Bitter pills no more for recovery

There are at least four economic priority measures in the legislative agenda that President Rodrigo Duterte will present to the 18th Congress next month. The four economic relief measures were drawn up by the Department of Finance (DOF) in time for the opening of the second regular sessions of the 18th Congress. The lawmakers would still have enough time to pass upon these bills before they bow out of office with President Duterte in June, 2022.

These economic relief bills are supposed to be shot in the arms to avert the feared recession of the country’s economy impacted by the 2019 coronavirus disease (C-19) pandemic. One of these proposed legislative measures include a tax relief bill that has been in fact long pending approval by the 18th Congress. This is the DOF-proposed Corporate Recovery and Tax Incentives for Enterprise, or the CREATE bill that replaced the controversial original version called the Corporate Income Tax Incentives Reform Act, or CITIRA.

The Lower House approved the CREATE bill but the Senate failed to pass it before they adjourned sine die their second regular sessions last June 5. The proposed CREATE bill is among the priority legislative agenda that President Duterte will present in his penultimate state of the nation address (SONA). Amid the C-19 pandemic, the President will reportedly deliver his traditional SONA at the joint opening sessions of both chambers of Congress via tele-conferencing on July 27.

Towards the homestretch of this administration, the President’s economic managers led by Finance Secretary Carlos “Sonny” Dominguez have almost completed the comprehensive tax reform program (CTRP) they started from Day One of President Duterte’s term in June, 2016. The CITIRA, now re-drafted as the CREATE bill, is the last major piece of legislative bill under the CTRP.

The CREATE bill will bring down our country’s current corporate income tax rate of 30% to 25% as soon as possible. Dominguez believes the passage into law of the CREATE bill could immediately bring economic relief to many private companies and businesses that suffered heavy losses due to the C-19 pandemic.

Dominguez announced this to us last week during our weekly Kapihan sa Manila Bay Webinar tele-conference. Not to preempt the SONA, Dominguez declared there are no new tax-raising bills in the President’s legislative agenda. “Keeping in mind the need to be fiscally responsible, we are working on four legislative imperatives to help the economy recover at the soonest possible time in a strong, sustainable, and resilient manner,” Dominguez declared.

To help jumpstart the country’s recovery from the economic disruption of the C-19 pandemic, Dominguez cited the first priority economic relief bill seeks to infuse P50 billion additional capital to the Land Bank of the Philippines; the Development Bank of the Philippines (DBP), and P5 billion additional capital to the Philippine Guarantee Corp.

According to Dominguez, this bill will strengthen the capital base of these three government financial institutions (GFIs) to enable it to provide concessional loan assistance to micro, small and medium enterprises (MSMEs) and “strategically important companies adversely affected by the pandemic.” For every one peso of capital put to the LBP and DBP, Dominguez estimated, both banks can lend out P8.50 and create economic activities 8.5 times.

“The Land Bank and the DBP are basically universal banks but we want them to behave like wholesale banks,” he quipped. For PhilGuarantee, he explained, one peso added capital, according to him, can enable it guarantee loans given out by banks to MSMEs as much as P15 to P20 and generate a lot of economic activities.

Under this bill, he explained, these three GFIs will be able to capably respond to the projected problems of the Philippine businesses on liquidity, or not enough cash for operations, and solvency, or not enough capital to support the loans. “So we will ask Congress to authorize both Land Bank and the DBP to put up investment companies that will be able to invest in these companies that have solvency problems,” Dominguez disclosed.

Another priority bill, Dominguez identified the proposed revival of a Special Purpose Vehicle (SPV) Law that helped in the recovery  of the Philippine economy during the 1997 Asian financial crisis. The SPV Law already expired in 2000. A new SPV Law is needed, Dominguez admitted, because they expect loans and mortgages of many companies “would go bad by the end of this year or early next year.” Hence, many of these affected banks would foreclose the mortgaged assets, mostly real estate properties.

The passage into law of another SPV, he cited, would  allow private commercial banks to dispose off their non-performing loans (NPLs) and assets through asset management companies that are similar to special purpose vehicles. In this way, the money tied up to the NPLs and assets could be tapped to address the liquidity and solvency problems caused by the economic disruptions of the C-19 pandemic.

Next in the priority bill of the Finance chief is the proposed legislation that seeks to provide greater support to the country’s agriculture sector where the consumers’ demand for its  products are inelastic.

“We will do this by giving the banking system the ability to support the whole value chain of agri-enterprises,” the Finance chief vowed.

There are several other economic stimulus bills being pushed by certain lawmakers to help bring the Philippine economy back to growth track. Two of them are now in the works, namely, the Bayanihan to Recover as One Act, or Bayanihan-2, and the Accelerate Recovery and Investments Stimulus for the Economy (ARISE) bill.

Dominguez, however, cautioned against “generous” amounts being earmarked on Bayanihan-2 and ARISE that  might further swell the P1.3 trillion of net domestic borrowings of the government to cover the budget deficit.

While these bills may seem harmless, the pestering question though remains whether these are bitter pills no more to quickly heal the Philippine economy from the C-19 pandemic.