Dean de la Paz

Special to BusinessMirror

If external local and foreign auditors were to conduct an unscheduled audit of specific government agencies, they may just discover either mismatches of fund usage, or worse, funds on furlough, either unaccounted for or outrightly absent from both books and coffers.

This has happened before, where money earmarked for agricultural usage was applied against less productive nonfarm-related endeavors. The fertilizer fund scam is one such example. The equally brazen malversation of road-user’s tax is another.

In each, public funds slipped into pockets to capitalize private enterprise. The precedents are legion. In its most destructive applications, treasury funds found their way to private equity, either as booty capital or behest loans and privileges.

A behest loan to a private construction company was once incorporated into the national debt, leaving the public paying for both the fruits and rot of booty capital. In another, government privileges crossed the forbidden divide and enriched private benefactors, as duties foregone founded the dirt on which booty capital took root, and grew like wild weed.

For some these have unraveled. Others have not. Rather than be caught by the long arm of justice, many remain untouchables, believing booty capital theirs. And like regrown octopus tentacles, booty capital extended into other businesses and other generations. So, as funds are juggled around infrastructure spending, food- security budgets yield increasingly less productivity, thus escalating the hunger statistic further.

Anyone scrutinizing government infrastructure using state equity will probably encounter not just quick sleight-of-hand shifts in applications but something more akin to an illusionary shell game. Now you see the money, now you don’t.

From the seminal cronyism during the Marcos years, these shell games morphed.

Last week, the Trade department announced that at least P6 billion from approximately P50 billion generated from the economic recovery through agricultural productivity bonds would be used to capitalize a contractual obligation originally imposed upon a private entity.

That contractual obligation is the linking of a privately operated commuter system with the government’s Light Rail Transit (LRT) system.

Under the original build-lease-transfer (BLT) covenant between the private consortium and the government, it was reported that the obligation to connect with the LRT was one of the undertakings listed in the BLT agreement. To quote the report, “The linking of the two lines should have been undertaken by the private consortium. It was part of the BLT contract.”

BLT contracts are a variation of the build-operate-transfer (BOT) paradigm under Republic Act 6957, where capital risk is borne by private contractors as they build and capitalize from equity or leveraged capital. As they operate, they earn tariff revenues based on requisite returns to private equity. Sometimes tariffs are tempered by return-on-rate-base limits. Under this arrangement, capital risk is borne by the private contractor.

Under the DTI’s proposal, the capital obligation of the private consortium in linking with the LRT shifts back to the government as the LRT Authority (LRTA) undertakes what should have been the contractual responsibility of the private consortium.

The skinny on the scheme is for the National Development Corp. (NDC) to dip into rural agricultural bond proceeds, lend to the LRTA to capitalize 4.5 kilometers of urban railway linkage, and then repay when the LRTA gets its budget allocation.

In effect, the state virtually bails the private consortium out of a BLT commitment it failed to fulfill. This burdens the public for the shortcomings of the private contractor and applies public funds to capitalize what should be from private equity. P6 billion charged to the public that should have been from private equity is P6 billion too much.

Worse, the capitalization to fulfill a failed undertaking emanates from proceeds earmarked exclusively for rural and agricultural uses.

Under the implementing rules and regulations of the Agri-Agra statutes, proceeds from agricultural bonds should be used EXCLUSIVELY FOR RURAL (our emphasis) development, primarily for the funding of agrarian and agribusiness projects. These include rice production joint ventures, livestock and agriprocessing support services and facilities, and other similar undertakings through concessional leveraging, equity investments or other forms of securities and issuance of guarantees.

To be fair, statutory ambiguities allow precedents where roadways connecting farm-to-market systems were funded with agricultural bonds. But a 4.5-kilometer urban overhead commuter track in the concrete metropolis is a bit of a stretch.

Other than the P6 billion, the Budget department is looking at a total of P10 billion rechanneled to other projects. But agricultural bonds are priced differently. Risks differ from road or railway risks. Payback tenors also differ.

Commuter tariffs and lease payments should account for the capitalization of the link if these were in the BLT contract. These differences do not augur well for whimsical re-channeling, albeit guised as transitional debt.

Where the agriculture sector is the most deprived, this gambit raises a moral question. The sector’s first semester growth has fallen to 3.5 percent from 5.4 percent.

Fiscal prudence should step in and scrutinize these shell games that bypass BOT bidding protocols. The sector is bleeding enough that it can ill afford to rechannel scarce resources.

How is the Philippines faring when it comes to meeting global development goals? 

Not too well, if we’re to believe civil-society groups.

Here’s a contrarian question concerning the 2008 Beijing Olympics: Who cares?

Sure, it’s a big deal—the media are telling us so. One year out, we’re being bombarded by countdown articles about how grand and historic the event will be: massive construction projects, an army of foreign journalists, Steven Spielberg-directed pageantry and, oh yeah, some sporting events.

Take your pick. It can be that the squeeze is on. Or, when it rains, it pours. Or both. Either way, you can be right on target.

GOOD news! Thai educators laud Filipino English teachers as the best and as more efficient than their counterparts in Thailand.

Ben Bernanke is a self-described Great Depression buff, which is a good prerequisite for his current line of work as chairman of the Federal Reserve.

If external local and foreign auditors were to conduct an unscheduled audit of specific government agencies, they may just discover either mismatches of fund usage, or worse, funds on furlough, either unaccounted for or outrightly absent from both books and coffers.