Towards Strengthening The Fiscal Capabilities of ARMM - A Policy Paper

the Fiscal Capabilities of ARMM
Towards Strengthening
A Policy Paper
Towards Strengthening the Fiscal Capabilities of ARMM: a policy paper

A Policy Paper
Towards Strengthening the Fiscal Capabilities of ARMM
INCITEGov Policy Paper
by Local Government Support Program in ARMM (LGSPA)
2007
Project Leader
Prof. Emilia T. Boncodin
Project Team Members

Teresita Quintos-Deles – Policy Adviser
Atty. Suharto Ambolodto – Senior ARMM Specialist
Ms. Miraflor Villanueva – Fiscal Resource Specialist
Ms. Rosalie Romero – Research Coordinator
Editing
Surveys, Training, Research & Development Services (STRIDES), Inc.
Cover Art and Layout

Regine Abos
Language of Report
English
Copies of this report may be obtained from:

International Center for Innovation, Transformation and Excellence in Governance (INCITEGov)
8/F Prestige Tower, F. Ortigas Jr. Road, Ortigas Center, Pasig City
Telefax: 634-1334 • Email Address: incitegov@yahoo.com
CONTENTS List of Tables 5
Foreword 7
Preface 13
Acronyms and Abbreviations Used 19
1 Introduction 21
2 Regional Autonomy and National Government Fiscal

Policy on ARMM 23
2.1 The Evolving Muslim Mindanao Autonomy 23
2.2 Poverty Situation in ARMM 25
3 ARMM Fiscal Situation 30

3.1 ARMM Fiscal Powers 30
3.2 Inventory of Funds made Available to ARMM for
FY 2001-2005 36
3.3 Locus of Funds Control 40
3.4 Distribution of Fund Use 44
3.5 Fund Utilization - by Sector 46
3.6 Comparative Analysis 47
4 Analysis 55
4.1 Weak ARMM Revenue Mobilization 55
4.2 Fiscal Dependence on the National Government 56
4.3 Personnel / Overhead Burden 57
4.4 Limited Program Administrative Capacity 58
4.5 Dispersed Resource Control and Accountability 58
5 Policy Options / Recommendations 60

5.1 Revenue Generation 60
5.2 Fund Utilization 62
5.3 Sustaining Mechanisms 66
6 Conclusion 68
TABLES TABLE 1
Summary of Incidence of Poor Population in the
Component Provinces of ARMM, 1997–2000
(in percentage) 25
TABLE 2
Summary of Incidence of Poor Population By Region,
Rank 1994–2000 26
TABLE 3
Magnitude of Poor Population and
Incidences of Population by Region, 1991 and 1994 27
TABLE 4
Gross Domestic Product and
Magnitude of Poverty By Region Compared 28
TABLE 5
Fiscal Inventory FY 2001–2005 (In Million Pesos) 37
TABLE 6
Funds Available to the ARMM According to Source,
Appropriation and Disbursement
Fiscal Years 2001–2005 41
TABLE 7
Funds Available to the ARMM, Locus of Control,
By Allocation, Fiscal Years 2001–2005 42
TABLE 8
Funds Available to the ARMM, Locus of Control,
By Disbursement, Fiscal Years 2001–2005 43
TABLE 9
Fund Utilization – by Expense Class
(in million pesos) 45
TABLE 10
Fund Utilization – by Sector
(in million pesos) 47
TABLE 11
Comparative Regional Allocation of the
National Budget, FY 2002 – 2005 49
TABLE 12
Comparative Regional Allocation of the
National Budget, by Year, FY 2002 – 2005 50
TABLE 13
Regional Allocation
Education, FY 2002 – 2004 51
TABLE 14
Comparative Literacy Rate, FY 2003 52
TABLE 15
Regional Allocation
Agriculture, FY 2002 – 2004 52
TABLE 16
Ginintuang Masaganang Ani (GMA) – Rice, Output
Report 2004 53
TABLE 17
Ginintuang Masaganang Ani (GMA) – Corn, Output
Report 2004 54
FOREWORD “Towards Strengthening the Fiscal Capabilities of

ARMM” is an incisive report that examines the fiscal
environment of the Autonomous Region in Muslim Mind-
anao (ARMM).
The report is a product of rigorous research conducted by

a multidisciplinary team of experts from the International
Center for Innovation, Transformation and Excellence in
Governance (INCITEGov), a policy think-tank composed
of former Cabinet officials who have the privilege of in-
sight into the development issues of ARMM as well as the
fiscal realities of the Government of the Philippines.
For some time, the issue over the adequacy (or lack) of
funds in ARMM have elicited debates among political
actors from the national government to the ARMM
Regional Government in the face of poverty and human
development indicators showing ARMM provinces
lagging behind the rest of the country.
The INCITEGov study puts to rest some of these ques-

tions. By moving beyond “mere anecdotal assumptions”
and using empirical data based on an inventory of national
government funds transferred to ARMM, including the
Internal Revenue Allotment to LGUs. The findings of the
study call for serious reflections particularly in the way
funds are utilized and appropriated in the region.
The Local Governance Support Program in ARMM

(LGSPA) of the Canadian International Development
Agency (CIDA) has been extending technical assistance
support to the ARMM Regional Government and
ARMM LGUs. LGSPA commits to support the ARG to
work for much needed reforms and increasing capacities
particularly in the critical areas of revenue generation and
fund utilization.
LGSPA hopes that this study will serve as a road map for
the ARMM Regional Government as a basis for political
action towards enhanced governance in ARMM. It is also
the hope of LGSPA that other stakeholders in the region
will be able to take the challenge to support the ARMM
Regional Government’s efforts to develop innovative
strategies to translate the study’s findings into policies and
programs towards transformative governance in ARMM.
The Local Governance Support Program in ARMM

(LGSPA), Canadian International Development
Agency (CIDA)
The INCITEGov study entitled “Towards Strengthening

the Fiscal Capabilities of ARMM” is the first of its kind
in the country. It is a groundbreaking work that will
hopefully establish the foundations of fiscal autonomy
for ARMM and will serve as a primary reference on the
actual flow of government funds for ARMM. This study
would not have been possible without the continuous
support of the Local Governance Support Program in
ARMM (LGSPA) funded by CIDA, which has been
in the region since 1991. In keeping with LGSPA’s
continuing efforts of improving governance in ARMM,
the study explores ARMM’s fiscal or budgetary situation,
an often identified waterloo in good governance. Without
a clear picture of the fiscal situation of ARMM, we
cannot even begin to design a program to promote good
governance. A common economic truism is that incentives
matter just as much as, if not more than, sanctions or
penalties. By tracing fund flows, hopefully incentives can
be put in place for good governance in ARMM.
The study confirms what most observers have said about

ARMM—that is, ARMM is completely dependent on the
National Government for its funding. As presented by the
study, only a statistically negligible P6 million was raised
internally by ARMM through taxes in 2005. The study
also confirms what the World Bank has said:
Central control of the bulk of ARMM expenditures underlines

the governance issue of a ‘legally autonomous’ regional govern-
ment that has no more real or practical autonomy in deciding the
level and allocation of funds intended for its politically distinct
mandate than other non-autonomous administrative agencies of
the National Government. (Human Development for Peace and
Prosperity in the Autonomous Region in Muslim Mindanao,
World Bank, 2003, p. 17).
While this study says that ARMM has the opportunity

to use its autonomous powers for revenue mobilization,
10 Towards Strengthening the Fiscal Capabilities of ARMM
it does not make an actual inventory of such powers and

it does not assess if such powers are actually relevant in
making ARMM fiscally autonomous. As the Organic Act
of ARMM or Republic Act No. 9054 highlights, the bulk
of taxing powers still remains with either the National
Government or local government units (LGU). While the
ARMM Regional Government (ARG) has the power to
add-on to LGU taxes, this has not been feasible. ARG
cannot implement innovative tax policies because the
National Government continues to be the main collecting
agency of all taxes in the region. This kind of fiscal study
must be undertaken as a follow-up to the current study.
Nevertheless, this study presents a true picture of the

state of fiscal autonomy of ARMM. In stark terms and
statistics, the study emphasizes that pouring more money
into a problem without thoughtful analysis will not really
address the problem of autonomy. As Benedicto Bacani
writes that:
The ARMM, which is supposed to be the vehicle for Moro self-

determination is recognized right now as less autonomous than local
governments such as cities, towns and provinces, and more subservient
and dependent on the national government than any other political
subdivision in the country. (Bacani, B., “Should ARMM Dance
the Cha-Cha?”, Autonomy and Peace Review, Vol. 1, Issue 1,
October-December 2005, p. 46).
Bacani asks us the relevant questions regarding ARMM,

the answers to which the InciteGov study provides an
inkling, to wit:
Is ARMM merely a development body, an employment agency

for Moro leaders or is it supposed to be an instrument for Moro
self-determination? The string of ineffective and uninspired leader-
ship in the autonomous region emboldened the [perception of] the
autonomous region as a milking cow of Moro interest groups than
as a vehicle for Moro empowerment. This brand of autonomy is not
in accord with the spirit and letter of peace agreements and fits well
the national government’s short-sighted policy of co-opting Moro
insurgent leaders. This misplaced yet dominant ARMM identity
Towards Strengthening the Fiscal Capabilities of ARMM 11
flourishes because it advances the selfish agenda of interests groups

in the national government and the autonomous region.” (Ibid, pp.
48-49)
What then is the role of the National Government in a

meaningful autonomy? The Harvard Project on American
Indian Economic Development suggests some solutions:
“In the nation-building approach, Central Governments move from

a decision-making role in indigenous affairs to a resource role. In
practical terms, that role involves the following:
• A programmatic focus on institutional capacity-building,
assisting Native nations with the development of governmental
infrastructure that is organized for self-rule, respects indigenous
political culture, and is capable of governing well.
• A shift from program funding to block grants, thereby putting
decisions about priorities in [indigenous] hands.
• The development of program evaluation criteria that reflect the
needs and concerns not only of funders but of Native nations
as well.
• A shift from consultation to partnerships in which Native
nations and outside governments make joint decisions where the
interests of both are involved.
• R ecognition that self-governing nations will make mistakes, but
what does sovereignty mean if not the freedom to make mistakes
and learn from them?” (Cornell, 2005)
The Harvard Project on American Indian Economic

Development concludes that:
One of the most difficult things for non-indigenous governments to do

is to relinquish control over Native nations. But this control is the
core problem in the standard approach to development and a primary
hindrance to reservation prosperity. As long as non-indigenous
governments insist on calling the shots in Indian Country, they must
bear responsibility as well for continuing poverty. Only when they are
willing to let go will the development potential within Indian com-
munities be released. (Cornell, S. and Kalt, J., “Two Approaches
to Economic Development in American Indian Reservations: One
Works, the Other Doesn’t” JOPNA No. 2005-02)
There are some parallels in the situation of ARMM and

American Indians in fiscal control and autonomy. We
hope that the INCITEGov study will begin the process
of making possible real autonomy for the Bangsamoro
people and that whatever this political-economic structure
might look like, that it will finally benefit the masses of
Moro people, who are the ultimate stakeholders in the
experiment of Moro autonomy.
Atty. Ishak V. Mastura

DTI-ARMM Secretary (2002-present)
15 March 2007, Cotabato City
preface The idea of undertaking an empirical study to assess the

fiscal capabilities of the Autonomous Region in Muslim
Mindanao (ARMM) emerged from the contentious
discussions which arose every time people gathered to
discuss the state of peace and development in Muslim
Mindanao, especially as the tenth anniversary of the
signing in September, 1996, of the Final Peace Agreement
between the Philippine Government and the Moro
National Liberation Front (MNLF) drew near. Any
discussion on the state of continuing poverty and armed
conflict in the ARMM would inevitably lead to a debate
on the adequacy-or the lack thereof-of the fiscal resources
needed to fuel autonomous governance and critical
development outcomes in the region which continued
to register the lowest human development indicators in
the country through the two ARMM administrations
which followed the signing of the 1996 peace accord.
And, always, the question, which never failed to draw
impassioned assertions and unresolved cycles of charges
and counter-charges, would be raised: Who was at fault?
For Emy Boncodin and myself, who served, respectively,

as Project Leader and Co-Project Leader of this initiative,
the process of laying out the empirical data, moving
beyond the simple repetition of anecdotal assumptions,
started while we were in government. As Lead Convenor
of the National Anti-Poverty Commission (NAPC) in
2001-2003 and Presidential Adviser on the Peace Process
(PAPP) in 2003-2005, I was witness to the unending
complaints, primarily from ARMM officials but echoed
by other stakeholders, regarding the insufficiency of
funds and the lack of fiscal powers to address the many
problems of ARMM. The mantra at the time that I
moved to OPAPP was – “How can ARMM survive and
*The National Government Appropriations for the develop on a measly Five Billion Pesos?” * It seemed that
ARMM Regional Government came to PhP 5.193
Billion in 2003 and to P/5.510 Billion in 2004. no meeting convened to discuss any problem in ARMM
could meaningfully rise above this assertion of fiscal

deprivation. On the other hand, there would be equally
firm statements—although sometimes muttered under the
breath—among the government bureaucrats present at
these meetings that the problem was not the lack of funds
but management of available resources.
As the National Government set about preparing the

proposed 2005 national budget for submission to Congress
and aware that 2005 marked an election year for ARMM,
then-DBM Secretary Boncodin and I decided to jointly
undertake a factual and technical rendering of the region’s
fiscal realities that would, hopefully, move us beyond the
cycle of contending assertions towards common actions.
With modest funding support from OPAPP and the
technical expertise of DBM, the effort initially involved
a rigorous review and search to mark out and document
items in the 2004 General Appropriations Act (GAA)
which were intended for disbursement in ARMM. These
figures and documentary proofs were then presented
back to the concerned agencies for validation. Beyond
the issuance of written instructions from the Budget
Secretary, the validation process involved meetings
convened and co-chaired by the two Secretaries where
concerned agency representatives, including Cabinet
Secretaries and heads of agencies, were asked to verify
or otherwise correct the figures, affirming that the stated
amounts had not just been recorded in the GAA but had
actually been released in ARMM, whether through the
Regional Government or through other mechanisms.
Then-ARMM Regional Governor Paruk Hussin was

present at each of these meetings and was given the
opportunity to dispute any of the recorded figures.
Furthermore, in February, 2005, the two Secretaries flew
to Cotabato City to present the results of the study to the
Regional Cabinet en banc. We were told then that it was
the first time ever for the highest official of DBM to pay
such a visit to the Regional Government.
The result of the study at that time disclosed that the

actual funds disbursed in the region was much larger than
the figure indicated in the GAA line item for the ARMM
Regional Government. But ARMM officials, led by the
Regional Governor, complained that they did not know
about these other fund sources and had no control over
these additional resources entering ARMM. In response,
then-Secretary Boncodin and I undertook, first, to establish
the budget baseline for 2005, following the template
already established for the 2004 budget; and, second, to
issue a Joint Circular to all national government agencies
henceforth to earmark at the start of the year the intended
share of ARMM in their respective budgets and to ensure
that the funds so indicated were transferred to the Regional
Government for it to implement the designated project.
This was to discourage, if not eliminate, the prevailing
practice among the majority of national agencies of
implementing projects in the autonomous region through
their regional offices in Regions IX and XII, whichever was
contiguous to the affected ARMM constituent-province.
Accordingly, this provision was included as an explanatory
note in the 2005 GAA.
In addition, in our meeting with the ARMM Cabinet,

then-Secretary Boncodin, raised the possibility of the
National Government treating the national appropriations
for ARMM as a lump sum, with the Regional Government
deciding on how the collective fund would be distrib-
uted among its different instrumentalities and programs.
While the National Government faced constraints in
increasing specific budget allocations especially in the face
of its serious budget deficit at that time, she said it was
possible to provide the Regional Government the author-
ity to decide the sectoral allocations of the regional bud-
get, instead of these being set in the GAA. This would,
however, require the Regional Government to first submit
its proposed use and allocation of this lump sum, requiring
some hard decisions in terms of setting regional policy and
program priorities.
These moves to change the fiscal parameters of ARMM

governance would be met with reservations by some
parties, both in the National Government as well as in
ARMM itself. We were very much aware that there could
be no short-cuts towards the achievement of fiscal reform
and autonomy. However, even before we could see the
fruits of these fledgling steps, these efforts would be
sidelined as the temper and tempo of partisan maneuvers
in the run-up to the 2005 regional elections began to heat
up. The exercise would eventually get buried in the wake
of the political crisis that broke out in May 2005.
Thus, it was a highly propitious development for us when

the Local Government Support Program in ARMM
(LGSPA) of the Canadian International Development
Agency (CIDA) expressed its interest in supporting
a study that would factually assess the state of fiscal
resources in ARMM. LGSPA recognized that, in
order to succeed, the effort towards governance reform
and meaningful regional autonomy needed to be fully
cognizant of the state of its fiscal capacities.
In partnership with LGSPA, we have been able to extend

the coverage of the study to five years, 2001-2005,
under the current administration. The present study
constitutes not just an inventory of fiscal resources; it
also provides an analysis of how these resources are
appropriated and utilized and offers recommendations
towards strengthening the fiscal capacities of the country’s
only autonomous region. The results of the study were
presented initially to the ARMM Regional Government
in meetings held in Davao and in Cotabato City; and then
at a public forum held in Makati, which was attended by
representatives from the ARMM Regional Government,
Bangsamoro civil society, the National Government,
the international donor and diplomatic community,
civil society organizations, the academe, and media.
Thereafter, we were invited to present our findings to
a network of peace advocates in a forum held in Davao
City. Our final write-up of this report has been guided

and energized by our interaction with these different
stakeholders.
The limitations of this study, however, must be noted.

To ensure the reliability of its findings, the study covers
only the funds that were listed in the GAA and could be
validated by government records as actually having been
released. Appropriations which were not validated or
could not be determined specifically by the implementing
agencies or conduits were therefore not considered.
Among the excluded items were the allocations of the
Department of National Defense, which provides a
portion of its budget to ARMM because of its military
camps and soldier deployment in the region. The study
also does not include disbursements from the Calamity
Fund for aid relief and rehabilitation services in the area,
the releases of which are made in accordance with the
recommendation of the National Disaster Coordinating
Council (NDCC) and upon approval of the President.
Releases from the Presidential Social Fund or from
Government-Owned and Controlled Corporations
(GOCCs), such as PAGCOR, PCSO, and others, which
do not go through DBM, were also excluded. And,
finally, the project does not cover Official Development
Assistance from international donors, which projects
are directly implemented in ARMM, either by an
international agency, the Regional Government itself, or
non-governmental organizations (NGOs). Thus, the fiscal
picture that has been recorded is still incomplete.
As an organization espousing sustained governance

reform, recognizing the boom-and-bust cycle which has
come to characterize reform efforts in the Philippines,
the International Center for Innovation, Transformation
and Excellence in Governance (INCITEGov) is intent
that its efforts do not just end up as academic study. We
wish our analysis and recommendations to stir reflections,
more thoughtful discourse, and determined actions.
The recommendations we offer here are not just about

crunching the numbers and improving regional resource
collections. They are also about setting priorities,
envisioning legacies, leveraging performance, and
galvanizing stakeholder claims and hopes. In the end, as
we always knew it would, the pursuit of fiscal outcomes
must link with good governance and political action to
become effective and sustainable.
We are grateful to CIDA-LGSPA for our partnership in this

endeavor and hope that future joint efforts can enable some
of our recommendations to be realized. We acknowledge
the valuable cooperation and support of DBM in providing
us access to documented and reliable data which were the
basis of our analysis and recommendations. We express
special thanks to the ARMM Regional Government under
the leadership of Gov. Zaldy Ampatuan for the openness
and candor of key regional officials in tackling the emergent
fiscal issues and in expressing their intent to put this new
knowledge to good use for the welfare of the residents in
the autonomous region. We invite civil society and other
stakeholders in ARMM to undertake common actions to
build on these findings and contribute to recreating a fiscal
environment that is truly conducive to the pursuit and
achievement of regional autonomy, prosperity, and peace.
Teresita Quintos Deles

Project Team Co-Leader/Policy Adviser
INCITEGov
Acronyms & ARG ARMM Regional Government

Abbreviations ARMM Autonomous Region in Muslim Mindanao
Used CAR Cordillera Administrative Region
CO capital outlay
CY Calendar Year
DA Department of Agriculture
DBM Department of Budget and Management
DILG Department of Interior and
Local Government
DOTC Department of Transportation and
Communication
DPWH Department of Public Works and
Highways
DSWD Department of Social Welfare and
Development
EDSA Epifanio de los Santos Avenue
EVAT Expanded Value Added Tax
FY Fiscal Year
GDP Gross Domestic Product
GFI Government Financial Institution
GMA Ginintuang Masaganang Ani
GOP Government of the Philippines
GRDP Gross Regional Domestic Product
GRP Government of the Republic of
the Philippines
INCITEGov International Center for Innovation,
Transformation and Excellence
in Governance
IRA Internal Revenue Allotment
LGC Local Government Code
LGSPA Local Governance Support Program
in ARMM
LGU Local Government Unit
MNLF Moro National Liberation Front
MOOE maintenance and other operating expenses

MT metric tons
NGA National Government Agencies
ODA Overseas Development Assistance/
Agency
OPAPP Office of the Presidential Adviser
on the Peace Process
PDAF Priority Development Assistance Fund
PS personnel services
RCPC regional crop protection center
RPDO Regional Planning and Development
Office
SARO special allotment release orders
SOA schools-on-the-air
VAT Value Added Tax
1
INTRODUCTION Poverty is a stark reality in the Autonomous Region
in Muslim Mindanao (ARMM). From 1994 to 2000,
ARMM registered the highest poverty incidence across all
regions in the country. A slight improvement in its poverty
conditions was apparent in 2003 when ARMM ranked
second to Caraga. Notwithstanding this, the pervasive re-
ality of poverty in ARMM over the years has not escaped
notice. Rather, it has intensified the need for governance
stakeholders to focus on trying to bring development to
the region. Along this line, the issue of whether national
government funds have been sufficient in propelling such
development has also been raised. This, in fact, has been
the subject of a raging debate between national govern-
ment and the ARMM regional government. It has also
underscored the need for an empirical study that would
assess the fiscal capabilities of ARMM.
In order to move beyond the debate on the adequacy (or

lack) of funds towards finding real solutions to addressing
poverty in ARMM, mere anecdotal assumptions must
be replaced by a technical and factual rendering of
the region’s fiscal realities. The ARMM Inventory of
Fiscal Resources and Utilization Project, undertaken
by INCITEGov, was designed to address this gap. The
project aimed to create a database that could serve as a
starting point for future researches in the area. Thus, an
inventory of funds given to ARMM from 2001–2005 was
conducted, using official figures of the Department of
Budget and Management (DBM) that had been validated
by recipient conduit agencies. An analysis of ARMM fund
sources and utilization was further undertaken. The study
yielded baseline data on the fiscal position of ARMM,
which then became the basis for making a number of
policy recommendations towards improving ARMM‘s

resource mobilization and utilization.
The paper is organized as follows. Section 2 provides

some background information on ARMM to serve as a
context for the study. This section includes a discussion
on the origins of autonomy in ARMM and how this is
closely linked to the peace process in Muslim Mindanao
and describes the poverty situation in the region. Section
3 starts out with an overview of the authority and powers
vested on the ARMM Regional Government, zeroing in
on its fiscal powers and the fiscal situation of ARMM
from 2001 to 2005. Then, it presents the results of the
fiscal inventory undertaken by the project. This includes
a description of the locus of funds control of ARG, the
distribution of fund use, and a comparative analysis
of fund allocation and performance in the Agriculture
and Education sectors among ARMM and three
other similarly-situated regions namely, the Cordillera
Administrative Region, Eastern Visayas (Region 8), and
CARAGA. Section 4 provides some analysis on the
results of the fiscal inventory, which then becomes the
basis for the policy options and recommendations in
Section 5. The paper ends with a Conclusion.
2
Regional
Autonomy
and National
Government
Fiscal Policy
on ARMM
2.1 The Evolving Muslim Mindanao Autonomy
The emergence of regional autonomy in Muslim Mind-

anao is the product of decades of struggle and negotia-
tion. Following many years of military offensive against
the Moro National Liberation Front (MNLF), a Muslim
secessionist group, the Government of the Republic of the
Philippines (GRP) under President Ferdinand E. Marcos
initiated peace talks with MNLF in the early 70s. Peace-
ful and principled negotiations were re-defined and rein-
vigorated under the Aquino administration and finalized
under the Ramos administration. These efforts brought
forth regional autonomy envisioned as a first step to real-
izing the aspirations and entitlements of the Bangsamoro
community in Muslim Mindanao.
On 23 December 1976, the GRP and the MNLF signed

the Tripoli Agreement, which provided for the establish-
ment of a regional autonomous government in Muslim
Mindanao with a legislature and an executive council. A
plebiscite on 17 April 1977 resulted in 10 provinces and
seven cities voting for inclusion in what would later be-
come the Regional Autonomous Governments 9 and 12.
President Marcos organized the Sangguniang Pampook
under Batas Pambansa Bilang 20 (implemented by Presi-
dential Decree No. 1618), which served as the charter of
the autonomous regions.
After the EDSA uprising of 1986 ousted President

Marcos, his successor, Corazon C. Aquino decreed the
drafting of another constitution. The 1987 Philippine
Constitution provided for the establishment of autono-
mous regions both in Muslim Mindanao and the Cordille-
ras, with the intention of granting autonomous governance
to geographical areas sharing common and distinctive
historical and cultural heritage, economic and social

structures, and other relevant characteristics. It tasked
Congress to pass laws on the autonomous regions within
eighteen months from the time of the creation of the 2
Houses.
The Organic Act for the Autonomous Region in Muslim

Mindanao (ARMM) was created with the passage of Re-
public Act No. 6734 in August 1989. It provided ARMM
with the basic structure of government within the frame-
work of the Constitution and national sovereignty and the
territorial integrity of the Republic of the Philippines. On
19 November 1989, a plebiscite was held and four prov-
inces in Mindanao voted for inclusion in ARMM - Lanao
del Sur, Maguindanao, Sulu and Tawi-Tawi. The signing
of the Final Peace Accord to Implement the Tripoli Agreement of
23 December 1976 by the Philippine Government and the
MNLF on 2 September 1996 resulted in the amendment
of R.A. 6734 and the consequential enactment of Repub-
lic Act No. 9054, An Act To Strengthen And Expand The Or-
ganic Act For The Autonomous Region In Muslim Mindanao. The
region was expanded to include the province of Basilan
and the city of Marawi that voted favorably to be included
in the expanded autonomous region during the 14 August
2001 plebiscite.
A similar Organic Act was passed to establish the

Cordillera Autonomous Region through Republic Act
No. 6766 on 23 October 1989. In the plebiscite held on
30 January 1990, only Ifugao voted in the affirmative.
Another Organic Act was passed to create the Cordil-
lera Autonomous Region through Republic Act No. 8438
1 Section 15, Article X, 1987 Constitution dated 2 December 1997. The plebiscite held on 9 March
2 Section 19, Article X, 1987 Constitution
3 Section 2, Article I, R.A. 6734, An Act 1998, however, resulted in only the province of Apayao
Providing For An Organic Act For The Au-
tonomous Region In Muslim Mindanao voting for autonomy while six provinces voted against it.
4 Section 1, Article II, R A No. 9054, An Act
To Strengthen And Expand The Organic Act The Supreme Court later ruled that one province could
For 5The Autonomous Region In Muslim
Mindanao. not constitute an autonomous region. This ended attempts
to form an autonomous region in the Cordilleras and left

ARMM as the only autonomous regional government in
the Philippines.
Subject to the provisions of the constitution, the ARMM 5 Section 1, Article IV, R A No. 9054.
6 Section 3, Article IV, R A No. 9054.
Regional Government (ARG) is provided with powers and 7 L anao del Sur, Maguindanao and Sulu have
been in the top ten poorest provinces both in the
functions that are expressly granted in the Organic Act, old 2000 and the revised 2000 surveys. Tawi-
tawi was no.8 in the old survey, but became no
as necessary or incidental to the proper governance and 13 in the new survey.
8 Technical Notes on the 2003 Poverty Estimates,
development of the autonomous region. It has an almost Posted 27 April 2005, http://www.nscb.gov.
ph/technotes/poverty_tech2003.asp
plenary authority over the autonomous region and its
development for the benefit and promotion of the general
welfare of its people.
2.2 Poverty Situation in ARMM
Today, more than fifteen years since the establishment of

ARMM, the promise of prosperity remains elusive. Na-
tional statistics reveal an unbroken thread of deep poverty
in the region. The component provinces of ARMM have
consistently posted high poverty incidence ratings, with
three of them making it to the top ten poorest provinces
in the country in the 2000 Poverty Incidence Survey7.
(Refer to Table 1). Moreover, ARMM as a region consis-
tently had the highest poverty incidence rating from 1994
to 2000 (Refer to Table 2), improving slightly when it
ranked second to Caraga in 2003.
Table 1: Summary of Incidence of Poor Population in the

Component Provinces of ARMM (in percent) 1997 – 2000
Province 1997 2000 2000* 2003*

Philippines 33.0 34.0 33.0 30.4
ARMM 55.6 62.9 59.8 53.1
Basilan 25.5 32.7 39.1 42.0
Lanao del Sur 62.2 61.9 61.6 44.6
Maguindanao 47.1 61.3 65.1 68.10
Sulu 70.0 67.7 63.3 53.5
Tawi-tawi 39.2 60.2 57.2 40.2
* Poverty statistics were computed based on the new poverty estimation methodolog y of the NSCB approved in January, 2003. 8
Table 2: Summary of Incidence of Poor Population By Region,

Rank 1994 – 2000
Region 1991 1994 1997 2000
ARMM 4 1 1 1
Bicol 2 2 2 2
Central Mindanao 1 3 3 3
Western Mindanao 7 7 8 4
Northern Mindanao 3 5 4 5
Western Visayas 8 8 7 6
Eastern Visayas 11 10 6 7
Southern Mindanao 9 9 9 8
Cordillera Administrative 5 4 5 9
Region
Central Visayas 12 12 11 10
Ilocos 6 6 10 11
Cagayan Valley 10 11 12 12
Southern Luzon 13 13 13 13
Central Luzon 14 14 14 14
National Capital Region 15 15 15 15
In 1991, only 56% of the ARMM population were con-

sidered poor. Four years following the establishment of
ARMM, poverty has increased by 9.3 %.From 910,003
inhabitants living below poverty threshold, an additional
252,420 of the population fell into the poverty group,
showing an increase of 27.74%. (Refer to Table 3)
table 3: Magnitude of Poor Population And Incidences Of

Population By Region 1991 and 1994 9
Region 1991 1994

Magnitude of Poor Incidence of Poor Magnitude of Poor Incidence of Poor
Population Population Population Population
Philippines 28,119,758 45.3 27,274,205 40.6
NCR 1,439,613 16.7 975,263 10.5
CAR 674,718 55.4 746,562 56.4
1 1,928,391 55.3 1,971,779 53.6
2 1,156,072 48.9 1,093,828 42.1
3 2,239,856 35.5 2,046,167 29.2
4 3,579,228 43.2 3,058,537 34.9
5 2,707,612 61.3 2,869,319 60.8
6 2,964,722 52.9 3,011,027 49.9
7 2,071,808 46.7 1,801,745 37.5
8 1,532,526 47.1 1,563,152 44.8
9 1,347,962 54.4 1,360,155 50.6
10 2,092,823 57.4 2,143,280 54.1
11 2,240,911 51.6 2,198,352 45.6
12 1,233,513 63.1 1,272,616 58.7
ARMM 910,003 56.0 1,162,423 65.3
The initial period following the signing of the 1996 Final

Peace Accord witnessed worsening poverty in ARMM.
From 1994 to 2000, poverty incidence in ARMM in-
creased by 47%. This occurred at the same time that
the region posted Gross Regional Domestic Product
(GRDP) growth rate of about 24%. The figures show that
the magnitude of poor population grew two times more
than the GRDP. In stark contrast, from 1994 and 2000,
poverty incidence in Regions 1, 2, 3 and the Cordilleras
abated by 9, 10, 13 and 16% respectively, as their regional
GRDPs increased. Compared to the national average of
25% GRDP growth, those in the Cordilleras and Cagayan
increased by 40%, while Ilocos grew by 26%. Likewise,
the magnitude of poor population dropped by 13% in 9 Source: National Statistical Coordination Board,
Table T3-29, 2001 Philippine Statistical Year
Central Luzon at the same time that its GRDP grew by Book.
13%. (Refer to Table 4)

Table 4: GROSS DOMESTIC PRODUCT10 (in million pesos, constant at

1985 prices) and MAGNITUDE OF POVERTY BY REGION COMPARED11
Region 1994 2000

Gross Domestic Magnitude of Poor Gross Domestic Magnitude of Poor
Product Population Product Population
(in Millions) (in thousands) (in Millions) (in thousands)
Philippines 766,368 27,274 954,962 31,283
NCR 227,348 975 296,859 1,410
CAR 15,928 747 22,278 626
1 22,295 1,972 30,326 1,793
2 15,428 1,094 21,600 981
3 75,371 2,046 84,970 1,782
4 120,155 3,059 144,996 3,605
5 23,087 2,869 25,918 3,660
6 57,050 3,011 67,001 3,192
7 49,663 1,802 65,031 2,449
8 18,387 1,563 22,956 1,846
9 21,125 1,360 27,001 1,655
10 39,726 2,143 36,515 2,316
11 52,570 2,198 60,275 2,689
12 20,815 1,273 25,721 1,572
ARMM 7,420 1,162 9,179.35 1,708
10 Source: National Statistical Coordination

Board, Table T3-29, 2001 Philippine Statisti-
ARMM stakeholders grew more concerned as poverty in
cal Year Book.
11 S ource: National Statistical Coordination
the region worsened. Previous leaderships of ARMM had
Board, Table T2-11, 2001 Philippine Statisti-
cal Year Book.
attributed lack of development in the region to the inad-
equacy of resources for poverty alleviation programs and
projects. This gave rise to the issue of sufficiency or lack
thereof of national government funds for ARMM. Politi-
cal leaders including those from MNLF who managed
ARMM for more than eight years alleged that the national
government reneged on its commitments in the autonomy
deal, claiming that it specifically failed to provide the nec-
essary funding to support ARMM. National government,
on the other hand, has claimed that it has delivered most
of its commitments under the Peace Agreement but that
the ARMM leadership failed to do their part. By their
estimations, substantial financial resources had been dis-
bursed to ARMM but the resources were not judiciously
utilized. While the region appeared to have prospered as

shown by its GRDP growth, the number of poor people
continued to rise. Thus, while ARMM enjoyed some de-
gree of prosperity, it did not translate to improvements in
the general welfare of its people.
3
Fiscal
Situation
The ability of ARG to properly govern and develop the
region for the benefit of its people is largely dependent
on its financial capacity. Autonomy, granted to ARMM
by virtue of the peace agreement, was expected to usher
in peace and economic development in the region. Part
of the peace dividend under the 1996 GRP-MNLF Final
Peace Agreement was also the promise of resources from
national government and donor agencies. With the peace
agreement being implemented through the Organic
Act, the ARMM Regional Government was guaranteed
adequate powers and resources to manage the region and
improve the welfare of its people.
3.1 ARMM Fiscal Powers
The Organic Act shows national government’s resolve to

enable and mobilize ARG as the principal institution for
promoting the collective welfare of its constituents.12 The
national government mandated ARG to devote its resourc-
es towards improving the wellbeing of all its constituents.
It was tasked to provide, maintain, and ensure the deliv-
ery of, among other things, basic and responsive health
programs, quality education, appropriate services, liveli-
hood opportunities, affordable and progressive housing
projects, as well as water resource development. 13

The Organic Act decreed fiscal autonomy for ARMM.
It could generate and budget its own revenues, its share
of internal revenue taxes, block grants and subsidies
remitted to it by the national government or by any
12 Section 7, Article III, R A No. 9054. donor.14 ARG was given wide fiscal powers that included
13 Section 11, Article III, R A No. 9054.
14 Section 2, Article IX, R A No. 9054. revenue generation, expenditure, and debt creation.
3.1.1 Revenue Generation
Under its revenue generation powers, ARG is authorized

to levy taxes, fees, and charges, and accept donations.15 It
can source its revenues from, but need not be limited to
the following:16
a) Taxes, except income taxes, imposed by the Regional
Government;
b) Fees and charges imposed by the Regional
Government;
c) T axes, fees, or charges for the registration of motor
vehicles and for issuances of all kinds of licenses
or permits for the driving thereof, except tricycles
which shall be registered with the city or municipality
within whose territorial boundaries they are operated;
d) Shares in the revenue generated from the operations
of public utilities within the autonomous region;
e) Appropriations, shares in the internal revenue taxes,
block grants, and other budgetary allocations coming
from the national government or national govern-
ment; and
f) Block grants derived from economic agreement or
conventions entered into or authorized by the Region-
al Assembly, donations, endowments, foreign assis-
tance, and other forms of aid, subject to the pertinent
provisions of the Constitution.
The Regional Assembly is also given the power to enact a

regional government tax code. However, since a tax code
has yet to be created in the region, the pertinent provi-
sions of Republic Act No. 7160, the Local Government
Code of 1991, apply to tax ordinances of the provinces,
cities, municipalities, and barangay within the autono-
mous region.17
Corporations, partnerships, or firms directly engaged in

ARMM need to pay their corresponding taxes, fees and
charges in the province or city, where their businesses are 15 Section 1, Article IX, R A No. 9054.
16 Section 8, Article IX, R A No. 9054
physically located. Likewise, corporations, partnerships, 17 Section 3, Article IX, R A No. 9054
or firms whose central, main, or head offices are located

outside the region, but are conducting business within its
territorial jurisdiction by utilizing natural resources in the
region are required to, pay taxes to corresponding LGUs
for incomes realized from their business operations. 18
Exemptions to regional taxes may be granted by a vote of
absolute majority in the Regional Assembly. 19
The Regional Assembly is likewise mandated by the

Organic Act to promulgate a law regulating the explora-
tion, utilization, development, and protection of natural
resources – including mines and minerals on which regu-
latory fees may be imposed to replace those previously
imposed by national government. 20 This does not include
strategic minerals such as uranium, petroleum and other
fossil fuels, mineral oils, all sources of potential energy,
as well as national reserves and aquatic parks, forest and
watershed reservations already delimited by national
government.
The taxing power of ARG and of ARMM provinces,

cities, municipalities, and barangays does not extend to
the following: 21
a) Income tax, except when levied on banks and other
financial institutions;
b) Documentary stamps tax;
c) Taxes on estate, inheritance, gifts, legacies, and other
acquisitions mortis causa, except as otherwise pro-
vided by law;
d) Customs duties, registration fees of vessel and wharf-
age on wharves, tonnage dues, and all other kinds of
custom fees, charges, and dues except vessels which
registered their owners with the Regional Govern-
ment and wharfage on wharves constructed and
maintained by the Regional Government or the local
government unit concerned;
e) Taxes, fees, or charges and other impositions upon
19 Section 13, Article IX, R A No. 9054 goods carried into or out or passing through the ter-
20 Section 8, Article XII, R A No. 9054
21 Section 7, Article IX, R A No. 9054 ritorial jurisdictions of the provinces, cities, munici-
palities, or barangay of the autonomous region in the

guise of charges for wharfage, toils for bridges, or
otherwise, or other taxes, fees, or charges in any form
whatsoever upon such goods or merchandise except
toll bridges or roads constructed and maintained by
the provinces, cities, municipalities or barangay con-
cerned or by the Regional Government.
f) Taxes, fees, or charges on agricultural and aquatic
products when sold by marginal farmers or fisherfolk;
g) Tax on business enterprises certified by the Board of
Investment or by the Regional Assembly as pioneer or
non-pioneer for a period of six (6) and four (4) years,
respectively from the date of registration;
h) Excise taxes on articles enumerated under the nation-
al internal revenue code, and taxes, fees, or charges
on petroleum products;
i) Percentage or value-added tax (VAT) on sales, bar-
ters, or exchanges or similar transaction on goods or
services except as otherwise provided by law;
j) Taxes on the gross receipts of transportation contrac-
tors and persons engaged in the transportation of pas-
sengers or freight by hire and common carriers by air,
land, or water except as provided in the Organic Act;
k) Taxes on premiums paid by way of reinsurance or
retrocession;
l) Taxes, fees, or other charges on Philippine products
actually exported, except as otherwise provided by law
enacted by congress;
m) Taxes, fees, or charges on countryside, barangay
business enterprise and cooperatives duly registered
under Republic Act No. 6810, the “Magna Carta for
Countryside and Barangay Business Enterprise” and
Republic Act No. 6938, the “Cooperatives Code of
the Philippines”, respectively, and
n) Taxes, fees, or charges of any kind on the national
government or national government, its agencies and
instrumentalities and local government units except
on government-owned or–controlled corporations or
entities that are primarily organized to do business.
ARG may also accept donations or grants for the develop-

ment and welfare of the people in ARMM. Donations
may come from private individuals or entities and grants
from foreign governments. Donations or grants that are
used exclusively to finance projects for education, health,
youth and culture, and economic development, may be
deducted in full from the taxable income of the donor or
grantor. 22 ARG may also develop a system of economic
agreements and trade compacts to generate block grant
for regional investments and improvements of regional
economic structures. 23
3.1.2 Expenditures Allocation
ARG is vested with fiscal autonomy to budget its own

sources of revenue, its share of internal revenue taxes
and block grants and subsidies remitted to it by national
government or by any donor. 24 This means that all funds
coming into ARMM – internally collected or remitted by
national government or some donor government or private
entity – will be budgeted and allocated by the regional
government. The form, content, and manner of prepara-
tion of the budget are prescribed by a law enacted by the
Regional Assembly. 25 Pending the enactment of a regional
budgetary law, the budgeting process of ARG is governed
by pertinent rules and regulations prescribed by DBM. 26
The annual budget of ARG is enacted by the Regional

Assembly. 27 No money is allowed to be paid out of the
Regional Treasury except in pursuance of an appropriation
made by regional law.28 The regional governor is required
22 Section 12, Article IX, R A No. 9054.
23 Section 11, Article IX, R A No. 9054. to submit a budget of expenditures and sources of fi-
25 Section21, Article VII, R A No. 9054. nancing, including receipts from existing and proposed
26 S ection21, Article VII and Section 6, Article
XVIII, R A No. 9054. revenue.to the Regional Assembly not later than two (2)
27 Section 20, Article VI, R A No. 9054
28 Section 24 (a), Article VII, R A No. 9054. months before the beginning of every regular session, as
the basis of the regional appropriations bill.
Its sources of financing include those from its own

sources of revenue, its share of internal revenue taxes and
block grants and subsidies remitted to it by the national
government or by any donor. This ensures that all funds
pass through the ambit of ARG for greater coordination.
There are instances, however, as will be seen later, when

national government or donor agencies dedicate funds for
special purposes. In these cases, required funds are paid
into a trust fund and disbursed by the Regional Treasury
only for the specified purpose. 30
To find ways of strengthening ARG’s fiscal autonomy in

budgeting its own resources, a study on ARMM’s fiscal
autonomy, and the accompanying responsibility of fund
use and accountability has to be undertaken.
3.1.3 Debt Creation
In addition to the revenue generation powers of the

regional government, it is also empowered to seek and
contract foreign or domestic loans. For this purpose,
authority may be granted to the regional governor by the
Regional Assembly.31 Likewise, the Organic Act empowers
ARG to issue treasury bills, bonds, promissory notes, and
other debt papers or documents pursuant to a law enacted
by the Regional Assembly. 32
The borrowing power of ARG is subject to existing na-

tional laws. ARG, for example, is not allowed to borrow
29 Section 21 (c), Article VII, R A No. 9054.
directly from foreign creditors; however, it can borrow 30 Section 24 (a), Article VII, R A No. 9054.
from domestic sources. 32 Section 10, Article IX, R A No. 9054.
3.2 The Study: Inventory of Funds made Available to

ARMM for FY 2001-2005
In July 2004, the Office of the Presidential Adviser on the

Peace Process (OPAPP) and DBM agreed to undertake
an inventory of resources going to ARMM for fiscal years
2003 and 2004, in an effort to establish a baseline data on
ARMM fiscal resources. The initial set of data was com-
piled and presented several times to national government
agencies and to ARG for review and validation. In late
2005, INCITEGov, as part of its good governance advoca-
cy, decided to expand the study to cover a 5-year period to
enable a closer look into ARMM’s resource policy options.
The study involved the review of funds released directly to

ARG from 2001 to 2005, through various national govern-
ment agencies, and to local government units (LGUs) in
ARMM. Figures were validated through (a) DBM records
of special allotment release orders or SARO, (b) reports
submitted by the national agencies to DBM, and (c) inter-
views with finance directors, budget officers from national
government agencies and ARMM regional agencies.
For the fiscal period 2001-2005, a total of PhP 76.3 bil-

lion was made available to ARMM from various sources.
(Refer to Table 5). These funds represented subsidies or
transfers from national government to ARMM as well
as to local governments under ARMM. The inventory
likewise included revenues collected by ARG under the
authority granted by the ARMM law. Specifically, the
PhP 76.3 billion of fiscal resources came from seven (7)
sources, namely:
1. National government appropriations for ARMM-
Regional Government (RG);
2. National government appropriations for ARMM
public works;
3. Congressional allocation;
4. ARMM-RG’s share in Internal Revenue Collection in
ARMM;
5. I nternal Revenue Allotment of ARMM Local Gov-

ernment Units;
6. National Government Agency Funds Disbursed in
ARMM; and,
7. Regional revenues raised by ARMM-RG
Table 5: FISCAL INVENTORY FY 2001 – 2005 (In million pesos)
SOURCES OF FUND 2001 2002 2003 2004 2005 TOTAL

A. National Government Appropriations 4,768 4,953 5,193 5,510 6,467 26,891
for ARMM – RG
B. National Government Appropriations - 149 261 261 650 1,321
for ARMM Public Works
C. Congressional Allocation 311 584 545 572 560 2,572
D. ARMM-RG Share in Internal 195 187 285 405 704 1,776
Revenue Collection in the Autonomous
Region
D. IRA of LGUs in ARMM 4,589 6,148 6,460 6,490 7,037 30,724
E. National Government Agencies 1,777 2,322 3,020 2,878 2,956 12,953
Funds disbursed in ARMM
F. Regional Revenues Raised by 6 2 7 11 6 32
ARMM-RG
TOTAL 11,646 14,345 15,771 16,127 18,380 76,269
National government appropriations for ARMM-RG. This

pertains to direct appropriations made by national govern-
ment for ARG’s annual operational requirements. About
PhP 26.9 billion representing 35 percent of ARMM
resources in the last five years funded the operations of
the Office of the Regional Governor, Vice-Governor, the
departments and other executive agencies, as well as the
Regional Legislative Assembly from 2001-2005. These
funds constituted the base funds of ARG in compliance
with law. It covered regular operating costs of national
government agencies created under the regional govern-
ment. The funds were generally used to pay salaries and
related personal costs, maintenance, other associated
expenses, some equipment and other capital outlays.
National government appropriations for ARMM public works. Na-

tional government likewise appropriates funds specifically
for public works. For this purpose, national government
disbursed PhP 1.3 billion to ARMM from 2001-2005.
While fund utilization is restricted to infrastructure, the
Regional Assembly is empowered to allocate funds for
their specific uses. In practice, part of the fund covers re-
gion-wide projects or critical public works, while another
part is divided among the districts to fund priority proj-
ects as identified by Regional Assembly representatives.
The Regional Assembly enacts a Regional Public Works
Act after Congress passes the General Appropriations Act
each year.
Congressional allocation. The national budget incorporates

“lump sum” appropriations that are equally distributed
among congressional districts and used for priority
projects identified by representative of the district
concerned. There are two components of the so-called
congressional allocation funds, namely, public works, and
the Priority Development Assistance Fund or PDAF. The
public works component is included in the budget of the
Department of Public Works and Highways and finances
infrastructure projects in the district. PDAF funds
priority social services projects such as education, health,
social welfare, livelihood, and microfinance projects
implemented by national government agencies or by the
local government units. PDAF can also be used to fund
infrastructure projects.
The PhP 2.6 billion from congressional allocations essen-

tially represent the budgetary disbursements made by na-
tional government for projects identified by ARMM district
representatives in the House of Representatives. It likewise
includes a minimal amount from allocations of senators
and sectoral representatives that benefited ARMM.
ARG’s share in Internal Revenue Collection. Under the ARMM

charter, national internal revenues collected within
ARMM shall be distributed as follows: 35% to local

government units; 35% to ARG; and 30% to national
government. However, from FY 2003 to 2007, the na-
tional government’s share is given to ARG as additional
funds. Consequently, 65% of internal revenue collections
in ARMM are actually earmarked to ARG. ARG’s share
from 2001-2005 was PhP 1.8 billion. After 2007, the 30%
will revert back to the national government.
Internal Revenue Allotment of ARMM Local Governments. Inter-

nal revenue allotment (IRA) is the largest source of funds
for ARMM, comprising 40% of resources accrued to the
region. The PhP 30.7 billion shown in the table represents
internal revenue allotments (IRA) disbursed by national
government to provinces, cities, municipalities and baran-
gays in ARMM pursuant to the Local Government Code.
These funds are completely within the disposition of indi-
vidual LGUs and generally cover their operating expenses
and programs.
National Government Agency Funds Disbursed in ARMM. Na-

tional government agencies undertake programs and proj-
ects across the country. While funds remain within the
control of national government agencies, these are either
actually disbursed to the region or spent by the agency to
benefit the region. From 2001-2005, PhP 12.6 billion was
actually spent for the benefit of ARMM through various
programs and projects directly implemented by national
government agencies. Under the concept of ARMM
autonomy, the funds should have been transferred to ARG
for implementation, contractual and related considerations
prevented the direct transfer of funds. The largest dis-
bursements were made by the Department of Education,
and the Department of Social Welfare and Development.
Including public works projects, this component totalled
to about PhP 14.2 billion. The public works expenditures,
however, are included in “Congressional Allocations” in as
much as these are under congressional control.
Regional revenues raised by ARMM-RG. A measly PhP 32 mil-

lion was reportedly collected by the regional government
from regional sources during the five-year period. These
basically came from motor vehicle fees and other charges
made from certifications or authentication of papers. This
finding suggests that more work needs to be done to mobi-
lize regional revenues given the minimal funds provided
by regional revenue sources.
Clearly, ARMM funds from 2001 to 2005 essentially came

from national government direct fund transfers. Further-
more, such transfers have steadily grown over the last five
years corresponding to growth in the basic operational costs
of ARG. In addition, the national government has strength-
ened its efforts to market ARMM as an investment oppor-
tunity along with Mindanao, resulting in the inflow of more
overseas development assistance from foreign donors and
creditors to the region in the last five years.
The PhP 76.3 billion captured in the inventory is a con-

servative figure given the fact that this amount includes
only those collected from primary resources, and validated
by records of DBM, as well as national government agen-
cies implementing projects in ARMM. In fact, additional
resources amounting to at least PhP 3 billion are esti-
mated to have been made available to ARMM during the
period from sources that need to be validated or figures
from transfers-in-kind.
3.3 Locus of Funds Control
While the amounts reflected in the inventory appear sub-

stantial, it is also noteworthy to mention that not all funds
made available to ARMM are within the direct control of
the ARMM Regional Government.
Fiscal resource control, or the authority to determine how

much of public funds can be spent for what particular use
by particular units of government, is critical in assigning
responsibility over the actual utilization of funds. In the

case of ARMM, an analysis of the locus of funds control
shows that a substantial portion of funds did not actu-
ally pass through ARG. In fact, local government units
in ARMM had more resources under their control than
ARG. Table 6 shows the different levels of government
exercising control over funds made available to ARMM,
based on where the funds came from (source), who had
authority to allocate the funds (allocation), and who had
authority to disburse them (disbursement).
Table 6: FUNDS AVAILABLE TO THE ARMM

According to Source, Appropriation and Disbursement Fiscal
Years 2001-2005
Particulars % To Total Source Allocation Disbursement

A. National Govern- 35.3 National Government National Government Regional Government
ment Appropriations
for ARG
B. National Govern- 1.7 National Government Regional Government Regional Government
ment Appropriations
for ARMM Public
Works
C. Congressional 3.4 National Government National Government National Government
Allocation
D. ARG Share in 2.3 National Government Regional Government Regional Government
Internal Revenue
Collection in the
Autonomous Region
E. IRA of LGUs in 40.3 National Government Local Government Local Government
ARMM Units Units
F. National Govern- 17.0 National Government National Government National Government
ment Agencies
Funds disbursed in
ARMM
G. Regional Rev- * Regional Government Regional Government Regional Government
enues Raised by
ARG
Source. About 99.96% of ARMM’s funds are sourced from

national government, with only about 0.04% directly
raised by ARG. For all intents and purposes, ARG is not
dependent on revenues collected by ARMM and its local
government units. Therefore, funds allocated to ARMM
by the national government are constrained by resource
limitations of the national budget.
Appropriation. National government allocates 55.6% of

ARMM funds, including those for regional government
administration and operation, congressional allocations,
and national agencies funds disbursed in ARMM. Thus,
the distribution of funds to programs and projects effec-
tively remains under national control. On the other hand,
local government units in the region control 40.25% of
ARMM’s fiscal resources. These funds represent the IRA
directly released to LGUs by the national government.
Only a negligible 4%, representing ARMM’s share in in-
ternal revenue collection, regional revenues, and the pub-
lic works fund is completely within the control of ARG.

Locus of Control, By Allocation Fiscal Years 2001-2005
LOCUS OF CONTROL Amount % of

(in million pesos) Total
National Government 42,417 55.7
National Government Appropriations for ARMM-RG 26,861 35.3
Congressional Allocation 2,572 3.4
National Government Agencies Funds Disbursed in ARMM 12,953 17.0
ARMM-RG 3,129 4.1
National government appropriations for ARMM public works 1,321 2.4
ARMM-RG share in Internal Revenue Collection in ARMM 1,776 2.5
Regional revenues raised by ARMM-RG 32 0.04
ARMM Local Government 30,724 40.2
IRA of LGUs in ARMM 30,724 40.2
TOTAL 76,270 100.0
Disbursement. In terms of the control on actual disburse-

ments, 39.3% of the total funds are under the autonomous
region’s disposition, (Refer to Table 8). This is a signifi-
cant improvement from the mere 4% allocation author-
ity granted to ARG. The higher percentage is accounted
for by the inclusion of national budget appropriation for
ARG in the list. In the latter, while appropriated by the
national government as funding assistance, it is disbursed
by ARMM agencies. As a consequence, only two items
are actually disbursed by national government, comprising
about one fifth of the total. These items are congressional
allocations, which are generally implemented by national
agencies, using their own funds for programs / projects
in ARMM. The rest of the funds are disbursed by local
government units.

Locus of Control, By Disbursement, Fiscal Years 2001-2005
Locus of Control Amount % of Total
(in million pesos)
National Government 15,526 20.4
Congressional Allocation 2,572 3.4
National Government Agencies Funds disbursed in ARMM 12,953 17.0
ARMM-RG 30,020 39.3
National Government Appropriations for ARMM-RG 26,891 35.3
National government appropriations for ARMM public works 1,321 2.4
ARMM-RG share in Internal Revenue Collection in ARMM 1,776 2.5
Regional revenues raised by ARMM-RG 32 0.04
ARMM Local Government 30,724 40.2
IRA of LGUs in ARMM 30,724 40.2
TOTAL 76,270 100.0
3.4 Fund Utilization – by Expense Class
Actual distribution of funds is a significant indication of

fund use effectiveness and efficiency. It also clarifies some
issues commonly raised in relation to fund adequacy, such
as insufficiency of funding support for infrastructures and
similar claims. Table 9 shows where funds from 2001-
2005 actually went, in terms of the types of expenditures.
Notably, some two-thirds of resources were spent for per-
sonnel services; the rest was used for operating expenses
and capital outlays.
Personnel Services. (PS) Some PhP 48.4 billion or 64% of

funds going to ARMM were spent to pay salaries and
related benefits of employees. This includes salaries
and benefits of LGU employees funded under the IRA.
Around 84% of funds for ARG administration and op-
eration and 63% of the national agencies disbursement
to ARMM were dedicated to personnel services. Fur-
thermore, about 60% of local government funds were
allocated for personnel services. The substantial amount
spent for personnel services seems to confirm that only a
small amount of funds was left for operational expenses
and capital investment purposes in the ARMM budget.
There may therefore be a need to review funds allocation,
and/or to find ways of increasing the pie to secure more
resources for developmental purposes. More important,
there may be a need to rationalize existing staff duties
and responsibilities to improve personnel deployment and
effectiveness.
Table 9: Fund Utilization - by Expense Class (in million pesos)

SOURCE PS MOOE CO TOTAL
A. National Government Appropriations for 22,499 4,056 336 26,891
ARMM – RG
B. National Government Appropriations for 0 0 1,321 1,321
ARMM Public Works
C. Congressional Allocation 0 0 2,572 2,572
D. ARMM-RG Share in Internal Revenue 0 1,776 0 1,776
Collection in the Autonomous Region
E. IRA of LGUs in ARMM 18,434 6,145 6,145 30,724
F. National Government Agencies Funds 7,907 2,057 2,989 12,953
disbursed in ARMM
G. Regional Revenues Raised by ARMM- 0 32 0 32
RG
TOTAL 48,840 14,066 13, 364 76,270
The largest personnel resource base in ARG is in

education. Understandably, complaints such as delays
in the payment of salaries and other benefits are usually
heard from this sector. In addition, due to its special
status, ARG includes in its payroll the personnel who
have actually been devolved to local governments under
the devolution program of 1991 – 1992. The local
government units contributed 38% of the amount for
personnel services during the five year period. National
government agencies in the region contributed the
remaining, a sixth of the pie (16%).
Maintenance and Other Operating Expenses (MOOE). Within the

same program period (FY 2001-2005), PhP 14.0 billion or
18% of the funds were spent for Maintenance and Other
Operating expenses (MOOE). Of this amount, PhP 5.8
billion or about 41% represented expenses incurred by
ARG. Local government units in the region actually spent
more, (i.e., 43.4% of the entire MOOE). The national
government agencies in ARMM share the remaining 15%.
MOOE expenses generally consist of office supplies,

utilities, travel, purchases of goods and services used in
regular operations, and related costs generally consumed
during the year. Given the personnel base, the MOOE al-
location can hardly be considered sufficient for ARMM to
operate effectively. Therefore, the efficiency of fund use
also needs to be looked into.
Capital Outlay. (CO). The provision for capital outlays in

the autonomous region appears minimal. Including local
government units, only about 7% of funds in the region
were spent for capital outlays. Excluding local government
units, ARMM actually spent about 16% of its budget for
capital investment. While apparently small, these percent-
ages compare favorably with that of the national govern-
ment where only approximately 12% of the budget is spent
for capital investment due to resource constraints. At the
national level, the budget is constrained by huge require-
ments for debt servicing, thus, the relatively limited al-
location for capital spending. ARMM, on the other hand,
is not burdened by such concerns. There is therefore some
scope for improving the allocation to favor capital outlays
in the ARMM budget. This can be done through a serious
review of programs funded, including earmarking some
funds for investment and mobilizing untapped resources
for the purpose.
3.5 Fund Utilization – by Sector
In terms of use by sector, the inventory shows that

the biggest share (28%) went to education. Excluding
funds allocated from internal revenue allotment of local
government units, about 2/3 of the entire allocation for
the region was actually used for this sector. Education
has the highest fund use because this is the biggest
department in ARMM, essentially reflecting national
reality (Refer Table 10).
Table 10: Fund Utilization - by Sector (in million pesos)

SECTOR (in million Amount % of Total
pesos)
Education 21,597 28.3
Infrastructure (Capital Outlays/PDAF/DOTC/ 7,943 10.4
DPWH)
Agriculture, Agrarian Reform and Fisheries 2,247 2.9
Health 2,362 3.1
Environment and Natural Resources 706 0.9
Trade, Industry, Tourism 281 0.4
Social Welfare 418 0.6
Labor and Employment 118 0.2
Science and Technology 63 0.1
Interior and Local Government* 34,736 45.5
Others 5,799 7.6
TOTAL 76, 270 100.0
Second to education is the infrastructure sector with

about PhP 8 billion or 10.4% of the total. This came
from specific appropriations devoted to public works
projects from the national government, the congressional
allocations, and other allocation from national agencies.
Other notable recipient sectors were agriculture and
health, understandably so because of the focus given by
the national government on these sectors in the past five
years. The other sectors listed in the table, while relatively
small, comprised sizeable amounts in absolute terms
and could be tapped for further assistance in the future.
About 45% represents the internal revenue allotment of
LGUs in ARMM. The rest of the funds was spent for
general overhead of ARG including the regional governor’s
office, as well as the regional legislative assembly.
3.6 Comparative Analysis
To provide a broader basis for analysis of ARMM’s re-

sources and its utilization, a comparative analysis has
been undertaken using national and selected regional
data. While the analysis is cursory, it provides an insight

into the relative standing of ARMM in terms of allocation
in the national budget, as well as on the region’s effective-
ness in fund utilization.
3.6.1. ARMM and other Regions

In terms of absolute amounts made available to all regions
from the national budget from 2001 to 2005, ARMM
ranked 14th out of the 15 regions in the country, a disap-
pointing situation for a region with the highest poverty
incidence. However, the per capita expenditure allocations
(i.e., absolute amount over population) shows that ARMM
was actually among the favored regions in the country.
ARMM ranked second to Cordillera Administrative Re-
gion (CAR) in the comparative regional allocation data for
the period FY 200 – 2005 (Refer to Table 11). Thus, the
ARMM regional allocation has actually not lagged behind
other regions. Furthermore, if one considers that CAR
suffers from some factors that actually increase the cost of
development relative to other regions (i.e., natural terrain,
population density, etc.), ARMM seems to be enjoying the
highest per capita allocation in the national budget.
Table 11: Comparative Regional Allocation of the National

Budget FY 2002 – 2005
Region Allocation Per Capita

Amount Rank Rate Rank
(in million
pesos)
Autonomous Region in Muslim Mindanao 50,701 14 21,590 2
National Capital Region 154,835 2 14,045 12
Ilocos 80,194 8 18,312 6
Cordillera Administrative Region 48,373 15 32,092 1
Cagayan Valley 61,863 10 20,590 3
Central Luzon 118,229 3 14,410 11
Southern Luzon 166,592 1 13,481 13
Bicol 86,115 6 17,078 9
Western Visayas 118,033 4 17,574 8
Central Visayas 87,178 5 14,752 10
Eastern Visayas 80,900 7 20,142 4
Western Mindanao 61,193 12 17,937 7
Northern Mindanao 61,726 11 12,856 14
Southern Mindanao 71,638 9 11,472 15
Central Mindanao 57,773 13 20,072 5
It is notable that in 2002, ARMM ranked only 7th in per

capita terms, but jumped to second place, in 2003 presum-
ably as a direct result of government’s deliberate policy
to pour more resources into ARMM (Refer to Table 12).
The continuing interest in sustaining funding support in
the region is expected to continue as a major part of the
government’s overall development strategy. It is therefore
imperative on the part of ARMM to demonstrate improve-
ments in its resource generation and utilization capabilities.
Table 12: Comparative Regional Allocation of the National

Budget, by Year FY 2002 – 2005
Region Per Capita Rank

2002 2003 2004 2005 2002 2003 2004 2005
ARMM 4,846 5,203 5,491 6,017 7 2 2 2
National Capital Region 3,902 3,714 3,235 3,214 11 10 12 14
Ilocos 4,987 4,613 3,657 5,061 6 6 9 6
CAR 7,772 8,074 9,217 7,040 1 1 1 1
Cagayan Valley 5,375 5,089 4,991 5,143 3 4 3 4
Central Luzon 3,876 3,490 3,437 3,614 12 12 11 11
Southern Luzon 3,647 3,398 3,222 3,231 14 13 13 13
Bicol 4,402 4,240 4,096 4,343 9 9 7 8
Western Visayas 4,642 4,343 4,102 4,493 8 8 6 7
Central Visayas 3,984 3,549 3,479 3,747 10 11 10 10
Eastern Visayas 5,535 4,807 4,602 5,210 2 5 5 3
Western Mindanao 5,051 4,538 4,074 4,304 5 7 8 9
Northern Mindanao 3,086 3,170 3,078 3,510 15 14 14 12
Southern Mindanao 3,729 2,701 2,589 2,496 13 15 15 15
3.6.2 ARMM and Selected Regions

To gain deeper insights into ARMM’s fiscal capabilities,
a comparison of its fund allocation and performance was
undertaken relative to three regions in the country that
have close to comparable state of development, namely–
Cordillera Administrative Region, Eastern Visayas
and Caraga. The analysis covered fund allocation and
reported performance in two sectors, namely, agriculture
and education. The following data from 2002-2004
were subjected to a comparative analysis: (a) annual
aggregate resources, (b) per capita expenditures and (c)
performance based on national agency reports.
3.6.2.1 Education
When comparing ARMM to the three regions, Table
13 shows that the amount made available to ARMM
for education, was lower in absolute terms as well as on
a per capita basis. The comparatively high allocation
for Eastern Visayas can be accounted for by the size of
the region, both in terms of land area and provincial
coverage. On a per capita basis, however, ARMM is not

lagging behind. While lower than the other regions, the
difference in per capita spending for education between
ARMM and the other regions is essentially due to reach
(i.e., provincial coverage in the case of Eastern Visayas),
and initial start – up costs (i.e., newly created region in
the case of CARAGA).
Table 13: Regional Allocation: EDUCATION FY 2002 – 2004

Region Amount (in million pesos) Per Capita
2002 2003 2004 2002 2003 2004
ARMM 2,690 2,666 2,705 1,176 1,145 1,142
Eastern Visayas 5,854 5,777 5,952 1,501 1,452 1,468
CARAGA 3,175 3,120 3,270 n.a. n.a. n.a.
CAR 2,435 2,345 2,447 1,666 1,572 1,607
The performance of the regions in education spending

was gauged using comparative data on literacy rates. For
this purpose, simple and functional literacy measures
were used. Simple literacy essentially translates to the
ability to read and write, and to understand a simple mes-
sage in any language or dialect. Functional literacy on the
other hand is a significantly higher level of literacy that
covers not only reading and writing, but also arithmetic or
numeracy skills--the ability to count and process num-
bers. It also means the ability to use those skills in daily
functions, in participating in community activities, and
self-improvement.
Table 14 shows that ARMM appears to be lagging behind

when compared to the national average and other regions.
The difference is most significant in simple literacy rate
with ARMM lagging behind by more than 20%. The
same observation holds true in terms of functional lit-
eracy: Philippines’ overall index is 84% while ARMM’s is
63%. Functional literacy rates in the three regions on the
other hand, approximate the national average. The Cordil-
lera Administrative Region in fact has a higher rate com-
pared to the national average, while ARMM is behind by
21%. This clearly shows that education is a major area of

concern in ARMM, indicating the need for serious policy
measures to upgrade the educational system in the region.
Table 14: Comparative Literacy Rate FY 2003
Region Simple Literacy Rate33 Functional Literacy Rate34

Philippines 93.4 84.1
ARMM 70.2 62.9
CAR 91.6 85.4
Eastern Visayas 90.1 76.7
CARAGA 92.1 81
33 S imple Literacy of the Population 10 Years

3.6.2.2. Agriculture
Old and Over, 2003, http://www.nscb.gov.
ph/secstat/d_educ.asp
In agriculture, the absolute fund allocation and per capi-
34 F unctional Literacy Rate of Population 10 to
64 years old, by Region, 2003, http://dirp.
ta indicators for ARMM are much better than those in
pids.gov.ph/eismain.html education. In absolute amounts, ARMM is the biggest
fund recipient compared to the three other regions. The
amount allocated to ARMM was double that of Eastern
Visayas, four times that of CAR, and six times that of
Caraga. Consequently, per capita figures clearly show
the favorable bias for ARMM in funding agriculture
programs. (Refer to Table 15)
Table 15: Regional Allocation: AGRICULTURE FY 2002 – 2004

Region (in million pesos) Amount Per Capita
2002 2003 2004 2002 2003 2004
ARMM 193 202 203 84.5 86.8 85.5
Eastern Visayas 96 97 91 24.6 24.5 43.1
CARAGA 29 32 31 n.a. n.a. n.a.
CAR 46 47 45 11.3 31.7 29.5
In terms of actual performance however, the report

of the Department of Agriculture on the Ginintuang
Masaganang Ani (GMA) Program on rice and corn
showed that a lot needs to be done to improve agricultural
output and productivity. Considering that ARMM is
essentially an agriculture area, and weather conditions are
generally better here compared to selected regions, there
is a need to improve the utilization of agricultural funds
to approximate the accomplishments reported by the
other regions. Tables 16 and 17 provide a summary of the
accomplishment reports of the three regions.
Table 16: Ginintuang Masaganang Ani (GMA) – Rice,

Output Report35 2004
CAR Eastern Visayas ARMM

• 13,460 bags of hybrid rice were • 11,057 hectares were already • Rice production decreased from
distributed to 8,770 farmers planted to planted with hybrid rice seeds 319,096 MT in 2003 to 280,139
12,340 hectares. MT in 2004
• harvested was 8,892 hectares with • 68 techno demo showcasing the • DAF-ARMM responded to
55,418 MT production averaging a yield latest hybrid rice technologies and affected farmers through the provi-
of 6.23 MT/hectare; performance of different hybrid sion of assorted vegetable seeds,
rice varieties were established. planting materials and OPV corn
seeds.
• 16,297 certified seeds bags were • 4,153 bags of certified seeds were • Covering the period of 2004,
distributed to 14,616 farmers planted to procured and distributed under the area planted to rice was reduced
20,188 hectares. 50:50 scheme. to 75,814 hectares, down by 16.9
percent as compared to rice areas
planted in 2003.
• Area harvested was 19,992 hectares • conducted eight (8) credit as- • rice production decreased from
with production of 96,059 MT record- sistance referrals to Government 319,096 MT in 2003 to 280,139
ing an average yield of 4.8 MT/hectare; Financial Institutions (GFIs) and MT in 2004 representing about 97
assisted in the maintenance of four percent of the total target for the
• Distributed 485 bags of organic (4) irrigation systems/canals and period.
fertilizer, 90 packs of Kocide, and 63 four (4) seed warehouses
bags zinc sulfate to inbred rice farms
while 2,127 bags of inorganic fertilizers
were distributed to areas planted with
hybrid; and
• Completed 52 techno-demo projects

for hybrid rice varieties and 21 techno-
demo projects for inbred rice benefiting
a total of 73 farmer-cooperators
Table 17: Ginintuang Masaganang Ani (GMA) – Corn, Output

Report36 2004
CAR Eastern Visayas ARMM

• Two (2) Bio-N mixing plants were • 119,570 bags of certified OPV • Corn production increased
constructed and operationalized. seeds were produced/procured and from 208,108.65 MT in 2003 to
positioned 416,737.65 MT in 2004, posting an
increase of 100.25 percent.
• 2,430 packets were produced and • Regional Crop Protection Center • A total of 172,463.15 hectares
distributed benefiting 405 farmers. (RCPC) produced 42,430 Tricho- were planted to corn with only
gramma cards benefiting 887 154,721.85 hectares harvested for
• 2,550 bags of hybrid corn at 18 kg. per farmer-beneficiaries both in the the year and accomplishing about
bag were distributed to 2,550 farmers · cluster and non-cluster areas. 103 percent of the total sectoral
targets
• 33 bags of hybrid corn seeds were also • accelerated its campaign on the
distributed to farmers who were victims use of Bio-N
of typhoon in Paracelis, Mt.
• necessary equipment and facili-
• Two (2) schools-on-the-air (SOA) ties for the Bio-N mixing/process-
activities were conducted in Alfonso, ing plants (already procured and
Ifugao with 146 participants / gradu- positioned
ates; and
• 75 groups were assisted to avail of • two (2) cooperatives in the clus-
loan from Quedancor with a loan ter municipalities constructed the
amount totaling PhP 20.2 million. buildings (as part of their equity)
to house the said facility
• eight (8) marketing agreements

were consummated generating a
total sales value of PhP 1.2 million.
35 Department of Agriculture performance reports

36 Department of Agriculture performance reports
4
Analysis This inventory confirmed several facts already reported
in the past. It also revealed other interesting trends that
could help explain some of the problems that persist in
ARMM. These trends can be categorized into five (5) key
themes, namely:
a) weak ARMM revenue mobilization;
b) fiscal dependence on the national government;
c) personnel / overhead burden;
d) limited program administration capacity; and
e) dispersed resource control and accountability
4.1 Weak ARMM Revenue Mobilization
While the Organic Act provides ARG with sufficient tax-

ing powers, the use of such powers has not been evident.
This is due to the inherent difficulty of taxing a local
economy that has high poverty incidence. The absence of
a good data base which could provide information on the
tax revenue potential of the region can also be a contribu-
tory factor. Given that ARMM has full fiscal autonomy
over revenue collections imposed by the ARMM Regional
Government, this should serve as an incentive to dramati-
cally improve revenue mobilization.
Poor revenue collection can also be the result of the

absence of a unit dedicated to improving regional rev-
enue mobilization. The existing internal structure is not
equipped, technically as well as organizationally, to un-
dertake revenue mobilization as a serious reform agenda.
Improving the revenue generation effort significantly will
require strengthening ARG’s capability to design and
implement a revenue reform program.
4.2 Fiscal Dependence on the National Government
The inventory clearly showed that ARG is almost totally

dependent on national government for funds. For the
period of 2001-2005, close to all (99.96%) of ARMM
funds were provided by the national government, and
only .04 % was generated by ARG. In terms of actual
control, ARMM was only able to allocate 4% of its total
funds, while local government units appropriated and
allocated 40.3%. The national government had control
over programming and allocation of 55.7%, including the
appropriation for regional government administration and
operation, and the funds spent by national government
agencies operating in ARMM.
Thus, notwithstanding the provisions of the Organic Act

to the effect that ARG shall enjoy fiscal autonomy in bud-
geting block grants and subsidies remitted to it by national
government or any donor,37 local government units are bet-
ter situated than ARMM in terms of flexibility in the al-
location of funds. Local government units have the power
to program, allocate and appropriate their finances while
ARG is generally restricted by provisions in the General
Appropriations Act. Hence, ARG still has to propose and
defend its appropriation for administration and operation
to the national government. ARG acts and is treated just
like an agency of national government, giving the appear-
ance that the ARG is merely an agent of national govern-
ment in the administration of the region.
The national government is mandated by law to provide

ARMM with a proportionate and equitable share in the
annual national budget and foreign assisted projects in ad-
dition to other financial assistance, support, and subsidies
to accelerate its development. While this legal obligation
is recognized, national government’s capability to accom-
plish this has been hampered by fiscal difficulties arising
from a deteriorating national revenue effort. Consequent-
38 Section 3, Article III, R A No. 9054 ly, national government has actually determined ARMM’s
“proportionate and equitable share in the annual national

budget” by setting a ceiling on ARG’s administration and
operation budget. 38 Presumably, such share could have
been appropriated in a lump sum and remitted to the
Regional Treasury to be appropriated and disbursed in
accordance with the Organic Act and its implementing
regional rules and regulations.
4.3 Personnel and Overhead Burden
The fiscal dependence of ARMM on national government

is aggravated by the fact that appropriations for ARG
administration and operations are mostly dedicated for
personnel services. This includes national government
personnel operating within ARMM who were absorbed
by the Regional Government, and not personnel positions
created and determined by the region itself. Some of these
positions and their respective functions should have been
devolved to LGUs by virtue of the Local Government
Code. Because the ARMM Organic Act was enacted be-
fore the Local Government Code, however, these person-
nel remain an integral part of ARG.
A clear illustration of this reality is the city of Marawi

and the province and municipalities of Basilan, which
opted not to join the autonomous region in 1991. Before
becoming part of ARMM, these local government units
were financing devolved NGA functions and responsibili-
ties, including devolved personnel, mandated by the Local
Government Code from their respective internal revenue
allotments (IRAs). LGUs in ARMM, however, do not
carry the same burden since the ARMM Regional Gov-
ernment has not devolved the same functions and respon-
sibilities to LGUs.
This arrangement is particularly significant considering

that LGUs in ARMM are being allocated their internal
revenue allotment using the same formula as those out-
side the autonomous region. As such, LGUs in ARMM,

are in a better fiscal situation than their non-ARMM
counterparts.
Apart from the burden caused by non-devolution of some

functions to LGUs, there may be other areas of improve-
ment within the Regional Government that could contrib-
ute to a more efficient allocation of resources. This calls
for the adoption of a Rationalization Program, similar to
that currently being undertaken by national government.
4.4 Limited Program Administrative Capacity
ARMM suffers from the same problems that regular

national government agencies complain about with regards
to insufficiency of funds for operating and developing
programs. This is not surprising in as much as both face
tight financial constraints aggravated by huge personnel
cost.
Funds for maintenance and operating expenses, and capi-

tal outlays, obviously limit ARMM’s operational flexibility
and program administrative capacity. Furthermore, it cre-
ates a vicious cycle where existing personnel are virtually
rendered immobile and non-productive, further contribut-
ing to the non-provision of goods and services crucial to
the development of the region. This vicious cycle must be
stopped through the implementation of reforms in revenue
mobilization and utilization.
4.5 Dispersed Resource Control and Accountability
Again, the issue of fiscal autonomy in budgeting funds

received from national government 39 is raised. While local
government units have fiscal autonomy, ARG appears to
39 Section 2, Article IX, R A No. 9054 have less control over its allocated funds. Such constraint
on the participation of ARG in fiscal resource program-

ming denies ARMM the power to exercise its basic
powers in term of determining how resources should be
allocated and spent.
More specifically, while local government units are given

lump sum grants in the form of internal revenue allot-
ments, ARG’s budget is generally treated in the same
manner as that of national agencies. As such, ARG needs
to request an annual appropriation from Congress under
the General Appropriations Act.
Aggravating this is the fact that substantial amount of

ARMM funds are still outside of ARG’s control. To deny
ARG the authority to appropriate its public funds with-
holds from it the opportunity to more effectively deploy
its fiscal resources. Consequently, it has acted like a plain
instrumentality of national government, such that it is the
latter’s tempo that determines the rhythm of governance
in ARMM.
5
Policy
Options /
Recommen-
dations
This section presents several major policy options and rec-
ommendations based on the findings of the study. While
not exhaustive, the recommendations suggest specific
areas of intervention towards resolving and improving the
fiscal situation of ARMM.
5.1 Revenue Generation
5.1.1 Improve Regional Revenue Collection

Given its poor regional revenue performance, ARMM
needs to seriously consider supplemental revenue sources
to fund critical projects that will be undertaken in the
region. If ARMM wants to exercise fiscal autonomy, it
must endeavor to raise funds on its own; apart from those
allocated by national government. The ARMM law has
given ARG definite powers by which resources can be mo-
bilized and these powers must be maximized.
One way this can be done is by making an inventory of

potential revenues that can be raised by the regional gov-
ernment from authorized sources, as provided by law. It
can likewise look at some local resources imposed by local
government units in ARMM and explore the possibility
of partnering with LGUs in revenue generation under a
sharing scheme.
If a serious revenue mobilization effort is to be under-

taken, ARMM will have to establish a revenue unit. The
existing Regional Treasury will have to be restructured to
include, as one of its major functions, the identification of
revenue measures that may be adopted to generate funds
for ARMM. This will entail strengthening the capabil-
ity of the Regional Treasury to undertake a critical and
potentially unpopular function.
5.1.2 Leverage Improvements in Regional Revenue Generation for

Increases in National Government Appropriation
ARG must explore the possibility of leveraging a more
substantial increase in appropriations from national
government. In exchange, it can commit to making dra-
matic improvement in its revenue generation efforts. The
national government policy in relation to its catch-up plan
for Muslim Mindanao can provide the basic negotiating
platform for ARMM.
To do this, ARG will have to design a viable program of

action that will ensure the accomplishment of ARMM
revenue targets. If attained, this could trigger the
creation of a more stable resource base for ARMM, at
the same time, forge better funding arrangement that is
performance-based.
5.1.3 Leverage Good Governance Initiative with Overseas Develop-

ment Agency (ODA) Partners
The strong interest of the ODA community to support
development initiatives in ARMM has been demonstrated
in many concrete ways. This interest should be nurtured
through measures that will strengthen good governance
practices in the region. ODA partners will take kindly to
genuine efforts towards improving or setting up mecha-
nisms for promoting transparency and accountability and
ensuring the effective and efficient use of resources in the
region. This in turn can be used as leverage for securing
more ODA funds for ARMM. A program loan may be ex-
plored that may be drawn when certain specific targeted
improvements have been substantially undertaken.
5.2 Fund Utilization
5.2.1 Shift in Fiscal Resource Programming
5.2.1.1. Rationalize Maintenance and Other Operating Expenses

Over Capital Outlays Ratio to Personnel Services (MOOE/CO
Ratio to PS)
The provision for personnel services (PS) without appro-
priate provision for MOOE and capital outlay renders
the human resource base immobile and non-productive.
Any increase in the ARMM budget should, therefore,
go into increasing MOOE and capital outlays in order to
achieve a more reasonable PS to MOOE/CO ratio .
A good indicator could be the PS limit imposed on

LGUs under the Local Government Code. Thus, ARG
may target a 55% limit on personnel services in rela-
tion to the ARMM budget, to be achieved over a given
period of time. ARG should then explore the devolution
of particular functions to local government units pursu-
ant to the spirit of MMA Act No. 25 on the devolution
of certain functions, responsibilities and personnel to
LGUs. This will optimize the mobilization of resources
available to local government units; at the same time
distribute the burden of governance by alleviating the
personnel services burden in ARG. In addition, ARG
should seriously consider rationalizing its operations
with a view towards focusing on programs and projects
that will best contribute to alleviating poverty over the
medium term. It can take its cues from the program of
the national government on strengthening public institu-
tions for more effective delivery of public goods and
services pursuant to Executive Order No. 136.
5.2.1.2. Dedicate ARMM Share in Internal Revenue Collection to

Infrastructure
ARG can further enhance its capital outlay position
by dedicating its share in internal revenue collection
to infrastructure and related interventions. Currently,

ARG is utilizing the same to supplement the budget of
ORG, the Regional Assembly, and regional agencies,
with the residual distributed to ARG created agencies.
The devolution of some offices, functions and powers
to the local government unit would provide sufficient
fiscal space for infrastructure and similar programs.
This will substantially augment development funds and
can complement resources under the regional public
works fund and congressional allocations, which are
already largely dedicated to infrastructure. In addition,
the ARMM Regional Government could also look into
strengthening its linkage with local government units to
facilitate, coordinate, and integrate public works initia-
tives from the barangays, municipalities and provinces
with the initiatives of the Regional Government
5.2.1.3. Integrate CO/Infrastructure Investment Programming

The Organic Act has provided for the institution and
mechanism of integrating capital outlays, infrastructure
and investment programming through the Regional Eco-
nomic Development Planning Board. 40 (RDPB). The
RDPB has been tasked to:
a) s erve as the planning, monitoring, and coordinat-

ing agency for all development plans, projects, and
programs intended for the autonomous region,
b) evaluate and recommend for approval of the Re-
gional Assembly, the annual work programs and
comprehensive development plans of the autono-
mous region and
c) f ormulate a master plan for a systematic, progres-
sive, and total development of the region. The
master plan shall take into account the develop-
ment plans of the province, city, municipality, and
barangay concerned as mandated by Republic Act
No. 7160, the Local Government Code of 1991. 40 Section 10, Article XII, R A No. 9054.
It is clear from these provisions that a comprehensive

plan that will serve as the development road map for the
region must be agreed upon by the regional leadership.
This regional master plan, should consider resources
available not only to ARG but also local government
units and national government agencies in the autono-
mous region. The specific responsibilities of each level
of government within ARMM in accomplishing the plan
must be delineated to ensure synchronized implementa-
tion and clear tracking of accountabilities. More signifi-
cantly, the use of substantial resources made available to
the region can be maximized. To do this, all stakehold-
ers including the regional government, local government
units, national government agencies in ARMM, and
national legislators representing ARMM in Congress,
must lend their collective support.
In public works, for instance, LGU’s annual investment

plans as well as projects of national legislators and national
government agencies operating in ARMM must be gener-
ally synchronized with those of the ARMM Regional Gov-
ernment. This would mean strengthening the bottom-top
regional investment planning and programming system.
5.2.2 Enhance the Role of ARG in Fiscal Resource Programming

The autonomous region should intensify its representation
in national government to gain more flexibility in the ap-
propriation of fiscal resources intended for ARMM. This
flexibility however, entails added responsibility. ARMM
will have to show some indication of improvements in
its system of accountability to convince legislators, if not
national government agencies, to relax existing rules.
All infrastructure funds, for instance, may appropriately

be fully allocated by the regional government such that
funds for infrastructure in ARMM allocated by national
government should be appropriated through a Regional
Assembly Public Works Act. Unless approved by the
Regional Assembly, no public works funds allocated by na-
tional government or national government for the Regional
Government or allocated by the Regional Government

from its own revenues may be disbursed, distributed, re-
aligned, or used in any manner. This move may face stiff
opposition from national legislators representing ARMM.
Such opposition may be tempered if ARMM is able to
come up with a viable and widely accepted Infrastructure
Investment Plan that can be updated periodically.
Considering that national government provides almost the

entire public funds to ARMM, it is only necessary that
ARG engages national government leadership in appreci-
ating the governance directions and fiscal requirements
of ARMM. It should persuade national government to
comprehend the rigidity of the fiscal situation of ARG and
generate as much support for the promotion of its fiscal
autonomy.
The National legislators from ARMM are the primary

representatives of ARMM and ARG in the national gov-
ernment. Engaging national government and its leadership
to promote the fiscal autonomy of ARMM can be made
more efficient and effective if sufficient legislative support
can be generated. Moreover, legislators control congressio-
nal allocation funds. Had this been linked and integrated
into the programming of local development funds, region-
al public works fund and other capital outlay resources,
the infrastructure requirements of the region can be
met more effectively. Local government units in ARMM
remain a very potent fiscal resource base for regional fiscal
mobilization. It can raise substantial MOOE and capital
outlay support to the regional government agencies.
5.2.3 Establish Key Focus Areas for Governance

ARG should establish key areas that will serve as gover-
nance themes which will be the focus of its funding ef-
forts. These themes will underlie all major activities of the
region and should galvanize stakeholder support towards a
concrete program of action. Examples of these governance
themes are infrastructure and education. The infrastruc-
ture theme for instance, can map out regional connectiv-
ity in ARMM with projects such as road networks and

increased access to maritime or air transportation.
The current ARMM regional leadership that has just

started its term of office is in a good position to establish
such a thematic legacy for ARMM. It can be a platform
to showcase ARMM’s vision of development and progress.
It will likewise promote better accountability among all
stakeholders. This definitive agenda will have to be devel-
oped and adopted as well as monitored and assessed.
5.3 Sustaining Mechanisms
While the recommendations discussed earlier seek to

enhance ARG’s fiscal position and capabilities, measures
must also be undertaken to ensure sustainability. This will
provide policy stability and consistency that will enhance
the chances of successfully pursuing ARMM’s develop-
ment goals over the medium and long term.
5.3.1 Maintain and Utilize the Fiscal Resource Inventory Database

The fiscal inventory, developed by this project, provides
an objective platform for analyzing the course of develop-
ment in ARMM and exploring policy options to improve
ARMM’s fiscal resource mobilization and utilization.
It is imperative that the database already established un-

der the project be pursued and made part of the perma-
nent records of ARMM.
A continuing inventory would provide ARG with an ap-

preciation of its current fiscal situation. Such database
can also present a clear picture on funds utilization
and can help develop benchmarks of effective utiliza-
tion. These benchmarks can be periodically reviewed in
terms of fund performance, and sufficiency. For instance,
the database can easily identify how much fund can be
conserved by devolving some of its functions to LGUs,
and further rightsizing personnel complement of ARG.
Thereafter, it can establish measures to see if funds are

appropriately expended, and indicate the necessary levels
of expenditures ( i.e. how much PS, MOOE and CO are
really needed by particular agencies? How much produc-
tivity is expected for every expenditure?). There is also
the collateral revenue benefit of every public expenditure
in the ARMM. The compensation income, sales, ser-
vice, contractor’s taxes, and such other potential revenue
sources can actually be estimated and monitored using
the database. Such information can render ARG more ef-
ficient in the administration of its fiscal resources. It can
also enhance its revenue generation.
For this purpose, there is a need to enhance the capac-

ity of the Regional Assembly, the Regional Planning and
Development Office and the Regional Treasury not only in
tracking the movement of funds from sources, but also the
effectiveness of its utilization and the collateral benefit of
the autonomous region in the expenditure of these funds.
5.3.2 Establish Fiscal Resource Multi-Stakeholders Monitoring Systems

The fiscal viability of ARMM is in the interest of all
ARMM and human development stakeholders – includ-
ing ARG, government agencies, official development aid
providers, development organizations and the general
public. The fiscal resource inventory database provides
a good starting point for stakeholders to interact. Stake-
holders should also develop their respective monitoring
systems and mechanisms. ARG, for one, can develop its
own evaluation and monitoring system founded on its
development and governance framework. National govern-
ment can also develop its own monitoring system based
on its particular interests. The same is also possible for
ODA providers and civil society groups. The interface of
such monitoring systems can provide interested parties
with a more concrete appreciation of the fiscal situation
of ARMM and generate more productive ideas on improv-
ing the same. Of course, a more efficient system would be
one that is integrated and accessible to most stakeholders
and to the general public.
6
Conclusion The funds that have been channeled to ARMM from
2001 to 2005 have not been insignificant. Given the
resource constraints that the national government faced
during the period, the budgetary allocations to the re-
gion, including those directly made to LGUs in ARMM,
showed national government’s commitment in pursuing
ARMM’s development agenda. Several measures how-
ever need to be undertaken to improve ARMM resource
mobilization and utilization. Foremost of these are (a)
improving the revenue generation efforts of ARG, (b)
providing ARMM with greater control over the utilization
of its resources and (c) enlisting the support of ARMM’s
partners in the creation of an integrated development
framework that can be supported by available resources.
Some specific recommendations have been advanced by
this study. Others may have to be fleshed out in future
research projects.
A Policy Paper
Towards Strengthening the Fiscal Capabilities of ARMM: a policy paper

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the Fiscal Capabilities of ARMM

Towards Strengthening the Fiscal Capabilities of ARMM: a policy paper

Project Team Members

Cover Art and Layout

Copies of this report may be obtained from:

2 Regional Autonomy and National Government Fiscal

3 ARMM Fiscal Situation 30

5 Policy Options / Recommendations 60

FOREWORD “Towards Strengthening the Fiscal Capabilities of

The report is a product of rigorous research conducted by

The INCITEGov study puts to rest some of these ques-

The Local Governance Support Program in ARMM

The Local Governance Support Program in ARMM

The INCITEGov study entitled “Towards Strengthening

The study confirms what most observers have said about

Central control of the bulk of ARMM expenditures underlines

While this study says that ARMM has the opportunity

it does not make an actual inventory of such powers and

Nevertheless, this study presents a true picture of the

The ARMM, which is supposed to be the vehicle for Moro self-

Bacani asks us the relevant questions regarding ARMM,

Is ARMM merely a development body, an employment agency

flourishes because it advances the selfish agenda of interests groups

What then is the role of the National Government in a

“In the nation-building approach, Central Governments move from

The Harvard Project on American Indian Economic

One of the most difficult things for non-indigenous governments to do

There are some parallels in the situation of ARMM and

Atty. Ishak V. Mastura

preface The idea of undertaking an empirical study to assess the

For Emy Boncodin and myself, who served, respectively,

could meaningfully rise above this assertion of fiscal

As the National Government set about preparing the

Then-ARMM Regional Governor Paruk Hussin was

The result of the study at that time disclosed that the

In addition, in our meeting with the ARMM Cabinet,

These moves to change the fiscal parameters of ARMM

Thus, it was a highly propitious development for us when

In partnership with LGSPA, we have been able to extend

City. Our final write-up of this report has been guided

The limitations of this study, however, must be noted.

As an organization espousing sustained governance

The recommendations we offer here are not just about

We are grateful to CIDA-LGSPA for our partnership in this

Teresita Quintos Deles

Acronyms & ARG ARMM Regional Government

MOOE maintenance and other operating expenses

In order to move beyond the debate on the adequacy (or

policy recommendations towards improving ARMM‘s

The paper is organized as follows. Section 2 provides

The emergence of regional autonomy in Muslim Mind-

On 23 December 1976, the GRP and the MNLF signed

After the EDSA uprising of 1986 ousted President

historical and cultural heritage, economic and social

The Organic Act for the Autonomous Region in Muslim

A similar Organic Act was passed to establish the

to form an autonomous region in the Cordilleras and left

2.2 Poverty Situation in ARMM

Today, more than fifteen years since the establishment of

Table 1: Summary of Incidence of Poor Population in the

Province 1997 2000 2000* 2003*

Table 2: Summary of Incidence of Poor Population By Region,

In 1991, only 56% of the ARMM population were con-

10 Source: National Statistical Coordination

5. I nternal Revenue Allotment of ARMM Local Gov-