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Growth and federalism

Shifting to a federal form of government will have budget implications and will certainly affect the economy in both good and bad ways. But rushing its implementation may not achieve the desired results of distributing wealth and power to spur economic growth further.

Economic Planning Secretary Ernesto Pernia was candid enough to say that most of the country’s regions are not ready for the proposed government mode, adding that any hasty attempt to enforce it would set back the country’s economic progress and leave most of the regions even further behind.

Only five of the proposed 18 federated regions, according to Pernia, have the political and economic infrastructure that would allow them to adopt federalism. He cited four of the five regions—the National Capital Region, Cebu, Central Luzon and Southern Tagalog. The political structures and economic bases of these four regions are relatively mature and will allow them to exercise regional autonomy. But Pernia noted that it would take five or more years before the other regions could be in a position to adopt federalism.

The country’s top economic official said the government was already moving to connect all regions and bring the lagging ones into the mainstream economy through the “Build, Build, Build” infrastructure program. Pernia warned though that a sudden shift in the form of government could disrupt the pace of infrastructure work in the country and eventually undermine the development of poorer regions.

Pernia also cautioned about the budget implications of having several autonomous governments with spending powers. Transferring or devolving the national funds to the internal revenue allotment of local government units could bloat expenditures and the fiscal deficit to 6 percent of the gross domestic product compared with next year’s cap of 3.2 percent. Some LGUs may not yet have the budget discipline and the experience in keeping their expenses within the revenue limit.

Pernia said the set-up would “wreak havoc in terms of our fiscal situation and we will certainly experience a downgrading in our ratings.”

Federalism has worked in the United States, Malaysia and India. But there is no need to rush it if some of the proposed federated regions are not up to it yet.

Topics: Federalism , Economy , Rodrigo Duterte , Ernesto Pernia
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