Business Options: Local development and political will for good governance

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Local development and political will for good governance

Lydia N. Orial

The path to real local development requires a strong political will by the local chief executive (LCE) and his team to practice good governance. Unfortunately, these LCEs are a very rare breed. That is a sad, but true assessment of the current state of local governance in the Philippines. This is one major reason why the LGU bond market has not really taken off. In bond flotation, an LGU must exercise transparency and accountability in terms of its decision-making process and the disclosure of information to enable investors to monitor the performance of the LGU itself and the project subject of bond float. And this is a big NO-NO to majority of our LCEs. That is why LCEs who dare float bonds must be commended. They know that venturing into the capital market will make them and their operations open to public scrutiny, and they may lose total "control" over the implementation of the project subject of the bond issue. But they are bold enough to take this step, because the improvement of service to their constituents is their number one concern, and because they have nothing to hide.

The Municipality of Baliwag is a case in point. The Municipality recently signed the documents needed to issue P50-million worth of "Star Bonds." The proceeds from the P50-million bonds will be used to finance the construction of an Integrated Waste Management System and Materials Recovery Facility (IWMS-MRF) that will transform municipal, commercial and industrial wastes into recyclable materials, biogas and organic fertilizer. The IWMS-MRF is the first-ever integrated waste management facility in the country which will rise on a three-hectare lot in Barangay Tarcan.

The Municipality of Baliwag’s bond flotation will soon become a reality because its local officials were not afraid to take the bold step. The local government made all its financial records available to the financial institutions, and more importantly, subjected itself to an in-depth rating of all aspects of its operations. Baliwag was rated "A" by an independent Rating Committee using the internationally-accepted LGU rating system of the LGU Guarantee Corporation. This raises Baliwag to the level of the "more sophisticated LGUs" that have successfully penetrated the capital market. While many LGUs had to wait for one to two years before successfully launching their bonds, Baliwag spent less than one year finalizing its issue, thanks to the full support given by the Sanggunian members, local officials, and municipal constituents to Mayor Romeo Estrella.

Baliwag’s bond flotation was, however, not problem-free. Some delays were experienced in getting the Bulacan provincial council’s validation of the ordinance authorizing the municipal bond flotation and in the issuance of the Environmental Compliance Certificate from the Department of Environment and Natural Resources (DENR). The latter comes as a surprise considering DENR’s primary role in the implementation of RA 9003, the Ecological Solid Waste Management Act. This goes to show that it is not just the local governments, but also the national government agencies, which should practice good governance. Meanwhile, project acceptance by the community where the facility will be located was even accomplished ahead. This was achieved through an effective dissemination campaign initiated by local councils during public hearings, and the strong support demonstrated by the local leaders.

While most local officials chose the more established direct loan route, Mayor Estrella issued municipal bonds to finance its waste management project because he believed that bond flotation would allow the private sector and his constituents to participate in the development efforts of the municipality, by giving them the opportunity to become investors and bondholders.

The Baliwag experience is another clear manifestation that indeed, bond flotation is only for LGUs and LCEs that are willing to be transparent and practice good local governance. The process itself is not complicated. In fact, it took Baliwag only six months to get the bond market players’ approval as well as those of the Department of Finance (DOF) – Bureau of Local Government Finance (BLGF) and the Bangko Sentral ng Pilipinas (BSP). Moreover, the past negative experiences in the LGU bond market have been addressed. The LGU Guarantee Corporation in collaboration with the DOF – BLGF has developed a standard criteria for financial advisors (FAs) to eliminate "pseudo" FAs. The bidding system for bond players (FA, underwriter and trustee) will also now be implemented to ensure transparency and remove suspicion that contracts are given to the LCE’s allies as payment for political debts.

Another LGU, this time the Iloilo Province, will reportedly be the test case for the latter. My hats off to Governor Niel Tupas Sr. of Iloilo, and to Mayor Romeo Estrella of Baliwag. May your tribe increase!

Manila Bulletin, April 4, 2006

http://www.mb.com.ph/BSNS2006040460601.html