secretary of Finance and the BSP Governor vis-à-vis the Budget Secretary.

The Trade Secretary, for instance, would be disposed to offer generous fiscal incentives to investors in order to meet his agency’s goals. The Finance Secretary, on the other hand, would want to collect as much revenues as possible to fund government initiatives.

As Budget Secretary, Ben Diokno introduced reforms such as cash-based budgeting to force government agencies to spend as scheduled. He was generous in accepting a higher deficit-to-GDP ratio in order to pump prime growth.

Now, as BSP Governor, he must be the enforcer of fiscal restraint. The most important thing for the central banker is moderate inflation rather than investment growth.

Had the inflation rate remained as high as it was last year, Ben Diokno might have found it necessary to transform from Mr. Jekyll to Mr. Hyde. But in the face of decelerating inflation, he may choose to remain his usual fiscal expansionary self. He is not as compelled to mop up domestic liquidity as his predecessor was.

If the large trends cooperate – the peso keeping its strength and oil prices holding in the vicinity of $60 per barrel – the transition from chief spender to chief monetary regulator might be a comfortable one for Ben.

Suspend

This case is important because it represents the failure of local governments in the wake of a severe weather induced calamity.  

No calamity in recent memory produced devastation for so many as when Typhoon Yolanda – the strongest storm on record to make landfall – plowed into the Samar and Leyte provinces. Thousands were killed, many more displaced. Public infrastructure and private property were eradicated wholesale. The economies of several provinces were seriously impaired by calamity.

Nothing was more important to rescue people from misery and restore normal livelihood in the worst affected provinces than the scale and efficiency of government’s response. Nothing failed the Yolanda victims more than the sloppy response from national government and corruption at the local level.

In the wake of the devastating storm, government put together a large fund called Recovery Assistance on Yolanda (RAY) to be deployed by local governments to rehabilitate their respective areas. Today, over a hundred local governments are under investigation for graft over the way these funds were used.

Last month, graft investigators came out with their first recommendation on local government officials accused of raiding the rehabilitation fund. At the instance of the Field Investigation Bureau-Visayas, the Office of the Ombudsman ordered the preventive suspension of officials of Guiuan, Eastern Samar. The order is now awaiting execution by the Department of Interior and Local Governments.

We all know about Guiuan. It was the town first hit by the onrush of the storm. The community was nearly entirely devastated by Yolanda’s winds and the resulting storm surge.

Guiuan was also among the first municipalities to receive rehabilitation assistance from the national government. The RAY funds were supposed to be used to repair the municipal hall and the public market as well as restore other vital infrastructure damaged by Yolanda.

The report submitted by the Ombudsman’s field investigators sowed a clear pattern of misuse of the funds. The actual projects differed from specifications. The local government very clearly failed in ascertaining the technical, legal and financial qualifications of the winning contractors. This resulted in wide deviations from the specifications of the projects. In a word, the funds were wasted – or, to be proven in court, looted.

Among those recommended for suspension are: Guiuan mayor Christopher Sheen Gonzales, municipal accountant Adrian Bernardo, municipal treasurer Felicisima Bernardo, municipal engineer and head of the bids and awards committee (BAC) Arsenio Samida and all members of the BAC.

The DILG must now act to enforce the Ombudsman’s order as issued by respected special prosecutor Edilberto Sandoval and signed by Ombudsman Samuel Martires. It would be a bad example for other local governments if anything less than prompt and complete enforcement is done.

BENJAMIN DIOKNO I INFLATION
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