Is the federalist project doomed?

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Who would quarrel with a promised path to economic prosperity and lasting peace after decades of persistent poverty and incessant rebellion?

Well, it now appears that not everyone agrees with it and they’re not just a small minority.
From where we sit, the Federalism proposal and the Charter change that it necessarily entails both seem to be facing rough seas.

Recent surveys show that 3 in 4 Filipinos do not approve of Charter change that would bring about the shift to a federal system of government as they are more concerned with coping with high prices and getting/keeping a job so they can feed their families three square meals a day.

Filipinos also tend to look with suspicion at any attempt to revise the fundamental law as they fear that behind this are ulterior motives, including extending the term of office of elective officials. Initiatives by the Ramos and Arroyo administrations to change the 1987 Constitution, for instance, failed to take off as these were perceived to be nothing more than ill-disguised moves to extend their terms beyond their mandated six years without reelection.

There’s also the very real fear that the shift to Federalism, unless accompanied by a clear prohibition on political dynasties, would only strengthen their hold on political and economic power. As we know, new and old political families already dominate Congress. Once it transforms into a constituent assembly, would these political families willingly give up their positions of power?

And lately, it appears that even within the Duterte administration, there’s no unanimity in the pursuit of Federalism, with three key economic managers expressing misgivings about adopting it at this point as they believe it would have adverse rather than salutary effects on the economy.

Last week, at least three senior Cabinet members cited the need to go slow in pursuing the federal shift unless substantive issues, especially regarding its fiscal impact on the economy, are resolved.

Finance Secretary Carlos G. Dominguez III, facing senators at a committee hearing, clarified he was not totally opposing Federalism as it is, but could not endorse the federal road map in its present form, based on the draft shown to him, citing its “adverse impact on fiscal space.”

Dominguez told senators the country’s positive credit rating may be put at risk if its proponents fail to address the fiscal issues related to the proposed shift to Federalism. Rushing the transition to a federal system without addressing fiscal issues, he pointed out, may result in a large deficit and imperil country’s credit rating.

The Department of Finance which Dominguez heads had earlier warned that the shift to a federal system could bloat the budget deficit to P1.2 trillion, equivalent to 6.7 percent of gross domestic product. Socioeconomic Planning Secretary Ernesto M. Pernia has also warned that at this point, the regions in the country are not ready for Federalism, that the momentum of infrastructure improvement in the regions is going to be disrupted and that the shift to Federalism would entail immense expenditures which may increase the fiscal deficit to gross domestic product (GDP) ratio. That’s quite a mouthful from the country’s chief economist.

Budget Secretary Benjamin Diokno, for his part, said that although he wanted the economy opened up, the draft Charter prepared by the constitutional commission “does not do that.” He said it would be key to a useful debate on Federalism if there was a study “looking at various scenarios. We can’t just adopt a system of government without knowing the implications.”

Defense Secretary Delfin Lorenzana has also cautioned against rushing Cha-cha and the shift to Federalism, saying the government needs to conduct a comprehensive public information drive to let the people know how Federalism works.

Senators are also wary about the proposed shift to the federal system. The Senate Committee on Economic Affairs is now conducting public hearings to take an in-depth look at the potential impact of the proposed shift to Federalism would have on the Philippine economy.

The hearings seek to scrutinize the economic risks and opportunities, impact on regional economic growth, additional fiscal costs of the shift to Federalism, effects on investments due to emerging issues on the imposition of additional taxes, administration of incentives and repercussions on ease of doing business in the country.

Senior economists in the academe, such as Bernardo Villegas and Victor Abola of the University of Asia and the Pacific, are apprehensive that the country might experience hyperinflation as it shifts to Federalism.

Business groups, including the Philippine Chamber of Commerce and Industry, Makati Business Club, Management Association of the Philippines, Financial Executives Institute of the Philippines, Semiconductor and Electronics Industries of the Philippines Foundation Inc. and Cebu Business Club, had earlier also expressed fears that the proposed federal shift may spawn uncertainty among investors.

Last week, they were joined by more groups expressing concern over the consequences of shifting to Federalism. These include Alyansa Agrikultura, Asia-Pacific Real Estate Association, Bankers Association of the Philippines, Foundation for Economic Freedom, Judicial Reform Initiative, People Management Association of the Philippines, Philippine Institute of Certified Public Accountants, Philippine Women’s Economic Network, Tax Management Association of the Philippines, UP School of Economics Alumni Association and Women’s Business Council Philippines. They likewise called on legislators “to weigh carefully the costs and risks associated with the proposed monumental shift to a federal system of government.”

With so many voices now opposed to what appears be feverish efforts to fast-track Charter change and Federalism, the administration should heed the handwriting on the wall. At the very least, it should allow broader popular participation in the debate. Otherwise, it risks alienating the very people whose support is crucial for Charter change to succeed.

What are your thoughts?

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