The Market Monitor Minding the Nation's Business
By Luis Leoncio
As if to stress its fierce opposition to the move in Congress to grant an across-the-board pension increase for Social Security System (SSS) retirees without a corresponding increase in member contributions, the Department of Finance (DOF) is now citing the proposal, and an earlier recommendation for a two-year moratorium on land conversion, as the biggest threats to the fiscal stability of the country this year.
The pension hike could force the SSS to go bankrupt while the land-conversion freeze would undermine the country’s growth momentum, Assistant Finance Secretary Paola Alvarez said, in assailing the twin populist proposals that she said could have a disastrous impact on the President’s social programs.
To rescue the SSS from possible bankruptcy, the government would have to use taxpayers’ money to keep the pension fund afloat, thus unduly diverting funds that could otherwise be used to fund the pro-poor and pro-growth programs, Alvarez added.
Alvarez, who is also the DOF spokesman, said “all policy recommendations to President Duterte by Finance Secretary Carlos Dominguez III and the other economic managers are anchored on sustaining high growth and enabling all sectors across all regions to benefit from it in the form of more jobs, higher incomes and better living standards.”
Alvarez’s statement was in response to allegations made by certain groups, notably from militants and leftist organizations and their allies in the legislature, that the country’s economic managers have been giving the President wrong and anti-poor advice on the issues of land conversion and the SSS pension increase.
“Our economic managers are working on the premise that the Duterte government needs more, not less, funds to finance President Duterte’s 10-point socioeconomic reform agenda for high–and inclusive–growth. To pander to short-term populist initiatives will be a disservice to the President and the overwhelming majority who have given him the electoral mandate to effect real change on his watch,” Alvarez said.
The government can’t implement its programs “if the President’s economic team were to support populist proposals willy-nilly just to earn political pogi points for the Duterte administration–oblivious to their disastrous impact on revenue generation for the social reform agenda on high–and inclusive–growth,” Alvarez said.
“The big picture is that the Duterte brand of social reforms is anchored on sustaining high growth and enabling all sectors across all regions to benefit from it. This is the basis of all policy recommendations to the President by Finance Secretary Dominguez and the other economic managers,” Alvarez said.
“To transform the Philippines into an upper middle-income economy by 2022, we need to invest big in infra, human capital and social protection–to a level equivalent to a 3-percent budget deficit,” she said “Hence, the need to generate a lot more funds to bankroll these pro-poor and pro-growth programs,” she added.
“The 10-point socioeconomic agenda is meant to sustain high growth, transform the economy into a truly inclusive one, and keep the Philippines’s momentum as one of Asia’s fastest-growing economies by improving the ease of doing business and thereby attract more FDIs (foreign direct investments),” she said.
“Thus, a two-year moratorium on land con version would undermine the growth momentum while the pension hike could force the SSS to go bankrupt, a move that would compel the government to use taxpayers’ money to keep the pension fund afloat–and divert money that could otherwise be used to fund the pro-poor and pro-growth programs,” she added.
The Department of Agrarian Reform (DAR) has drafted an Executive Order that will mandate a ban on land conversion, which Agrarian Reform Secretary Rafael Mariano, formerly a legislator of the Anak Pawis partylist and former chairman of the Kilusang Magbubukid ng Pilipinas (KMP), said was part of efforts to ensure food security and food self-sufficiency.
Economic managers, however, opposed the proposal; Socioeconomic Planning Secretary Ernesto Pernia drafted a position paper to petition the President to review the land-conversion moratorium.
“The two-year ban will delay the objective of providing housing to the poor population,” said Pernia, who is also he director-general of the National Economic and Development Authority. Alvarez said “it would actually be anti-poor if the economic managers were to suggest to the President for all taxpayers, including wage earners and other low-income workers, to pay for the pension increase of some 2 million private employee-pensioners.”
Dominguez added that the Philippines’s stable interest-rate regime could be threatened by the SSS pension increase.
“The across-the-board increase in SSS monthly pensions without a corresponding adjustment in the contributions of the members would reduce the fund life of the SSS, possibly prompting a downgrade in our credit rating,” Dominguez said.
In a memorandum sent to President Duterte last Dec. 15, Dominguez and his fellow economic managers—Budget Secretary Benjamin Diokno and Pernia–said that without an accompanying “upward adjustment or restructuring of the contribution rate,” the proposed SSS pension increase would unduly jack up the unfunded liabilities of the pension fund from P3.5 trillion to P5.9 trillion.
“The SSS Reserve Fund which is tapped when contributions of SSS members are not enough to cover the benefit payments made to its members, is currently projected to last until 2042. The proposal by the Congress is foreseen to cut the actuarial life of the fund by 14 to 17 years from 2042 to 2025-2028,” according to their joint memo to the President.
If approved, this congressional proposal “may adversely affect the Republic’s credit rating,” said the three Cabinet secretaries in their memo to Mr. Duterte, and the “SSS would be bankrupt and left with no funds for other members in the future.”
The SSS pension-increase proposal for retirees dates back to the administration of President Benigno S. Aquino III, who vetoed it for the same reasons now being invoked by the country’s current economic managers. Many analysts believe the defeat of Aquino’s standard-bearer in the last elections, former DILG Secretary Manuel “MAR” Roxas was largely because of this.
Presidential candidate Duterte picked up the issue during the campaign period and promised to pursue it. Although he has yet to say his final word on it now, it appears that Mr. Duterte, as President, is now having second thoughts about it. As Budget Secretary Diokno has put it, Duterte the candidate is different from Mr. Duterte the President.