`The government intends to use the financial sector to provide liquidity and prevent insolvency of big businesses.’
AS the nation goes through the transition from enhanced community quarantine to general community quarantine, the people now see a glimmer of hope that the nation is on its way to recovery — both from the COVID-19 pandemic and the economic meltdown that its ECQ solution ruefully entailed.
The expansive pandemic and the lockdowns here and abroad imposed by most governments to stem the tide of contagion have taken their toll not just in human lives but also in plunging GDPs (gross national product).
In the Philippines, the first-quarter GDP went south to 0.02 percent, its lowest in 20 years, with an even bleaker estimate for the second quarter, the months that bore the brunt of the ravaging coronavirus. Economists had to redo growth estimates for PH since clearly, we can no longer hold on to the average 1.19 percent growth rate from 1998 to present. The Bangko Sentral ng Pilipinas (BSP), meanwhile, had to cut interest rates, postpone the increase of its capitalization and do some qualitative easing. The unemployment figure may hit double digit and rise to a 15-year high, according to NEDA.
We feel it is late in the day to plan, but it looks like President Duterte’s economic team, led by Finance Secretary Sonny Dominguez and acting Socioeconomic Planning Secretary Karl Kendrick Chua, are up to the challenge at least in coming up with concrete recovery plans.
Chua said they will propose three measures to Congress. “The first is on spending and capital support which will be the Bayanihan 2. The second is to give firms, especially the small ones, tax incentives, and we call that CREATE (Corporate Recovery and Tax Incentives for Enterprises Act). The third is to prepare the 2021 GAA (General Appropriations Act) so that we can respond to the virus better,” the new NEDA chief said.
Dominguez summarized this by talking about a stimulus package that would increase the PH fiscal deficit by nine-tenths of one percent, or almost 2 percent, and is worth P130 billion to P160 billion.
The finance secretary believes that if you put this amount in the right place, the actual value, the “actual economic activity that kind of investment can make is probably P800 billion to a trillion pesos, because of the multiplier effect that you can get by putting it as bank capital, and as capital of Philippine Guarantee Corp.”
In simple terms, Dominguez would want to use the bulk of this money to increase the capitalization of banks and boost their capability to lend out loans, perhaps to the top corporations listed in the Philippine Stock Exchange, or to the big three local airlines which recently requested subsidies or assistance from the Senate to help them get to their feet and fly again.
The government intends to use the financial sector to provide liquidity and prevent insolvency (of big businesses). Then for the micro firms, they will ask microfinance, cooperatives, rural and thrift banks to lend them and they will use government banks to buy some of their loans so that they can be freed up of more capital to lend, and help the small businesses. There is also a plan to cut corporate taxes across the board — from 30 to 25 percent.
We certainly hope that these measures will be able to mitigate the hardship and suffering of the people in their daunting — but necessary — trek towards the new normal.