"There is still time to do better."
"There is still time to do better."
When the government placed on lockdown the most important parts of this country’s economy, it temporarily ended, for a reason unrelated to the nation’s economic situation, the flow of incomes within the economy. Given the inter-connectednes of economics – one person’s expense is another person’s income – the lockdown quickly became a downward economic spiral. With no inward cash flows, people spent less, conserved whatever cash they had and stopped paying their debts. Like a body experiencing severe blood loss, the Philippine economy’s vitality quickly began to diminish, with the Philippine Statistics Authority reporting that the economy contracted by a remarkable 16.5 percent in the April to June quarter.
From the onset of the lockdown, it was clear that what was needed was a rapid and massive infusion of cash into the economy, whether in the form of dole out disbursements, or advanced payment of benefits on tax suspensions. This had to be a fiscal policy show, not a monetary policy happening; what the economy needed quickly was cash distribution, not easier access to bank loans. The Department of Finance would have to be the lead player.
The economic managers and Congress together crafted a Bayanihan Act that provided, among other things, for a Social Amelioration Program providing cash payments for an estimated 18 million COVID-19 affected families. The payments were intended for a period that has now elapsed. With the country’s most economically important areas under a continuing lockdown – at five months, now the longest in the world – the economic situation of the low-income families has again become precarious.
With the limited opportunity capacities imposed by the IATF (Inter-Agency Task Force for the Management of Emerging Infectious Diseases) on the industries that have been allowed to reopen, the prospects for an early bounce-back are dim: The way things are looking, the hand-to-mouth existence of the nation’s poor families could last until the end of 2020, at least.
Aware of the dire situation in the lowest strata of Philippine society, Congress has ben drafting a second Bayanihan bill intended to extend the financial lifeline offered by Bayanihan I. Realizing the crucial importance of enabling the nation’s poorest families to stay afloat, both chambers of Congress have expressed a desire to be more generous this time around but have had to restrain themselves in face of a declaration by President Rodrigo Duterte that he would veto a bill seeking to provide amelioration benefits exceeding P1.4 billion.
The Chief Executive issued his veto warning upon the advice of the Secretary of Finance, who at the start of the lockdown expressed concerns for the maintenance of the Philippines’ international credit rating, given that the government’s social amelioration spending would lead to a significant increase in the public debt. The public sector’s debt-to-GDP ratio is one of the key determinants of a country’s international credit rating. At the start of the lockdown, the ration was 41 percent of GDP.
Given the attendant facts, the number of eligible aid recipients, the length of the period for distribution of the aid and the probable duration of the economic crisis – the amounts dispensed by the two Bayanihan Acts have been grossly inadequate. At 41 percent, the debt-to-GDP ratio afford the government ample capacity to be more generous with its social amelioration payments. No intelligent person thinks that the debt-to-GDP ratio is important and that the fiscal authorities should not strive to maintain it at an internationally acceptable level. But as the title of one of the songs in a memorable Frank Sinatra musical proclaimed: “It’s only money.” In the present crisis– or, indeed, in any crisis – maintaining a low debt-to-GDP ratio cannot sensibly be considered a higher priority than ensuring that every Filipino family at least has food on the table. Budgetary deficits and unsatisfactory fiscal ratios can be corrected; deaths cannot.
The Philippines has the greatest number of COVID-19 infections and the second-highest number of deaths in the Asean region. A leading British economic consultancy firm sees a connection between this fact and the severe contraction of this country in the second quarter of 2020. “A long lockdown, which has now been in place for five months, and inadequate fiscal support, will delay the recovery in the Philippines,” Capital Economics writes.
The Philippine economy has been badly served by the government’s fiscal policy. But there is still time for the fiscal policymakers to do better.