Jumpstarting the Philippine economy
FROM FAR AND NEAR - Ruben Almendras (The Freeman) - July 7, 2020 - 12:00am

It has been more than 100 days since the COVID-19 pandemic, and countries all over the world have undergone lockdowns and quarantines in varying conditions and durations. The global and national effects on their economies have also been felt, and the world is going into a global recession/depression with the world GNP/GDP headed for a 4% contraction. Some developing countries may be harder hit due to lower resources, income disparities, fiscal condition, and government capabilities. The Philippines will be somewhere in the middle among these countries, with the worst case of a 7% decline in the GDP in 2020.

Worldwide, even with the pandemic still existing but slightly abating, the consensus in all countries is to now revive and start up their economies. Time to regenerate employment, ease the consumer hardship, reduce poverty, and get the economy back into a growth trajectory. All countries want a quick or a “V” shape recovery for their economy, but will be satisfied with a “U” shape recovery given the pervasive and length of the pandemic. The shape and speed of the recovery will depend on the baseline conditions of the different countries and the policies, initiatives, available tools, and the effectiveness in the implementations. The standard monetary and fiscal policies that have been employed successfully in previous recessions/depressions are now being implemented in all countries.

In the Philippines, like in many other countries, the Central Bank/Monetary Authorities, (BSP) have flooded the financial and banking system with liquidity by lowering benchmark interest rates, lowering reserve requirements, and buying government securities. The rationale is to make sure that the government, banks and other financial institutions will have enough funds needed to spend during the pandemic, and that the banks will continue lending to their clients at low interest rates to revive the economy. At this stage of the pandemic, some economists have contended that this had very little effect on restarting the economy because the additional liquidity is not going into loans to bank borrowers. The banks are depositing them back with the BSP or buying government securities. The banks have no appetite to lend due to higher credit risk, on top of the potential bad loans that may arise from this crisis. The big corporate borrowers are not also borrowing because they are reducing their capital expenditures and are building up their cash positions. The SMSEs which need the funds are riskier borrowers are getting very few loans. This is not exactly a valid criticism because the BSP’s primary role is to stabilize the financial system and to tame inflation, and their current policies and actions have done these. It is the job of the executive department of the government, particularly the fiscal departments to spur the economy with the support of the needed budget appropriations from the Senate and Congress. The BSP has provided the monetary space and the environment for jumpstarting the economy, and it is up the fiscal authorities to do their job.

Last week, Sec. of Finance Dominguez said it’s time for the government to open the economy even if the pandemic is still around or the economy will collapse. None of the other cabinet officials or the IATF people contradicted him, so in all likelihood we are on the way of opening the economy. The way to do this is to put back the purchasing power of the people since 70% of our GDP is consumer-led. The direct financial assistance (SAP), even if partly bungled was in the right direction but is unsustainable. Directed lending to SMSEs, while much delayed should be accelerated. Infrastructure should be shifted to the private sector via PPP as the government line agencies do not have absorptive capacity and capability. It would also help if we can bring in and retain direct foreign investments in factories.

There are two areas that the government should immediately implement. One is the transportation/logistics return as it links production and service industries. The other is to push more investments and finances into the agricultural areas. The “marginal propensity to spend” of the population of these two sectors are higher than in other sectors, and may compensate for the lost OFWs earnings. The objective is to push the income, the money, or the purchasing power to the people who will spend them (not save them), to jumpstart the economy.

PHILIPPINE ECONOMY
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