RP must be prepared with exit strategy when global crisis ends

MANILA, Philippines - Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said economic planners should start talking about an exit strategy that would kick in once the global economic crisis is over.

With the Arroyo administration still rolling out its economic stimulus package, Tetangco urged fiscal authorities to utilize its budget flexibility to complement monetary measures already implemented by the BSP.

“If you look at other countries they have not confined themselves to monetary policy. They have also done fiscal expansion and even tax cuts,” Tetangco said.

Tetangco indicated that authorities need not be wary of making aggressive moves to mitigate the economic depression in the country’s major trading partners since these measures need not be permanent.

According to Tetangco, authorities could also work out an exit strategy so that crisis measures could be phased out once the crisis has been defused and the economy has recovered sufficiently.

Tetangco said he agreed with the consensus that the government could tolerate a higher deficit level for 2009, generally considered by credit rating agencies and market analyst to be around two percent of gross domestic product (GDP).

According to Tetangco, a fiscal deficit equivalent to two percent of GDP is considered sustainable and the government should use it.

The stimulus plan of the Arroyo administration, however, would not involve incremental spending specifically to address the impact of the economic depression in the country’s major trading partners.

Of the P330 billion stimulus package, only P160 billion would actually come from the National Government, covering projects that are already in the budget even before the onset of the crisis.

The Development Budget Coordinating Committee (DBCC) did say the deficit would go up to two percent of GDP in 2009 but not because of incremental spending but because of lower revenues.

Economic officials said spending levels would be kept according to the 2009 budget which only realigned existing programs under the title of an economic stimulus plan.

On the monetary side, Tetangco said the BSP has already implemented a number of measures ranging from the reduction in interest rates to the liberalization of the central bank’s repurchase facility and the cut in banks’ reserve requirements.

“We’ve also allowed the rate of growth of domestic liquidity that is higher than what historical relationships would say,” Tetangco said.

But Tetangco stressed that the effects of monetary policy tended to be limited in a crisis situation. This meant that monetary policies would have to be aggressive and backed up by measures in the fiscal side.

Tetangco said fiscal and monetary measures in a crisis situation need not be permanent anyway and could be unwound once the need for aggressive intervention dissipates.

Tetangco cautioned that authorities should also soon discuss how to wind down these measures and design an appropriate exit strategy for when the global economic crisis is over.