Stimulus

We do not have a silver bullet to kill the virus. Neither do we have a silver bullet to quickly revive our economy.

The House of Representatives is now deliberating a stimulus package amounting to more than a trillion pesos. We can only hope they are not simply thinking of throwing more money at the problem.

The problem is that our economy is stalled. The number of unemployed persons could rise to ten million by the time we fully climb out of quarantine. Tens of thousands of small businesses are in hibernation. Many of them, especially those in the tourism sector, might not find it possible to restart.

Many of our large firms are in deep financial trouble. Some of them might declare bankruptcy to contain the bleeding.

It is always comforting to imagine that decisive measures at the top will dramatically influence conditions at the grassroots. But that does not always happen as expected.

For instance, the Bangko Sentral took strong measures to spur economic expansion. They lowered policy rates, brought down reserve requirements for the banks and infused liquidity into the market by purchasing bonds.

But if businesses are severely crippled, the banks will tend to be extremely conservative in lending money out to struggling firms. The banks have their own survival at stake, their own bad loans and acquired assets to look after and their financial positions to protect. It is always safer to purchase government paper than to lend good money to a firm with scant chance of survival.

The Department of Finance dramatically recast Package 2 of its comprehensive tax reform program to help stimulate the economy. The corporate tax rate could be quickly cut from an unreasonable 30 percent to 25 percent. But, as one economist points out, corporations could convert tax savings into dividends instead of using the money to expand business.

Also, since many large firms are not expected to make any profits this year, the economic benefits of cutting the corporate tax rate will happen many years down the road – at least after the extended period for charging net operating loss carry overs (nolco) is done.

The first large cluster of US manufacturing plants moving out of China in anticipation of worsening relations between the two largest economies chose to transfer their production to Indonesia instead of the Philippines. Jakarta was quick to move on the opportunity, offering industrial estates and fiscal incentives to attract the manufacturers to their economy. This was an investment coup that caught our policymakers flatfooted.

Duterte’s economic team is focusing on increasing support to enterprises producing goods with inelastic demand. These means supporting food production and logistics firms linking farms to urban consumers.

This is a good focus. We do not know how long the global depression will last or how worse it could get. It is best, in these circumstances, to concentrate on ensuring our food security. We do not want to end up where Lebanon is today. Its economy just died and the people are hungry.

Instead of thinking merely in term of reviving our flagging economy, we should think of reconstituting it. Never let a good crisis go to waste.

Metro Manila’s traffic managers are doing a good job reimagining traffic arrangements while everything is closed down. When we move to the “new normal,” there will be truly new policies such as shortened bus routes and probably the accelerated phase out of those antiquated jeepneys.

Reconstituting our economy post-pandemic requires a lot of hard thinking and extensive consultations. We have to do this right now.

Economist Romeo Bernardo, for instance, drew up a “wish list” now being discussed among the fellows of the Foundation for Economic Freedom. That “wish list,” eminently doable in the short term, but with long-term consequences for our economic revival, contains the following proposals:

First, introduce more flexibility in our labor laws. These include allowing new working arrangements, freezing minimum wages and the introduction of an apprenticeship law. Greater labor flexibility will help us cope with the unemployment shock we are now experiencing as well as the expected return of tens of thousands of our migrant workers. It will prepare us for further disruptions due to the trade war and the more profound digitalization of processes associated with the Fourth Industrial Revolution.

Second, increase reliance on PPP for infrastructure, including bringing to the finish line projects that have been under protracted negotiations (at the expense of investor confidence).  Doing this will open investment opportunities and relive the load on our already stretched fiscal resources. Congress might want to enact the PPP Bill long trapped in the legislative mill.

Third, move quickly on urgently needed legislation to make our economy more attractive to investments. Included here are: the Public Services Act, the Retail Trade Act and a new Foreign Investments Act.

Fourth, liberalize our agriculture further by freeing the land market from the rigidities of agrarian reform, the removal of restrictions on conveyance of CARP lands, the removal of retention limits to five hectares, repeal of the unworkable agri-agra law and amendments to the warehouse receipts law.

Fifth, we could create tens of thousands of green jobs by stimulating forestry production through the liberalization of tree plantations.

Sixth, immediately lift the mining moratorium to reactivate a large section of our economy put into suspended animation. Mining is one of the few comparative advantages we enjoy and its benefits slip by as the moratorium stands.

The Foundation for Economic Freedom also supports the drastic reduction of corporate tax rate. Our small and medium enterprises will immediately benefit from this.