Stimulus

DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - November 30, 2020 - 12:00am

The debate today is not so much about the need for stimulus, but how big. With the COVID pandemic still with us and the world economy in turmoil, a stimulus is the prescription of choice made by most economists.

In the United States, the Democrats want a $2 trillion stimulus bill passed. But the Republicans who control the Senate are thinking of only $500 billion.

Donald Trump, perhaps in a post-election tantrum, pulled the plug on some $455 billion emergency Federal Reserve lending programs. That drew a rare rebuke from Fed chairman Jerome Powell: “When the right time comes, and I don’t think that time is yet or very soon, we will put those tools away.”

Here, there is an ongoing debate between the administration’s economic managers, some private economists and members of Congress on the right size for our stimulus packages.

A stimulus is often described as “pump priming” in the sense that once it is given, there will be increased private sector spending to boost the economy out of recession. The idea is to let the private sector do the heavy lifting to avoid the risks that might come with massive government deficits or extreme monetary policy.

Last week, Rep. Stella Luz Quimbo, a respected economist with a PhD from the UP School of Economics, made her case for a Bayanihan 3 stimulus package before a group of private economists. She was preaching to the choir. They all agree that the government is not spending enough to help the country recover from COVID and the typhoons.

Indeed, in another forum, former NEDA secretary Ernesto Pernia said we are not spending enough to deal with COVID‘s destructive effects on the economy. “We are where we are because we failed to spend enough!”

Sec Pernia observed that we need not worry about increased borrowings impairing our credit rating. He showed data suggesting that despite sharply ramping up C0VID response spending in 2020, the five ASEAN countries (other than the Phl) maintained their respectable credit ratings based on 2019 and June 2020 deficits and debts.

Rep. Quimbo’s proposal is a new stimulus program worth about P400 billion to be allocated as follows:

“P100 billion to subsidize business’ payments of wages or other worker-related expenses, P100 billion for capacity building to impacted sectors, P90 billion for additional social amelioration to impacted households (of which P20 billion is targeted to households in typhoon devastated areas), P30 billion for assistance to displaced workers (including cash-for-clean up and cash-for-home building in typhoon-devastated areas), P50 billion for the rehabilitation of typhoon-affected areas, P25 billion for COVID-19 treatment and vaccines, and P5 billion for the provision of internet allowances to teachers and students.”

Rep. Quimbo insisted that the two Bayanihan laws “are not sufficient for the genuine economic recovery of the country…”

She cited the grim forecasts for the overall growth rate of the Philippine economy in 2020 as reason enough for the government to spend more.

Rep. Quimbo observed that “the current measures in place, particularly, Bayanihan II, will not completely address the economic damage brought about by the pandemic.

“Government needs to provide subsidies to workers for COVID-19 testing, paid sick leaves, and payment of wages such as overtime pay to encourage multiple shifts so worker deployment and re-employment can be maximized.

“Government must also provide capacity building for critically impacted sectors in order to support business innovation and facilitate access to new market opportunities.

“Meanwhile, in the education sector, there is a need to provide allowances to teachers and students who must now conduct their classes online… the new mode of class instruction will create added monthly expenses on the part of teachers and students, which may be difficult for many to accommodate.”

She pointed out that “uncertainty is the primary effect this pandemic has on every aspect of our lives. Government, therefore, must take charge and manage these uncertainties so as to promote and improve business and consumer confidence and social welfare.

“Increased spending is one vital approach to achieve these goals. These interventions shall stimulate the economy and subsequently, lead to full recovery.”

I guess that’s the theory and it sounds reasonable. I am guessing, but I think the economic managers are hesitant to carelessly throw more money at the problem because of corruption and lack of institutional absorptive capacity.

When we are talking about hundreds of billions and trillions of hard-earned taxpayer money, it is but right for Finance Secretary Sonny Dominguez to exercise caution. The leakage will definitely be huge, stimulating the greed of our usual suspects rather than the economy. With our stimulus money in their pockets, the intended benefit for the economy will not be realized.

There should be no problem if we had a list of families deserving such assistance. Give them money now and they will quickly spend it for their basic needs and move the economy as well. Outside of the “listahan” for the Pantawid Pamilya program, we have no idea who to throw the money at.

Rep. Quimbo admitted that as of last month, there is still over a trillion pesos in the Treasury that should have been spent for various stimulus and aid programs. Our agencies have poor absorptive capacity for programs like this.

The call for more stimulus funds is reasonable. But please make it clear to taxpayers how exactly the funds will be spent and how it will get to intended beneficiaries. For example, use agencies like the SSS with a legitimate list of private workers to distribute assistance to displaced private workers.

In the meantime, set up the disaster assistance mechanisms that will make it easy to get the “ayuda” to those it is intended to reach. Get DBP, Landbank and other GFIs moving to reach small and medium enterprises that need help most.

Then, we should have PIDS come up with a good review of how the stimulus programs so far implemented have been carried out. We need to have confidence our money will produce some good rather than enrich the corrupt.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

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