PPP: Less Gov’t Responsibility, More Public Debt

Will the complete rehabilitation of PNR Bicol tracks become part and parcel of the PPP in the near future? The Southern Luzon International airport construction is almost a shoo-in.

PPP: More public debt, less gov’t responsibility (Part 2)
By Ibon Features

(Note: This is the second part on the post about the Aquino government initiative. Read Part 1 here: More public debt, less government responsibility)

Undermining The Courts
In addition, the risk insurance guarantee may also have the effect of undermining the system of check and balance and the use of courts to protect public interest.

For example, people who will turn to courts to question and stop the implementation of disadvantageous and harmful PPP contracts – like those that will lead to an enormous increase in toll rates, MRT fares, water and electricity bills, etc., or those that will result in physical displacement, environmental degradation, etc. – may get a favorable ruling.

But this favorable ruling will be negated, if not become practically meaningless, because the private operator will still be compensated through the risk insurance, which the people themselves will ultimately pay for to the World Bank, ADB, or whichever multilateral bank is funding the risk insurance.

Infrastructure Fund
Aside from the risk insurance, the Aquino administration is also working with the multilateral banks for the establishment of the Philippine Infrastructure Development Fund (PIDF). This new entity is being patterned, according to the finance department, after India’s Infrastructure Development Finance Co. Ltd. (IDFC) and Indonesia’s PT Indonesia Infrastructure Finance (IIF).

In its website, the IDFC is described as “India’s leading infrastructure finance player providing end to end infrastructure financing and project implementation services”. On the other hand, the IIF was officially launched just last August as a private infrastructure financing company with an initial capital of US$170.3 million from the Indonesian government, the World Bank’s private lending arm International Finance Corp. (IFC), and the ADB on top of a 2 trillion rupiah loans from the same multilateral banks.

There is no official and final announcement yet on how the planned PIDF will raise resources. But it is likely that similar to the IIF of Indonesia, the Philippine government will shell out funds for the new entity’s initial capital, which is also expected to be beefed up by loans from the World Bank, ADB, and other foreign creditors.

In earlier statements, finance officials also disclosed that the PIDF may engage in issuing 25-year bonds domestically, targeting pension and insurance companies. The money borrowed will then be re-loaned to investors involved in PPP projects. Thus, in effect, the PIDF will become a mechanism of the Aquino administration to guarantee funders and creditors that the money loaned to PPP investors will be repaid.

Corporate Takeover
For the Aquino administration, the private sector does not simply aim to profit but is in fact the “main engine for national growth and development”. Thus, through PPP projects, many crucial responsibilities of the government are being transferred to profit-oriented private corporations and banks, particularly the development and operation of core infrastructure such as roads and mass transportation network, power generation, and water supply and distribution, among others.

Consistent with the neoliberal agenda, PPP reduces the role of the public sector in stimulating growth and development, and consequently undermines the responsibility of the government to ensure economic opportunities for the weak and vulnerable and equitable distribution of wealth.

The supposed role of the government as regulator is tokenism at best since the main idea as espoused by neoliberalism is to let the corporations operate in the most favorable condition possible, i.e. no state intervention.

PPP initiatives are governed by contracts that set out the terms of the supposed partnership. But these contracts are often pre-designed by multilateral funders and banks to ensure that they are attractive enough for the private investors, in the process taking away any meaningful government regulation. One example is the MWSS privatization wherein the World Bank-designed concession contracts created a government regulatory body that is toothless and ineffectual.

The Cost of PPP

The Aquino administration, whose team of economic managers and advisers are made up of the same people behind the neoliberal reforms of the past regimes, including the Arroyo administration, considers PPP as a magic bullet that will help solve the country’s chronic fiscal deficit and lack of infrastructure. Combined with a strong anti-corruption drive, the program will supposedly bring in and maximize private investments, create jobs, and consequently address poverty.

But as repeatedly pointed out by critics, the country’s experience since the time of Cory clearly shows that PPP initiatives do not guarantee savings for the government. Worse, in many cases, notably the privatization of the power industry, PPP initiatives even increase public debt.

Unfortunately, with additional schemes being cooked up such as the regulatory risk insurance and infrastructure fund on top of the usual incentives, the danger of more indebtedness and, as a consequence, of even less resources for social services and development needs looms large under the Aquino administration.

Aside from further bloating the debt burden, Aquino’s PPP thrust will also merely facilitate the increased corporate takeover of government roles and functions that expectedly results in various abuses and harm against public interest.

Over to the readers

What do you think about PPP?

IBON Foundation, Inc. is an independent development institution established in 1978 that provides research, education, publications, information work and advocacy support on socioeconomic issues.

Tell us your thoughts on this article. If logged in with any of your Wordpress.com, Twitter, Facebook, Google+, or registered on this site before, then you can simply write your comment below. Thanks and appreciate your feedback.

This site uses Akismet to reduce spam. Learn how your comment data is processed.