Harsh as it may sound, fiscal management the past two years seems to have put short-term political expediency ahead of long-term institutional stability. It is as if policy is intentionally designed to cripple whatever gives our national economy stability and vigor.
The trend began with the establishment of the Maharlika Fund. Packaged as a “sovereign wealth fund,” this contraption drew its funding from P75 billion extracted from the two government banks.
The extracted money now compromises the capital adequacy ratio of the two otherwise well-run banks. More than that, the extraction disabled the banks from P750 billion in developmental lending. These two banks lend money to real businesses that fuel the real economy.
Instead of funding bank lending activities that generate wealth and create jobs, the P75 billion extracted from LBP and DBP have stood idle for two years now. Not one peso of the fund has been invested in anything resembling wealth generation.
For two years, even as it has not made a single investment, the Maharlika Fund incurs humongous overhead costs. The financial talent recruited to manage this now idle fund are paid their market rates. They are not wild-eyed volunteers contributing their talents for free in the name of patriotism.
The grapevine tells us Maharlika will finally make an investment soon. The fund will be buying into the National Grid Corporation, now firmly under the control of Chinese companies. This might produce a profitable investment eventually, especially if the grid is allowed to continue burdening our consumers with oversized charges. But it will not create a single new job in the domestic economy.
Even before some idle mind conceived of building a “sovereign wealth fund” out of money taken from functioning development financial institutions, the two banks needed replenishment of capital to ensure stability and growth. Now, the IMF strongly advises the Philippine government to restore funding to the two banks to fully stabilize their operations.
Whatever the Maharlika Fund decides to do with the money forcibly taken from the two government banks, LBP and DBP will be weak links in our banking system. Remember that any dividend from Maharlika’s investments go to the national treasury, not to the contributor banks.
Another serious blow was dealt our banking system when Congress earmarked P117 billion from the funds of the Philippine Deposit Insurance Corporation (PDIC) to fund unprogrammed allocations in the 2025 national budget. The modus operandi here is similar to the pillage of billions in PhilHealth funds. The funds were described as “excess” and basically confiscated by government.
PDIC performs a crucial role in maintaining public confidence in our banking system. It protects small savers from the repercussions of any bank failure. The fund guarantees up to P500,000 per depositor in case a bank fails. That is a comforting thought for small savers.
In order to be able to pay small depositors half a million in insurance coverage, the banking system needs to maintain 5.5 percent of total banking deposit in reserve. That adds up to P215 billion as minimum cushion. Congress just slashed this reserve by more than half.
Should global financial turbulence in the scale of the 1997 or 2008 crises happen, the PDIC will not have enough dry powder to stop a major economic fallout. Our economy could fall into a recession – and all because Congress wants more money for what is really thinly veiled vote-buying.
The unique anomaly of the 2025 budget is the amount of vital government projects pushed in the “unprogrammed” column. This is to free up available cash for the pork barrel.
What this indicates is that Congress may be prepared to confiscate more “excess” monies from other institutions to get the urgent projects funded. We could see an epidemic of defunded government corporations – beyond DBP, LBP, PhilHealth and PDIC. No institutional fund now seems safe from the fiscal irresponsibility of our lawmakers.
Meanwhile, our politicians are going to town with the ill-gotten fruits of a government plundering itself.
Baguio City Mayor Benjamin Magalong, a brave voice against the tide of worsening corruption, came out recently to denounce the massive distribution of patronage money accompanying the sorties of politicians. During every sortie, each local government executive becomes the beneficiary of P21 million in patronage money.
Our politicians are not shy nor indolent when it comes to dispensing patronage money. Social media is awash with photos of politicians, their names and faces emblazoned on large tarpaulins, dispensing AKAP money.
Both the Comelec and the DWSD promised to issue guidelines restricting the role of politicians in the distribution of patronage money. No one knows when these guidelines will be issued or how assiduously they will be enforced. In the meantime, politicians are rushing to dispense the money before an election ban takes effect.
The word “cannibalism” comes to mind. Government is eating up its institutions, undermining their viability, to satisfy populist frenzy. In the end, the usual suspects might get themselves reelected – but at the cost of diminishing the sustainability of governance itself.
This seems an unjust price to pay: impoverishing our people’s future for the electoral orgy now in progress. The taxpayers’ money is being thrown in his face to buy his vote – and for the most unworthy candidates.
It might be too rash to describe ours as a failed state. But we surely are getting there.