Sometimes what might seem sound macroeconomic policy flounders in the microeconomics of it.
The BSP, with Ben Diokno at the helm, has maintained an expansionary policy. This involved keeping interest rates at the lowest possible, inflation be damned.
In addition to the interest rate instrument, the BSP cut reserve requirements for our banks. This means the banks will have more cash to lend.
On top of the expansionary monetary policies, the two main government financial institutions – the LBP and the DBP – have put together lending packages in the billions to support small businesses struggling to get back on their feet. The lending effort is supported by a larger outlay for the Philippine Guarantee Corporation to help reduce the risk of lending to small businesses.
In a word, all the engines of expansionary monetary policy are in full throttle to help pull the domestic economy out of the throes of recession. Notwithstanding, all the signs point to continuing recession at least into the first quarter of this year.
At the end of 2020, there was little sign showing a strong uptick in bank lending as a response to the low interest rate environment. Shell-shocked by the sharp recession we experienced in the previous year and the understandable rise in non-performing loans, our banks have tended towards conservatism in lending. After all, since government prioritizes domestic over foreign borrowing, it is safer (although less profitable) to invest in government issues than to venture into lending.
The conservatism of the banks is matched by the conservatism of private businesses. A lot of probable investments seem to be on hold, with businessmen waiting for stronger signals recovery is on the way before committing to plant expansions and new ventures.
The expansionary monetary policy, it seems, fails to impress those who make the crucial decisions to buy capital goods, hire new workers and open new ventures. They want to see growth take hold. But growth will not take hold if the private sector does not take the risks.
Bank conservatism and business hesitancy could become a vicious cycle, keeping a strong recovery from happening.
Until the infection rate dramatically declines and mitigation measures are relaxed, everybody seems comfortable in their work-from-home silos. Perhaps it falls on government to deliver the encouraging signals to convince the people we are back in business.
No signal can be stronger to break the lethargy than to move boldly in relaxing quarantine restrictions even as we have no vaccines yet and nearly two thousand new infections are detected each day. If the private sector will not assume the risks, government might have to take the gamble.
Empathy
The recession induced by the health crisis left many Filipinos scrambling for cash. Small businesses were shutting down and unemployment was spiking.
Government responded to the rapidly deteriorating situation last year by handing out direct subsidies to millions of vulnerable families. Subsidies were likewise paid out to small businesses to help them pay their workers. Public subsidies, however, are not sustainable.
Fortunately, some of our companies devised programs to help meet the cash needs of our people. One company, PhilPlans, designed several innovative programs to meet the cash needs of their clients and help stimulate the domestic economy.
Its COVID-19 Assistance, Relief and Emergency (CARE) program allowed plan holders quick and easy funds during the period of community quarantines without having to wait for their pre-need plans to mature. PhilPlans’ ECQ Emergency Fund enabled plan holders to draw money from their paid up education and pension plans.
The pre-need company’s educational lump sum payment program offered a one-time lump sum payment for those holding educational plans. Through the Plan Termination Value (PTV) and Pre-Maturity Benefit (PMB) mechanisms, PhilPlans allowed the release of funds to qualified plan holders before their plans terminated or matured.
By the end of December 2020, PhilPlans processed P3.92 billion for over 17,000 plan holders who chose to avail of the cash programs. While this might mean stripping away from future needs, it made cash available during a crisis when some families needed money most.
In addition to the cash programs, PhilPlans paid out P624 million to over 12,500 education plan holders. P426 million was paid out to over 4,700 pension and life plan holders.
The PhilPlans payouts might seem meager, considering we need infusions in the trillions to pump prime the domestic economy. But the cash programs devised by this company represent a way by which relatively liquid private companies can step in to supplement the entire recovery effort. These programs also represent demonstrations of empathy by businesses sensitive to the plight of their clients.
Economic recovery requires more than a whole-of-government approach. It requires a whole-of-society approach to bring our derailed economy back on the tracks of vigorous growth.
When this crisis is over, there will be many stories to tell of small entrepreneurs giving up profits to keep their enterprises going and their workers employed. There will be stories of microfinance networks stretching their resources to the fullest, often with little hope of profitability, to meet the emergency. There will be stories of businessmen who took losses to protect the livelihood of their workers. All these will be stories of great empathy during an emergency.
As things stand, the Philippines is expected to be the last to emerge from the recession among the ASEAN economies. This crisis brought forth all the structural weaknesses of our domestic economy.
A consensus needs to form about the reforms necessary. Meanwhile we should save the most vulnerable from falling off.