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Economy

Duterte government strives to end Philippines' budget impasse

Deadlock raises questions over president's power to enact key legislation

Philippine President Rodrigo Duterte's government has not been able to pass the 2019 budget due to an ongoing feud between the executive and legislative departments.   © Reuters

MANILA -- President Rodrigo Duterte's administration is battling to end a two-week budget impasse that threatens to derail the Philippines' rapid economic expansion, and raises questions over his power to implement key legislation ahead of midterm elections in May.

Congress' failure to pass the budget last year means the government has been operating under the 2018 allocation since the start of the month. This means that pay increases for 1.7 million public servants are still pending, including large boosts for police and soldiers.

An extended delay risks slowing growth in 2019, as well as cutting hundreds of thousands of jobs and pushing similar numbers of people into poverty.

Political leaders this week pledged to quickly break the impasse. Budget Secretary Benjamin Diokno said on Wednesday the budget would be passed before lawmakers take a break in mid-February, and Senate President Vicente Sotto III said on Monday the chamber aims to approve the budget by Jan. 21.

But they would have to overcome an ongoing feud between the executive and legislative arms of government. House of Representatives Majority Leader Rolando Andaya has led a class suit to compel Diokno to release funds for the pay hikes, while presidential spokesman Salvador Panelo has accused Congress of holding the salary hikes "hostage."

The budget impasse is an issue for lawmakers who want to secure pork-barrel funding, said Manila-based political analyst Ramon Casiple. "This is expected in an election year."

Several impasses occurred under former President Gloria Macapagal Arroyo, including re-enacted budgets during the election years of 2004 and 2007. The six-year term of Duterte's predecessor, Benigno Aquino, did not see a single budget re-enactment.

The first budget to be repeated in nearly a decade came after House deliberations were hit by delays following an acrimonious change in leadership in July, which catapulted Arroyo to the speakership.

Some senators accused some members of Congress of bloating their districts with larger budget allocations. Senior lawmakers also opposed the cash-based budgeting -- a system introduced by Diokno to compel state agencies to spend funds within the fiscal year, not within two years as before.

As a result, the proposed 2019 budget came in slightly lower at 3.757 trillion pesos ($72 billion), down from 3.767 trillion pesos last year.

Congressional leaders facing re-election are concerned that the lower budget allocation would backfire on them. For instance, the public works department was allocated 555.7 billion pesos, down from 637.9 billion pesos, but the budget ministry insists that this is a 26% rise on a cash-based basis.

ING Bank said in a research note on Tuesday that elevated inflation and the budget deadlock could slow economic growth in the first half of 2019. The government expects 7% to 8% growth this year.

"Government spending may decelerate sharply as the administration is running on a re-enacted budget following Congress's failure to pass the 2019 spending plan," ING said.

The budget department said last month that a full year on 2018's budget could clip growth by 1.1% to 2.3%, cut up to 600,000 jobs in construction, public administration and defense, wholesale and retail trade, land transport, and education. Up to 400,000 people could also be pushed into poverty.

But Diokno said there would be "not that much damage" if the budget passes by next month.

Should lawmakers fail to pass the legislation "we will call them to special sessions again and again," the minister said. "That will take time away from their campaigns so they must be thinking, 'Let's get this done.'"

Even so, Edmund Tayao, a political science professor at the Ateneo School of Government in Manila, said Duterte may be insulated from the budget controversy as the president posted a high approval rating even when the deadlock was looming late last year.

"It's the Congress that will be blamed and to be taken to task by the public [in the event of a prolonged impasse,]" Tayao said.

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