philippines: ten years of decentralization and challenges for the next decade

Philippines: Ten Years of Decentralization and Challenges for the Next Decade1

Introduction

Many Filipinos consider the Philippine Constitution of 1987 radical. Foremost among the reasons are

its safeguards against the return to autocracy and its precise provisions for democratic governance.

One such safeguard is the Constitutional proviso mandating that all local government units (LGUs) shall

enjoy local autonomy. Also by Constitutional directive, Congress passed an enabling law to realize that

mandate. Thus on October 10, 1991, former President Corazon Aquino signed into law Republic Act

7160 more popularly known as the Local Government Code of 1991. Under that law, LGUs were

accorded a level of autonomy not since experienced.2 Since colonization by the Spaniards in the late

sixteenth century, government in the Philippines has been highly centralized. An attempt was made to

loosen central government control in 1983, but that too faltered, as there was as much regulation as

there was choice. The shortcomings of the Philippines’ decentralization experience over the last ten

years must be seen in that historical context.

Rationale for Local Autonomy: Democracy and Development

Political scientists cite the achievement of democracy as a basic purpose of local autonomy through

decentralization (Agrawal,1999). Decentralization brings power to “those who are most affected by its

exercise”. Likewise there is evidence associating greater autonomy of local governments with the

dynamism and quality of economies. Into the second half of the last century, it was seen as a strategy

1 Authored and presented by Juan Mayo M. Ragragio, of the Ateneo de Manila School of Government, at the Eastern Regional Organization for Public Administration (EROPA) Seminar on “Governance as Partnership: State, Civil Society and Market Organizations”, Bangkok, Thailand, November 10-14, 2002. The author wishes to acknowledge the comments and insights contributed by Dean Henedina Abad of the Ateneo School of Government and Mr. Napoleon de Sagun of the USAID, Manila. 2 In addition to the two existing autonomous regions, LGUs covered by the law include provinces, cities, municipalities and barangays (or small villages).

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for “unleashing.. resources” latent in the more depressed areas of developing countries and bringing

about more equitable distribution of benefits from economic growth (Allen, 1985).

In the Philippines, supporters of local autonomy saw it as a way of maximizing people’s participation,

developing self-reliance among LGUs, improving the decision-making process, decongesting the

bureaucracy and enforcing a more equitable distribution of national government resources (Brillantes,

1990). Greater autonomy of LGUs has been cited as an important element in the effort to “democratize

the polity” (Brillantes, 1998). The link between greater local autonomy and democracy had been

articulated at the framing of the Philippines’ 1987 Constitution as one among several mechanisms

needed to avoid a return to dictatorship3.

The authors of the Code saw genuine local autonomy as an enabling mechanism for localities to attain

their “fullest development as self-reliant communities” and a way of making those communities effective

partners in the attainment of national goals.4 It was clearly seen as part of the over-all effort to hasten

development. More local autonomy would later be cited in connection with the country’s process of

adjusting to globalization and achieving international competitiveness (Brillantes, 1998).

Features of Decentralization

In the Philippines, the extent of decentralization is considered the measure of local autonomy and the

Code, essentially operationalized decentralization “by defining the extent and responsibilities, structure,

system of accountabilities, role of civil society and resource-base of local governments..”. That mode of

decentralization was described by an observer as a “confluence of devolution, deconcentration, de-

bureaucratization and democratization” (Agra: 2000).

Devolution: A significant number of functions and responsibilities previously vested in the Departments

of Agriculture, Environment and Natural Resources, Social Welfare and Development, Health, Trade

3 “A Study of People’s Participation in Local Development Councils”, Department of Interior and Local Government, Quezon City, 2001 4 Section 2 of the Philippines Local Government Code of 1991.


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and Industry and Public Works and Highways were devolved to LGUs. The delegation of powers

essentially made LGUs responsible for the delivery of most of the basic services5 needed by the

communities, as they say, from birth to death.

Many critical functions such as delivery of primary and secondary health6 and social welfare services,

agricultural extension, reforestation7, research and investment promotion, provision of water, power and

other utilities as well as virtually all local infrastructure, are now the responsibility of local governments.

Also devolved were powers to enforce certain laws.

Some devolved functions require that these be carried out in close coordination with national

government agencies. Examples of the latter are environmental services including the enforcement of

environmental laws, rules and regulations. Another is socialized housing. It must be emphasized

however, that the national government agencies retained the function of developing and updating

guidelines spelling out standards of service and infrastructure delivery. Overall, carrying out these

functions could have tremendous impact on the local economy. Of particular importance are the

responsibilities to carry out agricultural programs in areas almost entirely dependent on farming and

fishing, and to plan and implement physical development programs. This bundle of responsibilities

alone, coupled with the greater latitude in mobilizing financial resources, could very well set the speed

of local economic growth.

Greater Financial Autonomy: To ensure that LGUs could carry out these mandates, they are allotted

annual shares from the national internal revenues (referred to as the Internal Revenue Allotments or

the IRA) and incomes from the development of national wealth. In addition, their powers to generate

5 Please see Annex 1 which presents a list of “basic services” that LGUs are mandated to deliver. 6 The tertiary health delivery system is mostly, still a responsibility of the national government through its Department of Health. 7 Excluding those funded through foreign loans. If funded by grants, the foreign funding agency has the option to transfer the project to LGU implementation.


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their own revenues were expanded. The latter essentially broadened the LGUs’ resource base8. The

Code also empowered LGUs to enter into partnerships with private business to implement priority

projects identified in their development plans and promote investments and agricultural and industrial

research.

Deconcentration: Dovetailing devolution and pursuant to provisions of the Code9, national government

agencies began re-organizing to streamline administrative processes especially those pertaining to the

issuance of permits and licenses. Most were eventually transferred to regional and provincial offices.

There were instances in which agencies simply stopped requiring LGUs from seeking their approval.

Examples are the National Committee on Privatization’s guideline excluding LGUs from seeking

approval to privatize its assets10. Likewise, national government approval for the implementation of

BOT projects requiring an investment of less than P250 million is no longer necessary.

Civil Society Participation: Under the Code, there are four opportunities for civil society participation in

local governance. The first opportunity, when called for is in embodied in their right to directly engage

in governance through the processes of recall, initiative and referendum. Voters have the right to recall

an elected official for cause through due process. This power has been used at least twice,

successfully. Initiative and referendum, on the other hand allows the public to directly participate in

local legislative work or to approve or reject any resolution or ordinance enacted by the local legislative

bodies. The process of local initiative and referendum are both detailed in the Code and its

Implementing Rules and Regulations. The second opportunity is presented through the Code’s

provision that local communities be consulted on major projects affecting them. This is particularly

emphasized for projects and programs that are expected to have significant impact on the environment.

The third opportunity is offered through the Code’s provision that civil society be represented in local

8 LGUs may now issue bonds, take out loans, enter into joint ventures and implement infrastructure projects under Build-Operate-Transfer arrangements. They also have the power to create their own sources of revenues through taxation and fee collection. 9 Specifically Section 528 which instructs all national government agencies to deconcentrate their functions. 10 Committee on Privatization Guideline issued in January 1999.


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special bodies and the local legislative councils. The Local Special bodies (LSB) include the Local

Health Board, the Local School Board, the Local Development Council, the Public Bids and Awards

Committee, the Local Peace and Order Council and others. Finally, the Code allows the private sector

to directly assist the LGUs in the efficient delivery of basic services, through a variety of modes. While

civil society participation in governance is not exclusive to the Code, there is no other piece of

Philippine legislation that contains as many provisions detailing such participation.11

Considered a critical venue for civil society participation is the Local Development Council (LDC)12.

This special body requires that NGOs and people’s organizations be represented in the local

development planning process and in the identification and prioritization of sectoral development

programs. Participation in these processes are important inasmuch as only projects explicitly

considered as priority in the Local Development Plan can be funded through borrowings and

partnerships with the private sector such as joint venture, BOT and its variants.

Key Players in the Decentralization Process

There are five key players in the Philippines’ decentralization process. These are the local

governments, the national government, Civil Society especially the NGO sector including people’s

organizations (POs), private business including the government financial sector and the support

institutions including bilateral and multilateral funding institutions.

Local Governments There are more than 42,000 local governments in the Philippines. The majority,

about 41,300 are the barangays or small villages, which in groups, constitute municipalities and cities.

(Provinces are composed of clusters of municipalities and in some cases component cities.

Independent and highly urbanized cities do not fall under provincial administration or control.) Only

about 1,700 comprise the larger LGUs, namely cities, provinces and municipalities. Throughout the

decentralization process, the LGUs were represented by their respective Leagues. Four principal LGU 11 Other laws mandating civil society participation include the Agriculture and Fishery Modernization Act and the Electric Power Industry Reform Act of 2001. 12 “A study on People’s Participation in Local Development Councils”, DILG, Quezon City, 2001


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Leagues played vital roles in ensuring that the Code was enforced. Those roles became crucial

especially during the peak of resistance to the Code’s implementation and re-centralization efforts were

intensive (Ragragio et al, 1993).

Resistance came in various forms, foremost among which were constant mass actions against

decentralization by affected national government officials and staff. In some extreme cases, national

officials hesitantly turned over land and facilities to LGUs. Re-centralization efforts took different forms.

Examples of these were bills proposed by Congressmen to re-centralize devolved functions and the

issuance of guidelines and memoranda by national government agencies tending to undermine local

autonomy. Two bills in Congress almost became law. These involved returning the responsibility of

delivering health and agricultural services to the Departments of Health and Agriculture. But for the

veto of former President Fidel Ramos, the delivery of health services would again be in the hands of

national government. In many instances, the Leagues had to set aside vital differences to ensure unity

before those opposing decentralization. One such source of animosity among the Leagues was the

Internal Revenue Allotment (IRA) formula, which, provinces and municipalities contended, was skewed

in favor of cities.

A key function that Leagues played effectively was legislative tracking. It allowed them to monitor

movements of re-centralization bills and gave League officers and staff enough lead time to take

appropriate action. Fully cognizant of the potentials they played in elections, tracking legislative action

also enabled the Leagues to communicate to legislators, Senators most especially13, their position on

issues pertaining to decentralization.

National Government All three branches14 of national government affected the pace and depth of the

process of decentralization. Of the three, the Executive Branch was the most supportive. In

13 In Philippine electoral politics, Senators, who are elected through national elections, are dependent on local officials for their election campaigns. 14 The three branches of national government are the Executive, Legislative and the Judiciary, Very similar to those of the United States. Local governments are technically under the supervision of the President.


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accordance with the Code, an Oversight Committee (OC) composed of concerned Department

Secretaries and Undersecretaries, representatives of Congress and the Senate15, and the Leagues of

LGUs, was organized to ensure its smooth implementation. The Executive Secretary to the President

chaired the OC while the Department of Interior and Local Government (DILG) served as its

Secretariat. The presence of the Leagues in the OC helped ensure that the interest of LGUs were

addressed. The OC played the crucial role of serving as the link between field implementers of the

Code and the Office of the President. No major issue related to the decentralization process escaped

its attention and action.

Judging from the rate at which re-centralization bills were being formulated, the Legislative branch

seemed least interested in the attainment of autonomy. Between the two houses of the Legislative

Branch, the Senate was more supportive. In addition to the re-centralization bills, both houses

continuously came up with laws that became popularly referred to as “unfunded mandates” (Galang,

2001). These laws required LGUs to allocate budgets for activities, programs and projects not

originally mandated in the Code. The most controversial of these related to funding the so-called

Magna Carta benefits of (devolved) health workers. This leaning towards central government control,

especially by (the lower house of) Congress is probably rooted in the traditional competition between

Congressmen and local officials. Devolution appears to have shifted the burden arising from this

competition, to the Congressmen. Prior to the Code, patronage politics at the local level was sustained

through resources that could be marshaled principally from national agencies, which had the

wherewithal to implement projects. But these agencies needed the support of Congressmen for the

approval of their budgetary outlays. In contrast, many Senators, were generally supportive of

decentralization. Two or three champions of local autonomy within the Senate were former Secretaries

15 The Philippines’ legislative branch consists of the lower house, commonly referred to as “Congress” and the upper house, commonly referred to as the “Senate”. The former consists of congressional district representatives and thus are elected by the district electorate. Senators are elected through national elections.


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of the Department of Health (DOH) and the DILG. Many within the Senate held re-centralization bills at

bay until enough support could be mustered to permanently put these on hold.

The Judiciary, least affected by devolution, if at all, has so far been rarely involved in the

decentralization process. However, in one of his articles, Al Agra, a political lawyer who has closely

watched the process of decentralization, notes that the prevailing policy environment seems to adhere

to the centralist view of local autonomy, as opposed to the “liberal view”. The former holds that LGUs

can only exercise those powers “expressly delegated to them and those necessarily implied there

from”. Under this prevalent doctrine, “not allowing means prohibiting” (Agra, 2000). In a recent

decision however, the Supreme Court ruled favorably on the LGUs’ right over the IRA without any hold-

back.

Civil Society Including the NGO/PO Sector In the Philippines’ context, civil society refers to non-

government and people’s organizations, civic institutions, ordinary citizens and the communities in

general. The Code presumes that civil society, as active partners of LGUs, can help in the pursuit of

local autonomy. It permits LGU-NGO/PO joint ventures and other “cooperative arrangements” to

engage in the delivery of certain basic services, capability building and livelihood projects16. Thus from

that viewpoint, one would expect more civil society participation in local governance. The difficulty that

many members of civil society experience just to get represented in LSBs does not seem to support the

presumption17.

On the other hand, under a decentralized system of governance, the venue for raising and possibly,

settling most community issues seems to have shifted from the national to the local scene. The

opportunity created by this shift appears to be a more rational basis for civil society participation in local

governance. The fact that NGOs and POs have found more meaningful participation through “non-

16 Sections 34 and 35 of the Local Government Code of 1991. 17 Chapter 5, “A Study on People’s Participation in Local Development Councils”, DILG, Quezon City, 2001


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mandated bodies” and on issue-centered and project-specific matters (Bulosan, 2000) seems to bear

this out.

Notwithstanding these problems, NGOs and POs actively helped ensure the smooth implementation of

the decentralization process. In 1992, the National Coordinating Council for Local Governance (NCC-

LG) was created to help the Oversight Committee monitor and shepherd the Code’s implementation.

NGOs and POs were well represented in that body. NGO formations at the provincial and city levels

were formed to facilitate the process of accreditation for representation before LSBs.

The Private Sector Business Sector The private business sector has a large stake in decentralization.

Among its top concerns are (a) contracting powers of LGUs, (b) transparency in the award of these

contracts, (c) investment opportunities through alternative financing modes such as Build-Operate-

Transfer (BOT) and Joint Ventures (JV), (d) impact of tax and fee impositions on private business, and

broadly, (e) the cost of doing business in the locality. Around the first two years of the Code’s

implementation, the Philippine Chamber of Commerce and Industry (PCCI) closely monitored and

continuously expressed concern over what was perceived to be a general tendency towards increasing

tax and fee impositions. This interest in matters relating to the operation of LGUs was maintained

through the first decade of the Code’s implementation. As LGUs began to flex their powers, local

chambers of commerce became very active in the formulation of policies affecting such matters as the

inflow of investments, the establishment of industrial zones and the promotion of specific products and

sectors including tourism. Likewise, other business organizations such as the Bankers’ Association of

the Philippines (BAP) and Financial Executives Association of the Philippines (FINEX) actively

advocated for more incentives to promote the use of alternative financing modes. Several conferences

were organized by the national and local governments in close partnership with FINEX and the BAP to

thresh out problems affecting the viability of municipal bonds and joint ventures.18

18 Conferences were held in May 1999 and July 2000 in coordination with the Department of Finance to discuss how the use of municipal bonds could be promoted.


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Support Institutions Grant support from the United States through the USAID, Canada through CIDA,

Australia through AusAID, Germany through GTZET, and Spain, to mention some, provided invaluable

support to the decentralization effort. The earliest assistance came from the USAID through its Local

Development Assistance Program (PDAP) which was on-going even prior to the Code (early 1991-

1994), and its highly successful Governance and Local Democracy (GOLD) Project (1995-2000). The

latter in particular devoted more than five years of technical assistance to LGUs, NGOs and national

agencies actively engaged in the decentralization process. CIDA provided support through its Local

Government Support Program (LGSP). Currently, AusAID’s Philippines-Australia Governance Facility

(PAGF) provides some support to local governments and the Leagues. The World Bank and the Asian

Development Bank too have existing programs designed for LGUs.

Even today, these five key players continue to affect the process of decentralization in various ways,

some adversely but mostly, positively. Admittedly, the effort of LGUs themselves, some through their

respective Leagues but more often through individual initiative, is the single biggest contributor to the

success of the decentralization. Each successful endeavor is borne through the information highway

and somehow copied and re-copied, often with key modifications to suit local conditions. The process

reminds one of evolution at work, creating new strands of formulae for LGUs to use, in their quest for

sustained progress and development.

The First Decade of Decentralization

There appears to be three distinctive phases in the Philippines’ decentralization process over its first

decade. These are summarized in the following table19:

Phase/Mood Approximate Period Significant Features of the Phase

1 Phase of

confusion,

1992-1994 • Predominantly wait and see attitude of local officials. • Pre-occupation with administrative transfer of personnel and property. • Problematic transfer of personnel and IRA distribution among LGU groups.

19 The information used to describe the significant features of each phase was partly drawn from the Rapid Field Appraisals on Decentralization conducted between 1992 and 2000 under the Local Development Assistance Program (LDAP) and Governance and Local Democracy (GOLD) Project of the Philippines with the support of the USAID.


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resistance and wait-and-see20

• Strong reactions from devolved personnel, national agencies and the private sector and tendency towards re-centralization, sometimes inadvertently.

• Strengthening of Leagues of local governments. • Problems in NGO/PO/LGU relations are encountered.

2 Phase of

experimentation and initiative

1994-1998 • Experimentation especially in the field of revenue mobilization and alternative financing increases.

• Intensified capability building effort spearheaded by both government and private institutions using non-traditional, LGU-friendly techniques. Initial design and installation of regional support systems/centers.

• Increasing international support to the decentralization process. • Increasing NGO/PO effort to “engage local governments” and form

provincial networks. • Participatory processes are introduced into various aspects of local and

even national agency operations. • National agencies begin to orient efforts towards complementing LGU

activities and programs. • Opposition to decentralization and re-centralization efforts continue.

National agencies try out different approaches to reverse the process. • Organization and management concerns saddle LGU initiative, but attempts

are made to creatively settle the problems. 3

Consolidation of gains from

decentralization through

replication.

1998-2002 • Significant strides in resource mobilization and revenue generation. • Greater national government and LGU cooperation through joint activities,

networking and complementation. • Greater NGO/PO participation in non-LSB venues. • LGUs take significant steps to improve “front-line” service delivery through

improved systems and procedures. • Greater League initiative in networking for capability building programs for

LGUs. • Appropriate systems and structures are fully in place. • More “LGU-own” programs and projects are crafted and implemented. • Assistance to barangays is intensified.

Three concerns encumbered the decentralization process throughout. These were (a) the issuance of

memoranda, “guidelines” and orders and even introduction of proposed laws21 that undermined local

autonomy (Galang, 2001), (b) the struggle between civil society and LGUs to achieve lasting harmony

in the performance of their roles as defined in the Code (Brillantes, 1997) and (c) the allocation of

internal revenue shares of local governments. The DILG alone issued no less than 26 circulars and

communications that tend to impinge on the autonomy of LGUs. Of particular interest is a letter from an

Undersecretary of the DILG to the Land Bank of the Philippines, a government financial institution,

20 These terms are borrowed from “The First Rapid Field Appraisal (RFA) on Decentralization: Executive Summary”, Associates in Rural Development, Governance and Local Democracy (GOLD), USAID, July 1992. 21 As late as 1998, the Secretary of Agriculture introduced a proposal before Congress recentralizing agricultural extension.


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requiring that all loan applications of LGUs using the IRA as collateral be indorsed by the agency prior

to consideration.

As to the relationship between civil society and LGU officials, at best, the results have been mixed

although there is reason to believe that the relationship has not changed much. The mistrust still exists

in most LGUs (Brillantes, 1997). An indication is the fact that at most, only half of the LGUs have

“operational” development councils (LDC), which is described in one study as the “mother of all special

bodies”22.

A particularly controversial subject even today, is the system of distributing the IRA among the LGU

groups (cities, municipalities, provinces and barangays). Under the Code, LGUs are entitled to share in

national internal revenue collections. That share was to increase from 30% during the first year of the

implementation of the Code, to 40% by the third year23. That total allotment would then be distributed

among the four LGU classifications as follows: cities 23%, provinces 23%, municipalities 34%and

barangays 20%. Only after the LGUs received their initial allotments did they realize that cities had

relatively more than their fair share of it. The system has been described as “uneven…not-so-studied”

and “un-equal” (Brillantes, 1997). Gradually, as more municipalities elected to be cities, the inequality

diminished. But the clamor to revise the formula stayed.

Besides the IRA’s distribution among the different LGU groups, the Leagues raised two other related

issues:

(a) the cost of devolved functions was far greater than what the IRA could cover and

(b) problems with the formula used to determine the IRA share of each city, province, municipality

and barangay.

22 “A Study on People’s Participation in Local Development Councils”, DILG, Quezon City, 2001 23 Reckoned from the third fiscal year preceding the year of the Code’s approval.


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A former Undersecretary of the DILG noted that based on figures provided by the Leagues of LGUs,

current IRA allocations is short by about P4 billion, to enable LGUs to completely carry out their

devolved functions (Padilla, 2000). He also pointed out the weakness of the formula which “merely

considers..population, land area and equal sharing” in allocating the IRA proceeds to each LGU. This

issue has persisted throughout the ten years of decentralization and is subject of a demand for revision.

Through all three phases, these three concerns were as constant as the sun.

Initial Phase As expected, this was the most administratively problematic phase of the

decentralization process, mainly because of the sheer number of personnel to be devolved and the

immense paperwork required. In all, more than 70,00024 government workers were devolved to local

governments. During this phase, an encounter with cool heads in the hallways of affected national

agency and LGU offices would have been extremely rare indeed. These problems were slowly

resolved often at field level but many times through the intercession of the Oversight Committee. The

confusion was caused in part by inadequate guidelines from national government and their “slow

response to operational demands of decentralization”25.

A more serious problem was posed by organized staff of devolved agencies particularly those from the

DOH who at one point, held almost daily mass actions to demand re-centralization. The situation got

from bad to worse when LGUs refused to carry the cost of health workers’ benefits accorded to them

under the Magna Carta for Public Health workers. Other devolved workers, especially those whose

take-home pay were adversely affected by devolution and heartened by the efforts of their colleagues

from the health sector, also pressed on for their return to national government (Abad, 2001).

Opposition to decentralization resulted in the filing of a number of bills26 re-centralizing some of the

devolved functions (health, agricultural extension, irrigation). Another form of re-centralization was the 24 “Synopsis of Findings: Second Rapid Field Appraisal on Decentralization”, Associates in Rural Development, Governance and Local Democracy (GOLD), USAID, February 1993. 25 Second RFA,. Revisions to guidelines in the transfer of personnel, for example, were made as late as June 1993. As late as December 1993 by which time, the administrative requisites of devolution should have been completed, President Ramos ordered that a master plan for the implementation of the Code be drafted! 26 Bills are proposed legislation, filed by a member (or members) of Congress.


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appropriation of budgets to national agencies to finance projects and activities already devolved to

LGUs (Tolentino, 2001).

Technical assistance during this phase centered on providing support for policy development, with the

understanding that guidance from the center would be most crucial during the early days of devolution.

That assistance came mostly from the national government with the support of the USAID through its

Local Development Assistance Program (LDAP) for the provinces and municipalities, and the

Decentralized Studies on Urban Development (DSUD) for the cities. The assistance was timely and

appropriate since it dealt principally with the key agencies involved in the decentralization process.

Both projects provided vital support to the Leagues of Provinces, Municipalities and Cities in their

advocacy to sustain the drive towards local autonomy through the Code.

The first phase reflected the birth pains of local autonomy in the Philippines. By 1994, as each

administrative problem was slowly resolved, LGUs began to settle down for the real work. Lacking the

experience, and with limited guidance from the national government, LGUs began experimenting on

ways to carry out their new mandates, to the extent that their budgets could afford.

Second Phase Experimentation and initiative are the words that would best describe this phase.

Despite the limitations of 1983 Local Government Code, the more “advanced LGUs carried out creative

and daring projects. Some exemplary initiatives include the Cebu City bond float to finance its urban

development projects, the Mandaluyong City’s Build-Operate-Transfer project to finance its commercial

center, the municipality of San Juan, Metro Manila’s relocation project in Taytay, the solid waste and

traffic management programs of Olongapo City and the medical service delivery projects of several

municipalities in Central Philippine islands.

At least five awardees of Galing Pook, considered the most prestigious citation for LGU performance,

received their awards for projects designed and implemented way before 1992. In Galing Pook’s more

than eight years of existence, over one-half of its recipients were cited for projects implemented in


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1992 and 1993, indicating that LGU initiative caught on early in the decentralization process. However,

project entries to the Galing Pook during the 1992-1993 period were distinctively lower in scale and

scope compared to project entries from 1994 on-wards. The average scale of projects in 1992-93 was

about P300,000.00 (excluding the Marikina settlements project) against the average of P2.5 million for

1994 and later. Thus it would be safe to say that the scale, and perhaps level of sophistication, of

projects implemented by LGUs during this second phase dramatically increased.

By theme, LGU initiatives spanned the entire range of its mandates: agriculture, environment, housing,

health, community development, gender welfare, infrastructure, resource mobilization, alternative

financing and others. League support through Exchanges and Visits (Lakbay Aral) hastened the

replication of successful strategies or approaches. In that respect, they played a major role in the

diffusion of new and workable ideas.

Support from national agencies, which fostered initiative and creativity, in various forms also increased

during this period. Complementation became a popular mode of national-local partnership. A fine

example of this mode was the Comprehensive Health Care Agreements between the DOH and the

LGUs (Yap and Sator, 2001). Another example would be the Project Development Assistance Centers

(PDACs), formed by the National Economic and Development Authority (NEDA) to support the project

development needs of LGUs. Technical assistance through the Local Government Academy (LGA) as

well as private and public institutions began to increase. Institutes of Local Government Administration

and Centers for Local Governance were organized and networked to provide inexpensive but relevant

training to LGU staff.

Likewise, support from bilateral and multilateral institutions increased substantially during this period.

USAID launched its GOLD Project which involved direct delivery of assistance to LGUs through novel,

highly participatory approaches. CIDA expanded its LGSP project. AusAID and the Asian

Development Bank funded the Integrated Community Health Services Project while the World Bank

introduced its Local Government Finance and Development Project (LOGOFIND). The Leagues of


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LGUs was recipient to vital technical assistance during this period. Some were coursed directly to them

while others through NGOs with specific programs on decentralization and governance. The support

was to prove apt as it prepared the organizations to deal with serious threats to autonomy in the next

phase.

The GOLD project provided a system of monitoring the status of decentralization through rapid field

appraisals (RFAs). These RFAs served as conduits of information that apprised the national leadership

on the inadequacies and problems that LGUs, national agencies and civil society groups experienced in

the field. The reports generated by the RFAs were supplemented by research papers which were

passed on to national policy makers for their guidance. The GOLD project was probably the most

useful comprehensive intervention in the decentralization process.

The level of private sector involvement developed from that of critical observer characteristic of the first

phase, to that of supporter. At the LGU level, private sector groups or their representatives, usually

local chambers of commerce and industry, actively shared their time and experience to advise LGU

officials and their staff on matters relating to business and employment promotion, taxation, resource

mobilization and in some cases even offered or provided venture capital for LGU projects. Examples

are the deep participation of local chambers of commerce in the investment promotion campaigns of

the cities of Bais, Davao, Cebu27, Naga and the provinces of Bohol, Camarines Norte and others.

At the national level, the best example of private sector support came in the form of the Local

Government Unit-Guarantee Corporation (LGU-GC) a corporation organized by the Development Bank

of the Philippines (DBP) and the Bankers’ Association of the Philippines (BAP). LGU-GC was

organized to foster private (banking) sector interest in LGU projects. Its creation encouraged the use of

municipal bonds to finance LGU projects. The private financial community actively advocated for a

27 Cebu City’s investment promotion center is actually privately operated with strong support from the Cebu Chamber of Commerce and Industry.


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policy environment that would be promotive of private business participation in LGU initiatives,

particularly through alternative financing modes such as bonds, BOT and joint venture.

On the negative side, some services mandated to LGUs remained underserved or unserved. Examples

are the provision of irrigation (Tolentino, 2001), secondary health services (through former district

hospitals), port construction and management and reforestation. The inadequacies were attributed mainly

to the budgetary limitations caused by the discrepancy between the actual cost of devolved functions and

annual IRA allocations (Padilla, 2000). However, in many cases, the LGU inherited systems and

bureaucracies that did not lend themselves to reform. For example, over-staffing and a subsidy-oriented

public went with the hospitals devolved to LGUs. To mitigate the situation, some national government

agencies, such as the DOH and the Department of Social Welfare and Development (DSWD) augmented

LGU resources through various programs.

The Third Phase As though from cue, a proposal re-centralizing agricultural extension signaled the

start of the third and last phase of the first decade of decentralization. The proposal was the first in

what appeared to be a series of aggressive attempts to undermine local autonomy between late 1998

and early 2000. The most debilitating of these efforts were the IRA hold-backs starting in 1998,

extending into 2001. As a result of these hold-backs, LGUs had to drastically reduce their local

budgets. Delays in the payment of local government employees’ salaries became a common

occurrence.

In a display of decisiveness, the Leagues responded swiftly through a series of attempts to reverse the

holdbacks. A formal petition was filed before the Supreme Court questioning the legality of these

holdbacks. For the first time in its history, the League held mass actions. However, such action was

not limited to countering the holdbacks. The League of Provinces in particular lobbied hard against all

memoranda and official communications tending towards central government control. These were

rewarded often by retractions and withdrawals of official issuances. The third phase may therefore be

considered that of consolidation. After all the experience and struggles, it was time to take stock, to re-


18

orient and learn from both the sad and fruitful events of the earlier phases of decentralization’s first

decade.

Significant achievements marked even the early part of this stage, particularly in capital mobilization.

The volume and value of bond issues increased sharply, with the private sector purchasing most of the

issues. In 2000, the first ever privatization of two LGU-owned and operated utility departments signaled

the attainment of a new level of LGU sophistication. It was also during this phase that the financial

advisory industry for LGUs, once virtually controlled by a handful, began moving towards a more

competitive market with the entry of more establishments.

Complementation as a mode of national-local partnership, intensified with the involvement of more

agencies of the national government. Partnerships in housing, agrarian reform, information technology

and education added to the list of collaborative work between LGUs and national agencies. LGUs

through their Leagues have in fact gone beyond working with national agencies. More recently they

have expressed openness to collaborate with private academic institutions to improve the capacity of

LGU staffs.

The nature of national agency participation in the decentralization process is reported to have shifted

from ‘regulatory” and interventionist to “facilitative” (Galang, 2001). Even the DILG, known for its

conservative views on local-national relationships is said to have “emphasized more the facilitative role

than the regulatory role in its relations with LGUs..” National agencies began to attune their operations

to the needs of LGUs. Good examples of these are NEDA’s increased attention to project development

support to LGUs, DSWD’s anti-poverty programs and the DENR technical assistance to LGUs on

matters pertaining to the enforcement of environmental laws.

LGUs began to experience more organizational stability. The duties and responsibilities of LGU

bureaucracies and structures became more defined. Attempts at streamlining processes to improve

the delivery of front line services gained popularity and not a few experimented in automation not only


19

of real property tax systems but also of such functions as accounting, payment of salaries and wages

and information management for planning.

In the later part of the phase, attention to barangays increased. Assistance to these smallest LGUs

covered mainly budgeting and planning, village justice and health delivery.

Major Constraints to Decentralization and Autonomy

Three serious threats or constraints to decentralization are listed and discussed in this section,

although many would like to see civil society-LGU relations as a worthy fourth. Not a few however,

would like to think of the relationship as a feature of the environment within which decentralization has

to thrive. NGOs and LGUs have a long history of non-agreement on most issues. Those

disagreements and subsequent unity, have in fact yielded some of the best ideas on how to proceed

with development work. Among these are laws on respect for indigenous culture, human rights and

transparency in government as well as approaches to anti-poverty campaigns, environmental

management, participatory governance and community organizing. If at all, the concern should be on

rules or processes that will make disagreements more manageable and result in useful concepts, ideas

and action. There is very rich experience in this field and different types and modes of engagement

have been used by civil society to pursue their agenda before the LGUs (Aldaba, 1998?).

The three threats or constraints are:

(a) continuing re-centralization efforts,

(b) reliance on the internal revenue allotment (IRA) to finance projects and programs and

(c) the persistence of patronage politics.

Continuing Re-centralization This tendency towards re-centralization is a constraint because it is

disruptive. This constraint refers not only to the introduction of bills in Congress re-centralizing

devolved functions. It refers even more to the tendency of national agencies to issue memoranda,

rules and regulations infringing on local autonomy. Re-centralization bills disrupt the pace of


20

governance at the local level by generating anxiety particularly among employees and that anxiety

translates to inefficiency. On the other hand, memoranda, circulars, guidelines and such others that

infringe on the autonomy of LGUs often create confusion and delays in the regular flow of work. An

example of the latter is the delay in approval of loans of LGUs after DILG issued a communication

requiring national government endorsement of applications using the IRA as collateral. The

communication was later retracted. Naturally, it is the general public who eventually bears the burden,

not to mention the cost.

Central to this issue is the fact that many national government officials, sometimes up to the Secretary

level, still harbor the belief that LGUs need more central government guidance. The more centrist the

orientation of the national government officer, the greater the tendency to issue orders that infringe on

LGU authority. Tolentino makes a clear point of this in his report on the status of decentralization of the

Department of Agriculture (Tolentino, 2001). It is therefore important that career officials who relate to

LGUs regularly should be oriented on the principles and practice of decentralization. It is equally

important to ensure that key officials, especially at the level of Department Secretary, Undersecretary

and Assistant Secretary, be warned against generating the expectation among devolved personnel,

that there is still the chance that devolved functions will be re-centralized. On a positive note,

successful national-local initiatives, based on the principle and practice of complementation, need to be

emulated.

Reliance on the Internal Revenue Allotments The majority of LGUs, particularly the municipalities and

barangays, still rely on their IRA to fund operations. Only about half of the country’s cities and a fourth

of the provinces rely on their own income sources to finance projects and programs. Not including the

barangays, about 70 to 80 percent of the country’s LGUs are dependent mainly on the IRA. It is a

constraint because it limits the range of development options available to the LGU which means it is

hardly in a position to achieve the “self-reliant communities” envisioned by the Code. This is also the

principal reason why many other devolved mandates, such as irrigation, the operation of hospitals,


21

agricultural and industrial research and others, have remained un-implemented. The attempt to remedy

the situation by augmentation has only served to increase reliance on national government.

One facet of this constraint is the reliance on traditional sources of local revenues: taxation and fee

imposition and the negative attitude towards greater private sector participation in government projects

or enterprises.

Cast against the situation that the average Philippine LGU is characterized by a significant level of

poverty and a dormant economy, extensive taxation and fee imposition seems hardly appropriate28.

Couple this poor experience in local revenue generation in most LGUs with the recurring budget deficit

of national government, it is not surprising how much still needs to be done throughout the country. It is

just as surprising that, with such scarcity of finances, the mobilization of private capital to fund local

projects is still in its infancy after ten years of decentralization. Under those conditions, it is arguably

one of the more promising modes of financial resource mobilization. Unfortunately, private sector

participation (PSP) still needs substantial positive exposure and advocacy, not because it lacks the

legal platform from which to proceed, but because of the public perception that “privatization”, to which

they often limit PSP, is likely to be a one-sided deal favoring corporations.

Another relates to cost recovery. As with privatization, the people, especially those in the rural areas

where many communities have yet to experience paying for government services, remain the principal

opponents to cost recovery schemes. In one bizarre case, religious groups opposed an LGU-

proposed cost-recovery imposition with the argument that “water is freely given (to man)”29. In many

cases though, the absence of cost recovery measures stems from the simple reason that LGU officials

have no experience in devising such schemes30. Cost recovery, as a strategy for LGU sustainability

28 A classic case of this sort were the taxes and fees imposed on the vegetable farmers and traders of a Nueva Vizcaya town in North Philippines. 29 The reader is referred to one case of the Investment Program component of the GOLD Project contained in the final report of the said project. The report, one among several, is contained in a CD entitled “GOLD USAID Support to Local Governance, 1995-2001. 30 Under the GOLD project, requests for technical assistance in project development included pricing of services and design of cost recovery schemes.


22

needs support and really serious advocacy work. There is no doubt that this type of work is cut out for

civil society groups.

Persistence of Patronage Politics Patronage politics is still widespread, exhibiting itself in various

forms: from the lines of people before the local chief executives’ offices and homes hoping to obtain

favors or financial assistance or both, to bid-fixing to favor a friend or supporter, and vote-buying. In

many instances, it is not only the votes of entire families or clans that are negotiated and bought but

also their loyalty, in return for future favors and conveniences.

It is a constraint because it fosters mendicancy and stifles both community and individual initiative,

hardly the features of self-sustaining communities. More importantly, it encourages corruption and

stymies the development of progressive-minded leaders from among the constituency. The complete

success of decentralization will eventually rely on these enlightened and progressive leaders. In its

extreme, patronage politics has resulted in “bossism” where local thugs reign supreme31.

Directions for Decentralization: Local Economic Development and Institutional Efficiency

Local Economic Development Decentralized governance is firmly in place despite the opposition and

other problems that weigh it down. The first decade gave LGUs the experience from which to draw the

confidence to earnestly dispense their mandates. Organizationally, most LGUs have established the

administrative structures, systems and procedures needed for the delivery of basic services. The

technical departments have at least the elementary skills to carry out their tasks.

With these achievements, one is tempted to ask why the persistence of economic stagnation in the

countryside, or of poverty,32 people’s welfare and sustained development being two of

decentralization’s avowed goals. Without laying the blame fully on LGUs, there is justification for the

concern that they may have under-performed in the arena of local economic development (LED). In

31 See, “Boss: Five Cases of Local Politics in the Philippines”, J. Lacaba, ed., Philippine Center for Investigative Journalism and the Institute for Popular Democracy,Manila, 1995. 32 The most recent survey of family income and expenditures (2000) showed no significant change in the number of poor families.


23

Metro Manila alone, poverty levels have not changed much over the last ten years. There is evidence

suggesting this may be true for the entire country. Unemployment and underemployment seem to have

worsened.

The initial focus on “getting things organized and going” may have consumed LGUs in their first decade

of autonomy, at the expense of leadership in LED33. If one were to blame it on such factors as the

Asian financial crisis of 1997-1998, competition from emergent economies, the insurgency, the budget

deficit and peace and order, then there is all the more reason to say that decentralization failed.

Autonomy is supposed to help shield local economies from the cyclical swings of global and national

economies and politics. In this respect LGU leaders still have much to experience and learn.

The challenge to would-be supporters of LGUs in the design of LED programs is in facilitating the

generation of actionable ideas that draw on local strengths, opportunities, creativity and most especially

on the resources and initiative of the private sector. This is a challenge in the light of prevailing long-

held notions about LED that: (a) have been tried but with controversial results (one-product-one-town

which goes against the principle of diversity), (b) could be outmoded (industrial estates which will soon

be passé with the advent of trade liberalization), (c) downright destructive (growth led by extractive

industries), or (d) being government-led (as against growth that is private-sector led), to mention a few.

Greater Institutional Efficiency Greater institutional efficiency must go hand-in-hand with expanded

initiatives in LED. Without proper orientation, LGUs themselves engaging in economic enterprises is

more than just likelihood, especially in cases where initial private sector response to the LGU initiatives

33 There is in fact a dearth of experience even in Galing Pook entries. In my opinion, only the Bais City and Bohol province initiatives possess the features of an attempt to comprehensively address economic concerns. The Bohol experience is noteworthy in that LED efforts proceed from a well-defined development vision. Other than Galing Pook cases, those of Davao City and Cebu City, particularly their investment promotion initiatives stand out as examples of comprehensive economic development with strong support from the LGUs. Many cases deal with micro-finance, cooperatives development, small project implementation, environmental initiatives, cleanliness and urban development which may have strong impact on the state of only specific sectors, neighborhoods and organized citizenry. The Cebu City, Davao City and Bohol experiences are different because of their scale, scope and impact. Bohol for example directly was responsible for the generation of at least P3.0 billion in investments, including the privatization of utilities leading to better and expanded services and the three-fold increase in dollar remittances from over-seas Boholanos in their desire to infuse investment capital into their home-province.


24

is tepid. When that happens, we may find mega-sized local government structures saddled by

employees running enterprises. In fact, downsizing LGU structures and “unbundling” certain LGU

functions could very well be part of a LED effort as it provides opportunities for the private sector to

engage in the delivery of services. Even now, there are certain functions, traditionally dispensed by

LGUs that could better be provided by private establishments. These include the delivery of certain

(not all) health services, construction, operation and/or maintenance of utilities, public markets,

terminals, inter-LGU communications systems, irrigation systems and even the installation and

maintenance of computerized management information systems. While privatization or private sector

participation may not necessarily imply more efficiency, it definitely provides an alternative to high-

overhead governance.


25

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About the Author Mr. Juan Mayo M. Ragragio, a Filipino, has been involved in issues concerning local autonomy, decentralization and local economic development since 1988, as the Leagues of Local Governments advocated for the early passage of the new Local Government Code of the Philippines. As senior Consultant, he was deeply involved in the USAID’s Local Development Assistance Program (1991-1994) and the highly successful Governance and Local Democracy (GOLD) Project (1995-2000), both of which figured prominently in supporting the Philippine Government’s decentralization program. He has written extensively on decentralization, particularly in relation to local economic development and alternative credit financing. He continues to be engaged in studies and projects on local governance and development.

Mr. Ragragio holds a Masters Degree in Economics from the University of the Philippines, Quezon City. He currently teaches at the Ateneo School of Government’s Graduate School for its Masters in Public Management Program.