Economic technocrats are supposed to be experts appointed to key positions and expected to steer the economy toward solid growth, stable prices, and job creation.

But technocrats are not infallible. And when technocrats get it wrong, people tend to trust them less. Technocrats’ policies and pronouncements become less credible over time.

Take for example what had happened to Secretary Arsenio Balisacan of the National Economic and Development Authority (NEDA). Before becoming a technocrat at NEDA, he was a longtime professor and researcher, a highly-regarded scholar on poverty issues. For a time, the name Balisacan was synonymous to poverty studies.

However, in the past weeks, he and NEDA have been thoroughly criticized because of their unrealistic food poverty line (P21 per meal per person per day). 

I don’t think they deserve the expletives and curses hurled at them on social media. But I also think it’s high time for NEDA to spearhead a revision of the poverty methodology, if only to avoid another round of backlash in the future. I wrote about this last week. 

Ex-finance chiefs

Technocrats were again featured in the headlines this week, by way of ex-finance secretaries who issued a statement supporting Finance Secretary Ralph Recto regarding the transfer of billions of pesos of funds from PhilHealth to the Treasury.

The ex-finance chiefs who signed the statement were the 93-year-old Cesar E. A. Virata (prime minister during Martial Law); Roberto F. De Ocampo (who served under former president Fidel V. Ramos); Jose T. Pardo (who served under Joseph E. Estrada); Alberto G. Romulo, Jose Isidro N. Camacho, and Margarito B. Teves (all three served under Gloria Macapagal-Arroyo); and Cesar V. Purisima (who served under Benigno Aquino III).

In a statement, they said they “support the DoF’s exercise of its authority to effectively utilize the excess funds of GOCCs [government-owned and controlled corporations] to finance crucial government projects in areas like health, education, social services, and infrastructure.”

Recall that in the 2024 national budget, the government was authorized to get surplus money from GOCCs and use that money to finance items in so-called “unprogrammed appropriations” (infrastructure projects, social programs, etc.).

The Department of Finance then issued a memo instructing GOCCs to make such transfers. In the case of PhilHealth, they were instructed to hand over almost P90 billion of their funds. In May, P20 billion of that was already remitted to the Treasury; another P10 billion was transferred recently. Meanwhile, the Philippine Deposit Insurance Corporation or PDIC, another GOCC, remitted at least P30 billion to the Treasury in May, also at the behest of Recto.

Groups have called out this move by the DOF and PhilHealth, saying that it’s not only imprudent but also violative of laws that earmark government revenues for PhilHealth and the broader goal of providing universal health care.

But the ex-finance chiefs said, “In our view, it is in the public’s best interest for a portion of excess GOCC funds to be mobilized efficiently, rather than imposing additional taxes or increasing public debt that would burden future generations.” They added, “The taxpayers are effectively paying interest on these idle, unused funds that are benefiting no one.” 

But there’s a problem with this argument. 

First, even supposing that PhilHealth is not maximizing its so-called surpluses, that doesn’t remove the fact that laws are in place to make sure that PhilHealth’s funds cannot be taken away by the national government on a whim. 

Second, the obvious next step of government should be to prod PhilHealth’s board and management to make efficient use of its funds — not just take away PhilHealth’s money and supposedly make better use of it.

Opportunity cost

Later in their statement, the ex-finance chiefs insisted that GOCCs are harboring “dormant” funds that can be used elsewhere and more productively. They said, “Responsible public financing requires considering opportunity costs. If unused funds are left dormant, the potential benefits are lost. Every unused peso represents development denied for Filipinos.” 

If you don’t know yet, opportunity cost is a basic concept in economics, one that’s taught on Day 1 of any introductory course. It simply refers to the value of the next best alternative that you give up when making a choice. If you watch a new online series, for example, the opportunity cost of that could be the hourly wage you could be earning instead. 

The ex-finance chiefs allege that PhilHealth’s “dormant” funds have a huge opportunity cost, in the form of government projects (like roads or bridges) that could be helping Filipinos in the meantime.

On the surface that makes sense. But if you think for a minute, there’s a very good reason why certain pools of money — like PhilHealth funds, the funds of the PDIC, the capital of state-owned banks, or the international reserves of the Bangko Sentral ng Pilipinas — can’t and shouldn’t be touched by anyone capriciously.

In the case of PhilHealth, such funds are meant to benefit their members who directly contribute to the fund. In the case of PDIC, that GOCC needs the money in the event of a banking sector crisis. In the case of state-owned banks like the Land Bank of the Philippines and the Development Bank of the Philippines, they need enough capital to ensure they can lend to farmers and cooperatives (recall that their funds were also tapped for the Maharlika Investment Fund, again using the assumption of idle funds). In the case of the Bangko Sentral’s reserves, they need that money to make sure we have enough dollar reserves to pay for our foreign obligations as a nation, and in the event of future economic shocks or crises.

In short, there are huge pools of money across our economy whose value derives largely from having them for use in the future, even if they’re not currently being used. In economics, this is also called “option value.”

The former finance chiefs should be the first to know about the prudence of not touching these large sums of money — even if in theory such funds can be tapped to fund government projects. Insisting that such funds can be touched now is the very opposite of “responsible public financing.”

Besides, there’s no evidence that funds remitted by PhilHealth and PDIC have already been used. Guess what: they’re also lying dormant in the public coffers. The same goes for the P125 billion seed fund of the Maharlika Investment Corporation, which has not been used for any real investments yet, and is only earning marginal interest from government securities.

It’s also doubtful that giving the government more money means that that’s the best use of funds. In this country with weak rule of law, the opportunities and temptations for corruption multiply as the government gets its hands on larger and larger funds.

The ex-finance chiefs added: “The cost of delaying crucial projects is a burden our people cannot afford — diminished public services, slower growth, more debt, and higher deficits. No responsible DOF Secretary would allow such an outcome.”

But if the problem is that government is not earning nearly enough money for all its projects, the solution is for the finance department to do its job better: spearhead massive reforms in tax administration, or propose new taxes if need be. Tapping GOCCs’ “dormant” funds is a lazy and irresponsible shortcut. 

Finally, the ex-finance chiefs seem to be banking on the “astute leadership” of Secretary Recto, who (when you think of it) is more of a politician than a technocrat with real expertise in economics or finance. 

Sure, Recto did push for the VAT reforms in the mid-2000s that helped to avert a fiscal crisis. But now that he’s called to be a technocrat once more, he should be ready to make equally difficult decisions — making sure, though, that they’re also the right ones. – Rappler.com

JC Punongbayan, PhD is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. In 2024, he received The Outstanding Young Men (TOYM) Award for economics. JC’s views are independent of his affiliations. Follow him on Twitter/X (@jcpunongbayan) and Usapang Econ Podcast.