Stimulus

With Mega Manila restored to MECQ status since the start of August, it is nearly certain we will continue to see the contraction of our economy. The National Capital Region and the surrounding provinces put under tighter restrictions for two weeks now account for well over half of our GDP.

In the second quarter, the economy contracted by 16.5% – the worst on record. Unemployment has spiked and the poverty rate is sure to follow. Thousands of small enterprises have gone under. The pandemic is an economic as much as it is a public health phenomenon.

Like all other countries, the Philippine response to the economic devastation is state-led. It cannot be any other.

The universal response to economic contraction is massive deficit spending by the state in an effort to reflate the people’s livelihood. The magnitude of deficit spending is defined principally by the ability of government to borrow to cover deficits.  Remember that every other government in the world is seeking financing to cover deficits.

When the pandemic struck, we were in a relatively strong fiscal position. Our debt-to-GDP ratio was low, our revenues were strong, our credit ratings were unprecedented and our gross international reserves were ample. We were able to quickly access emergency loans at lower rates and raise money from a very liquid domestic market. But those initial advantages are not permanent.

Under Bayanihan I, the Congress allowed the executive branch to realign budget items to meet the public health crisis. The realigned funds plus the emergency loans we were able to contract for budget support were spent mainly on building up our health system and delivering relief to our vulnerable communities.

The Bayanihan II bill now at the bicameral conference committee will continue to provide funds to beef up our health care system. It will also provide funds to help our enterprises recover to power economic growth. This is what constitutes the “stimulus” part of the spending program.

In addition, the proposed spending bill will introduce policies to make it easier for private enterprises to bounce back and contribute to domestic economic activity. An example of this is the reduction of the permits required to erect telecommunications towers to rapidly improve wireless services. A “stimulus” package is not all about throwing more money to fight a problem.

A few critics claim the “stimulus” money contained in Bayanihan II is far too small to meet the problem at hand. That might be true. In the best of all worlds, government might indulge in bottomless spending.

But prudence dictates we spend only what we can afford to raise from revenues and sustainable borrowing. Otherwise, long after the virus has been suppressed, we might doom government with unbearable debt.   ?

Rescuing Tourism

?The bicameral conference committee is busy reconciling the House and Senate versions of the Bayanihan II Act. So far the committee agreed to drastically shorten the repayment holiday for loans owed the banks and introduce policy changes to encourage private sector recovery.

?One more issue the bicam might have to settle is the strategy to revive our tourism sector. Tourism everywhere was badly hit by the pandemic. In the country, both big and small tourism-related enterprises badly need government support to ensure their survival. It will probably take years for this sector to get back on the track of growth.

?Bayanihan II allocates P51 billion to support our flagging enterprises. The fund will be coursed through the LandBank, the DBP and the Philippine Guarantee Corporation. Although this amount is not completely dedicated to our tourism enterprises, lending is open to them.

?As part of a much-larger infrastructure modernization program, the House maintains the P10 billion be allocated to the Tourism Infrastructure and Enterprise Zone Authority (TIEZA). Nearly the entirety of this fund will be used to build infra directly affecting our tourism industry. It will bring numerous projects to the localities hosting tourism enterprises.

There is a strong argument for getting the entire infra modernization program going. Investing in infra has the highest multiplier effect on the domestic economy. For every peso of infrastructure investments, P3.50 worth of economic activity mainly in the form of immediate job creation and the expansion of complementary businesses is generated.

?The Tourism Congress of the Philippines (TCP), however, wants the P10 billion allocated for TIEZA infrastructure projects realigned and converted into a fund to be lent out specifically for the distressed enterprises in the tourism sector. This is understandable. The TCP represents our tourist-related enterprises. They would prefer the distressed enterprises be given immediate relief ahead of building new infra.

?DOT Secretary Berna Romulo-Puyat, although she sits as chair of the TIEZA, agrees with the position of the TCP. By transferring the fund for new infra to a fund for lending to our tourism-related enterprises, we could avoid many of them from closing down and shedding jobs.

?The legislators, for their part, stand by using the P10 billion to build new infrastructure that will support the tourism sector over the longer term. They think the position of the TCP on the matter is self-serving. Building tourism-related infrastructure will have immediate impact on communities, providing employment and feeding into new businesses.

This is a worthy debate. Inasmuch as we do not have limitless funds to stimulate our recession-hit domestic economy, the matter will have to be settled one way or the other.

To be sure, however, it will take many years for our tourism industry to return to the path of high growth it enjoyed before the pandemic so tragically hit us.