Cost-benefit analysis
The first time I met Finance Secretary Carlos “Sonny” Dominguez, it was at a press conference in Hong Kong. This was in 1993, he was the president of Philippine Airlines (PAL). Our group, the Central Bank Press Corps, was in the former Crown Colony to cover a banking event.
Mr. Sonny had newly assumed the position after a relatively complicated privatization program of the flag-carrier. Thus, the corps accepted the invite of Rolly Estabillio, PAL’s corporate communications and now the top honcho of Manila Standard, to have breakfast with him.
At the end of the session, Mr. Sonny was fascinated by our knowledge of the airline operation based on questions we raised. “I like your group,” he said. A sign the press corps was successful in cracking the invisible China wall that he erected at the onset of the press con. Already comfortable, before parting, Mr. Sonny told us his good looks landed him a bit role in a movie. “I was in a closing scene,” he shared. With a hearty laughter, he added: “I was the guy wearing white socks.”
I am sharing this anecdote simply because, fast-forward to now, it’s no surprise watching the SecFin giving that same laughter at the Senate hearing last week. He admitted to the senators that he was “more confused,” after receiving a briefing on the draft Federal Constitution than at the beginning. This was a stark contrast to the stoic demeanor of some of the members of the economic team.
Like Mr. Sonny, there’s confusion in the market place. In my talks with analysts and market players, the unanimous response was bewilderment, specifically on its economic and fiscal impact. Their financial sensibilities further awakened when SecFin himself warned of the huge incremental budgetary requirement needed to fund the shift. It would mean widening of the budget deficit that could result in a downgrade in the country’s investment rating which the country has painstakingly pursued through all these years. As a consequence, there would be an uptick in interest rate for sovereign domestic and foreign borrowings. The private sector would likewise be affected by the higher cost of borrowings.
Indeed, it is a slippery slope on the fiscal side. Ramon R. “Boy Blue” del Rosario Jr., president of Phinma Corporation and former secfin himself, is apprehensive about the ill-effects of the shift on the financial standing of the national coffers. He described it as “unsettling” and may further widen the already “great disparity” between first-class local government units and those at the bottom, the fifth or sixthclass cities and municipalities.
Business groups led by the Makati Business Club, the Management Association of the Philippines, and the Financial Executives Institute of the Philippines, likewise aired their concerns, backing the call of the economic managers “for a more detailed analysis of the fiscal impact of federalism to serve as basis for the deliberations in Congress.”
I heard that Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla’s staff is digesting carefully the draft federalism charter. Cost-benefit analysis is being undertaken to determine its implications on the economy, fiscal and monetary side. It is important to undertake such simulation exercise in order not to be caught flat-footed of the attendant headwinds.
Over the rainy weekend, I tried to read the 116-page final draft. It’s complicated. Until deliberations in the legislative mill are done and over with, definitely, this apprehension will persist in the market place.
As an aside, Mr. Sonny does not have the sole distinction of wearing white socks. What do you know, no less than PAL Chairman, tycoon Lucio Tan also wears white socks.
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