ARMM Economics 101: Lesson 1 (The Big Picture)



By: Atty. Zainudin S. Malang
(LL.M., I.M.R.I., J.D.)

I am not an economist by profession but I would like to think my knowledge about economic issues confronting the Bangsamoro are better than average. Although a lawyer by profession, I had acquired a deeper understanding of what drives economic phenomena from my studies and work. I hold a masters degree on international economic and business law and another masters degree on regional integration, both from Asian and European universities. I also worked for several years as an investments consultant at the heart of Metro Manila’s central business district. Thus, I consider myself better equipped than many holders of an undergraduate degree in economics. One time, I even found myself explaining a seminal work on economic theory to such a degree holder, a classmate in one of my foreign studies.

I am mentioning all of these to drive home the point that my return to Cotabato allowed me to use whatever little knowledge on economics I acquired from my work and studies to bear upon the situation existing in the Bangsamoro. So, what is the situation?

First, lets start with some figures. Gross regional domestic product which refers to the total value of goods and services produced in the ARMM. Official census figures show that the ARMM population is about 4% of the total population. Thus, common sense tells us that our share in the total national production should approximate the same percentile, even more if we are more productive than average. Yet, per official figures, our share in the total production of goods and services is less than 1%. The situation becomes more glaring when we compare our level of production with others. CARAGA, which is the poorest non-ARMM region in Mindanao, contributes 1.5% to the national total. This means that their production, already poor as they are, is nonetheless 50% higher than ours.

What this points to is that we are not engaged in enough economic activity, either as an employee, a farmer, a fisherman, or engaged in business. Since we are lagging in the level of economic activity, it comes as no surprise then that we have the highest level of poverty in the entire Philippines. Poverty incidence, is the percentage of the population living below the poverty level and according to the World Bank, the region-wide figure is 67%, meaning 2 out of every 3 residents of the ARMM are poor. (one component province even has a 92% poverty incidence or more than 9 out of 10). If people are not gainfully employed, or not tilling enough lands, or not engaged in a profitable business, then we cannot expect them to lift themselves out of poverty.

So, the region is poor, its residents are poor. How about its regional government? Is it as poor or is it better off than its constituents? Figures vary depending on which office you ask but I do remember a graph I downloaded from the website of the national government’s Department of Budget and Management which clearly acknowledges that the ARMM had the smallest regional allocation of expenditure at P11 Billion with CARAGA having the next lowest at P14 Billion (circa 2002; the website did not provide data for succeeding years). But let us go one step further in our analysis. Let us assume that the ARMM has the power to collect all types of taxes, unlike at the moment wherein national internal revenues are excluded from its power. Under that assumption, will the regional government be able to raise the funds it needs to operate, to fund its projects, to pay the salaries of its workers? You wish!

One basic rule of taxation is that you cannot tax that which has no capability to pay. Simple enough, right? Wala na ngang kita si Bapa at si Babo, sisingilin mo pa ng buwis! And as the figures on gross regional domestic product and poverty incidence have shown, we are not producing enough, we are not economically active enough, and we are not earning enough. What we therefore have, as tax practitioners and revenue officials would say, is a very small tax base.

Therefore, the way out of the rut we are in all goes back to increasing our productivity, to being engaged in a productive economic activity, in one way or another. But this, of course, is easier said than done. Like most of the ARMM’s problems, things are not that simple.

To induce an increase in economic productivity requires investments, whether public (meaning the government or some other public institution funds it) or private (meaning the money belongs to a private entity). Public investments can either go into the production of public goods such as roads or it can go to proprietary activities similar in a way to those undertaken by private companies. But we face a few problems in this regard. First, we have learned that the regional government is in no fiscal position to invest. The bulk of its budget goes into the salaries of its employees. We also know that the national government is cash trapped and has to contend with a fiscal deficit year in and year out. In fact, some renowned economists have suggested that the national government may go the way of Argentina’s when it defaulted on its obligations and went bankrupt. This leaves us with other public institutions, e.g. the donor community, on which to rely for public investments.

But those who have been observing the manner by which aid money is spent in the region are frustrated, to say the least. Maybe this is worth writing about more in the future but for now, suffice it to say that juxtaposing poverty figures with the figures showing when, where, and how much aid money was poured into the region shows that there has been very little, if any, positive impact on the region as a whole. I wonder how many of the readers have heard of the EDSA-type Sulu Circumferential highway. I almost banged my head against a concrete wall when I first heard of this project that sought to build a multi-lane (on each side) highway that will rival the North Luzon Expressway and put EDSA to shame. Can’t we do with a two-lane concrete road? Talk about a warped sense of priority in spending the region’s meager funding. As expected, the project is not even half-finished.

With public investments offering not much relief, maybe private investments can. Maybe those who have poured millions, if not billions, of pesos in other regions will also do the same in the ARMM. Well, I have worked as an investments consultant for years and let me share whatever little I know about how private investors think. Given a choice between putting up my factory in Laguna, or Davao, or Cagayan de Oro, or the ARMM, which location would investors most likely choose? The simple but painful answer is anywhere but the ARMM. Like it or not, perception or reality, they see the region as not a healthy place in which to do business.

Thus far, the economic picture I have painted is undeniably bleak. And with both private and public investments written off as a way to increase our productivity, is there no way out of our depressing predicament? Maybe there is. And I will explore this in my next installment on ARMM Economics 101 subtitled “Lesson 2: Increasing Productivity”.

(Atty. Zainudin S. Malang is the Director of the Bangsamoro Center for Law and Policy. This article appears in his column in the Mindanao Cross under the title “From the Plains of Kutawato”. Comments may be sent to morolaw@yahoo.com)