POSTSCRIPT / September 4, 2008 / Thursday


Philippine STAR Columnist

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Erap: FVR borrowed 'modernization' fund

MODERN?: From Polk Street, comes now former President Joseph “Erap” Estrada debunking a claim of former President Fidel V. Ramos in Postscript that he left with Mr. Estrada (his successor) P5.484 billion for the “modernization” of the armed forces.

Mr. Estrada said Mr. Ramos did not use the trust fund from the sale of Fort Bonifacio for the armed forces — as dictated by law — but borrowed it for window-dressing his yearend financial report to minimize an expected budget deficit.

The government is now scrounging around for funds for AFP “modernization,” a euphemism for acquiring a few planes, ships, vehicles and other materiel rebuilt like new and polished to showroom quality.

The pathetic state of the armed forces has been brought to the fore by the campaign against better-equipped and highly motivated ground fighters of the secessionist Moro Islamic Liberation Front in Mindanao.

As if to stress the obvious, one of two overworked C-130 Hercules transport planes of the air force plunged into the Davao Gulf last Aug. 26, killing its two pilots and a crew of seven. There are three other C-130s, but they are under repair.

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MISSING FUNDS: Many people remember that the Ramos administration netted close to P8 billion from the sale of Fort Bonifacio in 1995 to Fort Bonifacio Development Corp., the buyers’ group organized by Metro Pacific.

Under RA 7898, the proceeds must go to a Trust Fund for the AFP. But until now, nobody seems to know what happened to the P8 billion, or who should go to jail for misappropriating it.

At P34,000 per square meter, the 240-hectare prime property should gross P81.6 billion. But only about P30,359,605,589 has been admitted by Mr. Ramos as having been collected and P5.484 billion supposedly left by him to his successor.

If Malacanang or the Commission on Audit is not interested in getting to the bottom of the mess, maybe a Senate committee should flush out the facts and figures.

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REACTION: Mr. Estrada would not take lying down any attempt to make him the fall guy.

Reacting to our last Postscript (Aug. 28) wherein Ramos was quoted as saying he left P5.484 billion with Mr. Estrada, the latter emailed us this recollection of former Budget Secretary Ben Diokno:

1. The P5.484 billion for the AFPMF from the sale of Fort Bonifacio was placed by the Bureau of Treasury in a Special Account in the General Fund. The law says that the share for AFPMF should be placed in a Trust Account.

2. The difference between the two modes is important. The first mode — Special Account — allows the Executive Department to use the money to finance any item in the budget. The Ramos administration used the proceeds to finance the national budget. Operationally, the Ramos administration “borrowed” money from the Special Account to finance government operations or finance the deficit rather than float treasury bills. Effectively, the fund in the Special Account was depleted. On paper, however, the P5.5-billion appears to be intact. But should the AFP need the money to implement its modernization program, the Treasury has to refinance what was “borrowed” — either by getting money from revenues collected or by floating T-bills. The second mode restricts the use of the fund for the modernization of the AFP. Interest on the money deposited in the Trust Account will form part of the Account.

3. On April 30, 1998, the AFP advised the Office of the President of its readiness to manage the AFPMF trust fund. It is in the interest of the military establishment to have the trust fund under its control. First, it assures them that the money for AFP modernization is intact and available. Second, interests of the trust fund form part of the fund; the fund will continue to grow even if the modernization program is delayed. DBM and other fiscal authorities have other motives. By not releasing P5.5-billion to AFP, the Ramos administration was able to window-dress the deficit — reducing the budget deficit by P5.5 billion.

4. The Estrada administration had to postpone the release of the modernization fund to AFP for two reasons. First, when Estrada assumed office, the Philippine economy was in the midst of the Asian financial crisis. There was a need to jump-start the slowing economy by creating more jobs and increasing economic activities in urban centers and rural areas. Studies show that the contribution of defense spending to economic growth and development is, at best, neutral and, at worst, negative. Second, the AFP leadership at that time had yet to decide on the size, specific content, and financial requirements of the modernization program. As I recall, and this personal recollection could be supported by minutes of proceedings of committee hearings in the House and the Senate, the major divisions of the military establishment (GHQ, Army, Navy, Air Force) at the time had yet to decide how the Modernization Fund would be allocated and prioritized.

5. But on May 29, 2000, DBM issued the Special Allotment Release Order (SARO) to the AFP in the amount of P5.484 billion. And with subsequent releases, we backed up the SARO with several NCAs based on specific proposals and progress in the utilization of the Fund.

Bottom line: Mr. Ramos “borrowed” money from the proceeds of the sale of the Bonifacio property earmarked for AFP modernization to finance his other projects. Mr. Estrada restored the money that Mr. Ramos “borrowed” from the modernization fund, and released the P5.484-billion fund in full on May 20, 2000.

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(First published in the Philippine STAR of September 4, 2008)

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