MASTER IN MANAGEMENT MAJOR IN PUBLIC ADMINISTRATION
PUBLIC FISCAL ADMINISTRATION
Impact of Western Public Finance in Least Developed Countries
Politics and Fiscal Administration
CERISE FAE LUZ C. BRAZIL
M: + 63 917 774 1189 | E:
[email protected] MASTERS IN MANAGEMENT MAJOR IN PUBLIC ADMINISTRATION
Public Fiscal Administration
Impact of Western Public Finance in Least Developed Countries| Politics and Fiscal Administration
Cerise Fae Luz C. Brazil
IMPACT OF WESTERN PUBLIC FINANCE IN LEAST DEVELOPED COUNTRIES
Western Public Finance is somewhat affecting the ability of least developed countries (LDCs) to have a
stable economy.
During the financial and economic crisis, developing and rich countries were immediately hit hard, thereby
imposing an economic and financial effect also to least developed countries, though less pronounced.
The Great Recession in 2007-2008 has led to a sharp deterioration in the fiscal position of all advanced
economies which is expected to continue past 2010. Th e impact of the global economic crisis on the LDCs
is thus multifaceted, and it will affect different countries in different ways, depending on the mode of
integration of the particular LDC in the global economy and the structure of its domestic economy.
The effect of the recession in 2007 was felt by the Philippine economy in the fourth quarter of 2008 to the
first quarter of 2009
Effects on
• Trade in Goods and Services
1. The extent to which LDCs are affected by the collapse of world trade critically depends on the
nature of their trade specialization.
2. African LDCs are the primary commodity exporters with more than 90% of their merchandise
exports are commodities. With commodity price index fell down by 70% for crude oil and 59%
for commodity price, which severely affected the domestic economy of the affected LDCs as
shown in Figure 1.
Figure 1: Monthly Price Index for oil and agricultural raw material
3. Whereas, Specialization in manufactured exports is by and large confined to a few Asian LDCs
such as Bangladesh, Bhutan and Cambodia, where over 70 percent of exports comprises labor
intensive manufactured products in textiles, clothing and footwear. Manufactured goods
exporting LDCs, are adversely affected by the global slump, as demand for their exports falls,
output in export industries contracts and unemployment rises.
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MASTERS IN MANAGEMENT MAJOR IN PUBLIC ADMINISTRATION
Public Fiscal Administration
Impact of Western Public Finance in Least Developed Countries| Politics and Fiscal Administration
Cerise Fae Luz C. Brazil
4. The services exporters, are similarly affected, as their main source of export revenues are
tourism services which are highly income elastic, or transport services which are closely
associated with the merchandise trade.
• FDI (Foreign Direct Investment) and Other Private Capital Flow
The main source of long-term private financing in the LDCs has been foreign direct investment.
From the late 1990s, FDI flows to the LDCs have been growing fast, and particularly accelerating
during the commodity boom period, reaching close to 40 percent of total long-term capital flows
to the LDCs between 2004 and 2006 as shown in the Figure 2.
Figure 2: Long term capital flows to the LDCs 2004-2006
Dominating the banking system in a large number of LDCs are the Foreign Banks in terms of
ownership of banking assets.
The direct fallout of the global financial crisis on the LDCs as compared to other developing
countries, however, has been relatively limited. Many LDCs have maintained their capital controls
and domestic banks have not been exposed to complex asset-based securities emanating from
the industrial countries.
The LDCs where the banking sector is dominated by branches of foreign banks may be subjected
to additional financial instability, depending on the way the global financial crisis has affected the
parent foreign banks and the possibility of withdrawal of capital from the LDCs by these banks.
During this period the increase in FDI has helped the GDP and the economy of the LDCs, with the
provision that the FDI is sufficient to cover the gap within the economy.
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MASTERS IN MANAGEMENT MAJOR IN PUBLIC ADMINISTRATION
Public Fiscal Administration
Impact of Western Public Finance in Least Developed Countries| Politics and Fiscal Administration
Cerise Fae Luz C. Brazil
Figure 3: 5-year graph of Foreign Direct Investment to the Philippines
Covid – 19 Pandemic affected not only local investments but also FDI significantly. From $1.5
trillion in FDI in 2019 to an estimated $859 billion in 2020. This uncertainty doubles as the
Philippines takes it’s second year of its battle against the pandemic. UNCTAD projected that
continuous decrease from 5% to 10% in 2021 is coming despite all the efforts to better the
economy through re-opening of businesses. From 1990, this has been the second plunged in FDI
during the Duterte Administration. Factors considered in the continuous plunge of FDI is the
Philippine Political Instability due to disagreements of political leaders of the administration and
the opposition, Poor quality of Structure, Restrictions on Foreign Investment in certain sectors,
Legal uncertainty and lack of transparency of procedures specially on bank secrecy laws, High level
of corruption, Inequalities in development according to the regions specially in muslim areas of
the country, tensions in business community by the administration and the uncertainty of the
Philippine leadership which emanates from the lack of peace and order during the “War on
Drugs”, Increasing number of Human Rights Violations and Extra Judicial Killings. The unstable
leadership in the country and the factors mentioned identified the decrease in confidence of
investors as can be seen in the fluctuating flow of FDI (Figure 3) during the Duterte Administration
coming in at a major plunge between 2016 and 2017.
The uncertainty of the mind and decisions of the leader itself is what business people do not like.
The American Chamber of Commerce of the Philippines said in September in Inquirer.net that
while the country’s economic fundamentals are strong and its potential high, there is growing
concern that Duterte’s policies and behavior could affect long-standing optimism by American
businesses in the Philippines. Also, the continuous straining of the Philippines with its relationship
with the United States continuous to hamper the efforts done by previous administrations.
• Remittances
Like FDI, the contribution of OFW remittances to LDCs economy is highly significant.
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MASTERS IN MANAGEMENT MAJOR IN PUBLIC ADMINISTRATION
Public Fiscal Administration
Impact of Western Public Finance in Least Developed Countries| Politics and Fiscal Administration
Cerise Fae Luz C. Brazil
During the commodity boom in 2000-2007, OFWs remittances had a rapid growth from $6.7 B to
$16.6 B which helped indirectly affected poverty. With an increase in transfer income, a decrease
in poverty was felt.
The collapse in the commodity boom will also have a dramatic effect on the remittance inflow.
In 2020, following the covid-19 impact and the oil price issues on economies around the world,
the remittances were expected to drop down by 20% per World Bank
As World Bank Group President David Malpass said
“Remittances are a vital source of income for developing countries. The ongoing economic
recession caused by COVID-19 is taking a severe toll on the ability to send money home and makes
it all the more vital that we shorten the time to recovery for advanced economies,”
• ODA (Official Development Assistance)
In recent decades, the LDCs have been highly dependent on external sources of fi nance, well
above the norm in other developing countries. In advanced industrial countries, the reaction to
the crisis has been massive fiscal stimulus, drastic reductions in central banks’ lending rates, and
monetary easing through purchase of long-term financial assets by the central bank.
-Increase in ODA received by the Philippines in 2008-2010 following the great recession of the US
in 2007-2009
Figure 4 | 10-year graph of ODA
POLITICS AND FISCAL ADMINISTRATION
Politics is the way that people living in groups make decisions. Politics is about making agreements
between people so that they can live together in groups such as tribes, cities, or countries.
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MASTERS IN MANAGEMENT MAJOR IN PUBLIC ADMINISTRATION
Public Fiscal Administration
Impact of Western Public Finance in Least Developed Countries| Politics and Fiscal Administration
Cerise Fae Luz C. Brazil
Fiscal Administration is the act of managing incoming and outgoing monetary transactions and budgets
for governments, educational institutions, nonprofit organizations, and other public service entities.
The formulation and execution of fiscal policies have to contend with the role politics plays in the process.
The relationship between fiscal administration and politics is a dynamic interchange of effects and causes.
Fiscal policies as the end-products/outputs of fiscal administration - influence as much as they are
influenced by the political process. This is because fiscal administration done within a political system.
Others would go as far as to say that fiscal administration itself is a political process.
Ideally, Fiscal Administration should derive its substance and meaning from the concept of general
welfare. For developing countries embarking on a development process, the term “general welfare”
essentially means the welfare of the acknowledged beneficiaries of development, which is the poor.
In short, Administration of Fiscal Policies actually takes place within a Political system.
A MODEL
To understand how the system works, some assumptions have to be set.
o First, it is assumed that the purpose of fiscal administration is to realize desired objectives through
fiscal policies.
o Second, recognize that which is obvious: the formulation and execution of such fiscal policies are
done within a political context.
o Third, there is a process by which the "politicalization" of fiscal policies is done.
o Fourth, the process takes place within a system which governs how the process works and how
the actors behave.
o Fifth, the system is governed by an ideology which represents a composite of the economic,
political, and social values of society.
THE SYSTEM
• THE PROCESS, made up of existing institutions, either political or non-political which serve as
mechanisms whereby individual preferences and views are expressed, deliberated upon and
translated into the winning combination process
In a developing country like the Philippines, representative democracy provides a system whereby
individual preferences are made known in advanced. These preferences are realized through the political
process of voting.
1. Voting and Vote Maiximization
In the Philippines, which is a democratic country, the political setting is of a representative
democracy wherein people vote based on their individual preferences.
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MASTERS IN MANAGEMENT MAJOR IN PUBLIC ADMINISTRATION
Public Fiscal Administration
Impact of Western Public Finance in Least Developed Countries| Politics and Fiscal Administration
Cerise Fae Luz C. Brazil
There are two levels of decision making wherein fiscal decisions are made.
First is the small-number situations like in villages or barangay levels, wherein a relatively small
players are involved and issues and concerns are tackled and addressed in a simpler manner.
The second one is the larger-number situations like the national elections where larger number
of political players are involved and issues and concerns are more complex and broader.
This is the Vote Maximization theory, developed by Schumper and Downs which assumes that
political action is rational and that both the politician and the voter act based on their own self-
interest. The voter votes to attain benefits such as social goods and services and politicians desires
to maximize vote to win or stay in power.
• THE INTEREST GROUPS, informal or formal which determine the issues and preferences raised
and their strategies of presentation, the conversion of the winning combination or set of
preferences into fiscal decisions and the extent of implementation of such decisions
1. The Formal Actors
The Voters, Politicians, and Bureaucrats may be considered the formal actors of the political
process.
- The Voters represents the consumers and the producers of public goods and services.
- The “consumer-voters vote depending their perception of the effects of issues on their
personal interests;
- Consumer-voters like the Transportation sector, farmers marketing their products and the
like comes visible when a decision/issue concerns the determination of budget allocation for
their interests like budget allocation for highways, bridges etc.,
- Politicians are important as much as the voters in this process. The politicians facilitate the
translation of individual preferences to a certain degree of rationality in decision making. They
account for the preferences of their constituents and the intensity of it through their
platforms during elections and political coalitions. The extent of which a fiscal decision reflects
voter preferences is also enhanced when the politicians offer compromises.
- Swedish Political Scientist Leif Lewin presented some analyzation that politicians are guided
more by public interest rather than self-interest, that is aside from responding to voter
preferences directly, they also generate alternatives that is more flexible to the voter’s desires
and preferences,
- And the Bureaucrats which represents those who implements and executes the fiscal
decisions arrived during the policy-determination phase of fiscal administration. Although the
Bureacrat is outside the political picture of the election process, his importance of lies from
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MASTERS IN MANAGEMENT MAJOR IN PUBLIC ADMINISTRATION
Public Fiscal Administration
Impact of Western Public Finance in Least Developed Countries| Politics and Fiscal Administration
Cerise Fae Luz C. Brazil
his position as administrator and position as repository of public funds and his knowledge of
the technical know-how and information.
2. The Informal Actors
o Foreign Interest Groups
-The participation of foreign Interest Groups in fiscal politics of developing countries
comes primarily from the pervasiveness of their interests in the country’s economy.
Usually, Multi-national, foreign banking groups and the World Bank dominates as an
international funding source for every country. The World bank for example is interested
in the repayment of the loans and the implementation of the agreed terms of the loan.
Foreign interest groups prefer to maintain low profile in fiscal politics.
The Foreign Interest Groups also is the most organized and is powerful enough to dictate
economic policies such as lifting tariff on a developing country due to its enormous
resources at disposal.
o Domestic Interest Group
-represented by people and groups that are concerned with the economic and social
structures of the country
-In developing countries, the interest groups often represent the agro-mineral concerns
like sugar, coconut, copper and the like. These products are highly regarded in fiscal
policies because the proprietors are the powerful landed elite.
-What also makes the domestic interest important in fiscal policies is that they are
controlled by those in power themselves (political clans)
-One domestic group that has the potential of becoming in power is the Labor union. Their
well-organized structure and resources is an important factor also to politicians during
elections. Fiscal Policy issues concerning Labor unions comprises of compensation and
labor conditions primarily.
In general, domestic interest groups are strongest when they participate in political
process wherein their interests is at stake.
There are also the Taxpayers group which is complicated in terms of who can actually be
participating and to what they can participate in. Because of its complexity, policies
concerning tax is preceded by extensive studies to approximate tax preferences.
• THE IDEOLOGY, or the structure of the distribution of power in a developing country
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MASTERS IN MANAGEMENT MAJOR IN PUBLIC ADMINISTRATION
Public Fiscal Administration
Impact of Western Public Finance in Least Developed Countries| Politics and Fiscal Administration
Cerise Fae Luz C. Brazil
Refers to a set of political beliefs or a set of ideas that characterize a particular culture.
The Politics of developing countries tends to be more Authoritarian. The concentration of political
power is determined to a relatively few individuals as fiscal administration is greatly facilitated by
on the strength of political sponsorship. Hence some welcome the authoritarianism of decision
making when reforms are formulated and executed.
Authoritarianism may be the ideology of the entire political process because it determines how
efficiently the voting system will reflect the voter’s demands and preferences and how the
political actors behave in this voting system.
In general, it determines how the fiscal concept of general welfare or the development objectives
through this political process can become a reality.
THE FISCAL DECISION
If the budget is a representation of the general welfare, its culmination and execution can realize the
planned social goods and services and maintain and upgrade the general welfare.
Aside from budget, which is the essential fiscal end, there are required fiscal tools to meet the desired
goal. Fiscal Administration necessarily go beyond the mere determination of what and how social goods
and services are to be implemented. Fiscal Administration must be related to the development process
itself and policies must be part of it.
Decisions to allocate available resources and translation of individual preference through the political
process and support to the majority have to be conscious and must result to development ends, Economic
development and social equity. In all policy formation there is a plane of discussion distinguishable from
the actual individuals and groups in conflict. The diversity of any society may be due to conflicting
economic interests or the result of differing dogmas that separate men whose welfare is otherwise closely
entwined. The political task of compromise is none the less difficult though these differences be psychic
rather than material.
Therefore, Fiscal Administration must formulate and execute fiscal plans, goals and strategies consistent
with the planned development goal of the country that addresses and compromises to the preferences
of the formal and informal actors.
REFERENCES
BanksPhilippines | Foreign Banks in the Philippines
https://www.banksphilippines.com/2011/08/lists-of-foreign-banks-in-philippines.html
Oxford Scholarship Online | Donald Lavery, “Are Politicians Vote‐Maximizers?”
https://oxford.universitypressscholarship.com/view/10.1093/0198277253.001.0001/acprof-
9780198277255-chapter-3
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MASTERS IN MANAGEMENT MAJOR IN PUBLIC ADMINISTRATION
Public Fiscal Administration
Impact of Western Public Finance in Least Developed Countries| Politics and Fiscal Administration
Cerise Fae Luz C. Brazil
Prezi | Politics and Fiscal Administration
https://prezi.com/vsofgcwlaju3/politics-and-fiscal-administration/
Wikipedia |List of economic crises
https://en.wikipedia.org/wiki/List_of_economic_crises
Trading Economics | Philippines Foreign Direct Investment2005-2020 Data
https://tradingeconomics.com/philippines/foreign-direct-investment
The Impact of the Global Financial and Economic Crisis on the Least Developed Countries, 2009
http://unohrlls.org/UserFiles/File/Publications/LDC/UN_Financial_Crisis_011410_bw.pdf.
The Converstation | Why is peace falling in the Philippines?
https://theconversation.com/why-is-peace-failing-in-the-philippines-114675
Inquire.net | Uncertainty over Duterte alarms investors
https://business.inquirer.net/215942/uncertainty-over-philippine-president-duterte-alarms-
investors
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