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Thursday, August 05, 2010

Privatization 4: Utilizing Proceeds and Revenues

Proceeds or revenues from privatization of some government corporations -- like Fort Bonifacio and MWSS privatization, also future privatization -- should be used mainly to retire public debts, not to be used for new programs and subsidies that would not have been invented in the first place if the politicians and bureaucrats in a particular agency knew that any proceeds in privatization will not directly go to them.

The new adminstration should consider getting minimal new debts, or zero new loans to pay old loans. Instead, privatize quickly some of the 300+ government-owned and controlled corporations (GOCCs) and government financial institutions (GFIs) starting this year, and all proceeds should go to retiring public debts. The debts should go down quick, then debt service payment (principal + interest) will go down. Lower debt service payment, an automatic appropriation spending, will mean more money for more productive programs and projects of the government.

Some may wonder why the administration and monitoring of Fort Bonifacio privatization was given to the Bases Conversion Development Authority (BCDA). That body meant "bases conversion", referring to the former US military bases -- Clark in Pampanga, Subic in Zambales, John Hay in Baguio City, Camp O'donneil in Tarlac, etc.

Republic Act (RA) 7227, the law creating BCDA and defining where proceeds of privatizing military camps in Metro Manila should go has this provision http://www.chanrobles.com/republicactno7227.html:

Sec. 8, Funding Scheme, provided that of the proceeds from sale of military camps in Metro Manila:

a) 32.5% to finance the transfer of AFP camps and the construction of new camps...
b) 50% to finance the conversion and commercial uses of Clark and Subic...
c) 5% to finance the long-term housing loan of the homelss in MM, Angeles, Subic and other areas near the bases
d) balance (or 12.5%) to go to the Bureau of Treasury (BTr) to be appropriated by Congress "for the economic upliftment of the Filipino people."

In short, almost zero proceeds went to retire some of the public debts.

Picture on the left, the new Fort Bonifacio after privatization.

It is impossible then to use any privatization proceeds from future sale of military camps like Camp Atienza (4.9 has), part of Villarmor (37.9 has.), part of Fort Boni (224.9 has., on top of previously-privatized 498 has.), other small camps, without amending that law.

One may wonder why Clark and Subic, themselves have good privatizable or leasable assets, will swallow 50 percent of all proceeds of privatizing military camps? Who were the strong lobby groups then for that provision?

I believe that ALL government-owned and controlled corporations (GOCCs) and government financial institutions (GFIs) should go and be privatized someday. They do not fill in any "market failure" as there will always be private players who are more than willing to fill their shoes. On the contrary, their continued existence are clear examples of "government failure" -- many of those GOCCs are net recipients of subsidies, not net revenue contributors.
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Meanwhile, I wrote this last June 24, 2010:

Deficit Woes, Why Not More Privatization?


eteriorating fiscal condition is the rule, not the exception, in many countries today, rich and poor; industrialized and industrializing.

The UK government and other European economies are in a particularly bad shape. The new government in UK is forced to take more drastic measures like spending cuts and tax hikes.

One news report said, "UK unveils severe 'unavoidable budget'", WSJ,

See the huge gap this year between expenditures and revenues.


VAT hike, capital gains tax hike, among others. I am wondering why privatization of some UK government corporations was not given sufficient consideration? Tax hikes scares people who create jobs.
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