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Gatchalian to probe economic impact of Federalism shift

MANILA, Philippines – With a wall separating them from the busy Port Area, a cluster of informal settlers create homes near the polluted Manila Bay, May 2018. In the midst of divergence of opinion between government economic managers and economists, the Senate is set to evaluate the economic implications of the proposed shift to a federal system of government. Photo by Mark Cayabyab/OS WIN GATCHALIAN

The Senate Committee on Economic Affairs led by Senator Win Gatchalian is set to take an in-depth look into the potential impact that the proposed shift to federalism would have on the Philippine economy.

Gatchalian has filed Senate Resolution No. 823, which directs the appropriate Senate committee to look into the economic effects a shift to a federal system of government would bring, including 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.

The resolution has been referred by the plenary to the Committee on Economic Affairs, which Gatchalian chairs.

In filing the resolution, Gatchalian cited the divergence of opinion between government economic managers and economists —who say that the country is not yet ready for a change in the system of government — and Malacañang, which has countered that the federal shift would have no adverse effect on the economy.

“Socioeconomic Planning Secretary Ernesto Pernia has 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 GDP (gross domestic product) ratio,” the senator said.

“Meanwhile, members of the academe such as University of Asia and the Pacific senior economists Victor Abola and Bernardo Villegas have also expressed concerns that the country might experience hyperinflation as it shifts to federalism. Moody’s Investors Service has similarly opined that the shift to federalism, accompanied by the ‘prospective changes to governance frameworks, could have negative implications for public finances’ and could be a risk for the country’s institutional and fiscal profile,” he added.

The lawmaker noted that the country’s largest 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, have also raised concerns that the proposed federal shift may lead to uncertainty among investors.

“In view of these conflicting claims, the Senate must be given an opportunity to evaluate the economic implications of the proposed shift to a federal system of government,” the senator stressed.