Reforming, rebuilding and recalibrating

(Continued from last week)

To build a much stronger economic foundation than we have achieved so far in our nation-building, some reforming of existing policies must accompany the nation’s economic recovery program.

We also must recognize the mistakes or inadequacies of the past and tackle them with a fresh approach.

Economic recovery spending for assistance and rescue as well as strong investment spending. The immediate and meaningful challenge of the moment is the economic recovery program. The pandemic and the lockdown has caused a massive economic loss to the nation. Productive activities were disrupted, leading to loss of jobs and incomes for enterprises and households.

The nation’s coffers had to dip into huge fiscal debts on account of the rescue efforts. The financial system is now weakened by the amount of debts made uncollectible by likely business closures and bankruptcies, and face significant losses as a result of the build-up of uncollectible loans.

The recovery program incorporates the effort to combine the massive government spending, financed by a large program of public borrowing. This cannot be helped because of the size of the spending to save the domestic economy.

The fiscal effort is partly underwritten by external debt to provide support to the investment efforts that are essential for the recovery. The continuation of major investment projects will contribute toward expanding many public infrastructure facilities that have long been delayed in construction.

The monetary authorities will face the challenge of absorbing these large expenditures while maintaining efforts to keep credit and liquidity available at a time when monetary and financial stability have to also be kept within control.

The anticipated passage of CREATE – the reform to reduce the corporate income tax and revise fiscal and investment incentives for firms – is integral to the recovery program. The associated reforms involving LIST and GUIDE – which would give policy guidance on the disposition of non-performing assets of private and governmental financial institutions – are elements of the recovery program. These financial reforms are part of the current bills still expected from Congress.

Reforms to recalibrate the future: long-term issues.The passage of these bills will help align corporate taxation with neighboring countries that have lower tax rates and would streamline investment incentives in the economy.

Even so, there is no substitute to a more direct assault on the issue of reducing constitutional impediments to foreign investors if the country wants to move faster on the issue of foreign investment attraction. Such an effort will give substance to recalibrating the country’s desire to be competitive with neighbors.

Therefore, the nation’s leaders must find a way to address the issue of this “original sin” in the investment laws through an amendment that softens or transfers the specifics of restrictions to national-law making.

In short, the subject ought to enter the realm of parliamentary legislation, not constitutional prescriptions. It is the best expression of intent to simplify many foreign investment rules in the country.

In like manner, the country needs to address our labor market policies. They are rigid and they have made Philippine labor more expensive to investors, while many of our workers seek jobs that they cannot find at home.

The proper medicine to redirect the issue of Philippine manpower going abroad for work is to build an economy based on labor prosperity right at home, where domestic and foreign capital add to the productivity of the economy. Such policies would have higher multiplier impact on the domestic economy than workers finding jobs located in other countries.

If we attract foreign capital more into our shores and make them more substantial here in our country, domestic investments will also prosper since the economy would be enlarging. Such is the story of progress in many East Asian success stories. It is not the original fear that foreign capital would displace domestic capital.

In such midst, many success stories in Asia consist of the founding of domestic businesses flourishing within the prosperity built by an open economy. In this way, quality jobs are made at home to absorb the available domestic labor in employment.

The politics of stalemate. Taking a close look at our political system, the country’s decision-making from administration to administration has produced little to lift us out of our problems. In the course of our almost eight decades of independence, here is what it has achieved for us:

At birth of our independence and as the world awoke from the destruction of World War II, we were supposed to be, according to the world experts of the time, “the most likely to succeed among many developing countries in the East Asia region.” For decades, we have struggled to keep pace with some of the more successful economies in the region. And lately, we are still being surpassed by latecomers to the development game.

We were among the first democracies in the region. Today, because of our economic experience, we are still struggling to become a better democracy, while some of us suspect our democracy is failing us.

Our neighbors that have worked under autocratic political systems have now achieved a higher level of democracy for their people. They were able to improve the lives of their workers and people.

As a result, their citizens not only have better jobs and living standards than ours, their citizens are becoming active participants in the running of their governments, hence more democracy. (While this is a debatable proposition, it is useful to take individual cases and compare with our current system of democracy.)

Our country was among the first countries to ever construct a nuclear power plant to produce electricity in East Asia, and today several countries have their nuclear power plants stabilizing their energy provisions for their industries.

After finishing ours, the succeeding administration trashed and negated the project. Hence, it failed to even produce the first kilowatt-hour of output from it. That decision cost the nation a massive problem of electricity shortage that has persisted for years and gave the nation’s citizens far higher cost of electricity that is burdensome still today.

For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/