Like in the 2008-2010 global financial crisis, the response of most governments to the Covid-19 pandemic is to craft and implement a stimulus package. The laissez faire style of economic management has given way to the Keynesian approach, which rationalizes government intervention in the market processes. The rationale for government interventionism is to save lives, jobs and livelihoods of the people under a very uncertain and volatile environment.
A quick perusal of the stimulus packages being pursued by governments around the world shows that the stimulus measures essentially fall under two major categories: a) monetary measures such as the lowering of interest rate, increasing money in circulation, funding the flow of credit to distressed businesses, reducing reserves held by banks, etc., and b) fiscal measures such as tax relief to micro, small and medium enterprises (MSMEs) and failing corporations, purchases of stocks of struggling companies, wage and food subsidies to the displaced and vulnerables, water and electricity price discounts, etc. In the Philippines, the Bayanihan to Heal as One (BAHO 1) and the proposed BAHO 2 revolve around four government objectives: to organize the health system in response to the pandemic, to provide social assistance to the most vulnerable, to assist select industries, and to infuse liquidity in the financial system.
Stimulus spending is naturally expensive. The US has turned out to be the biggest spender, with several trillions of dollars lined up to rev up a flattened American economy. In Covid-stricken Europe, the stimulus budget adopted by major European governments is generally from 5 to 10 percent of their respective gross domestic product (GDP), a percentage enough to cover the universal social protection budget of developing countries (per an earlier study by the ILO).
In the Philippines, the budget for BAHO 1 was P1.4 trillion. For BAHO 2, over a trillion-peso budget is again being proposed.
Stimulus spending also means deficit spending, meaning the government spends beyond the money it has and beyond the revenues it can raise through taxes and other incomes within the stimulus period. Deficit spending then forces governments to resort to borrowings or to issue new money in the system with some help from their Central Banks. However, such borrowings and money infusions have limits. A government cannot issue money in an unlimited way without debasing the value of its currency and without inflicting another economic crisis on its people—hyper inflation.
As to unchecked debt accumulation due to deficit spending, two lessons from the Philippine debt experience in the last five decades stand out: the high cost of debt servicing and the high cost of economic subservience to the policy conditionalities of the creditors. On the first, it should be pointed out that it took the Philippines at least three painful decades (1980s-1990s-2000s) to go over the debt hump. It had to allocate over 50 percent of the national budget (sometimes as high as 90 percent of the annual budget in some years!) to service a national public debt, which swelled from $26 billion in the mid-1980s to over $100 billion in the 2000s despite the country shelling out over $100 billion as total debt service.
As to the policy conditionalities, suffice it to say that the International Monetary Fund and World Bank used the debt crisis to impose on the Philippines a neoliberal “structural adjustment program,” a program which failed to deliver industrial and agricultural growth for the country. And yet, the Philippines managed somehow to grow in recent years despite the debt service debacle and the SAP failure. This is due to two phenomena: growth of the army of overseas Filipino workers (OFWs) [from around 50,000 in the mid-1970s to over 10 million today], and the unexpected but spectacular growth of the call center-business process outsourcing (BPO) sector.
But with tens of thousands of OFWs being displaced around the world today and with the call center-BPO sector slowly declining jobs-wise, the Philippine government clearly cannot engage in unlimited stimulus and deficit spending. With BAHO 1 and other government spending, the so-called low debt-to-GDP ratio achieved by the country in recent years has already increased from 40 to over 50 percent. This is clearly the reason why both Department of Finance Secretary Carlos Dominguez and Neda DG Karl Chua have been dousing cold water on the new stimulus programs being pushed by Congress—the P1.3 trillion Accelerated Recovery and Investment Stimulus for the Economy and the P1.5 trillion Covid-19 Unemployment Reduction Economic Stimulus. ARISE replicates BAHO 1/BAHO 2 programs, with special focus on assistance to MSMEs and the business community. CURES, on the other hand, seeks more funding for infrastructure projects, particularly rural infras.
So, should the country be satisfied with the ongoing programs of the government under BAHO 1/BAHO 2, which Neda is trying to translate into its Recovery-Resiliency development thrusts?
We believe there is so much room for the improvement of the stimulus package. It will do well for the government to be open-minded about this. The survival needs of the people under the Covid-19 pandemic and the challenge to use the pandemic as an opportunity to pursue a recovery-growth program that steers the country away from the narrow SAP-oriented development path require sustained social dialogues and consultations with critical segments of Philippine society.
In line with this, we would like to raise the following concerns:
1. Need to address the survival needs of all the vulnerables on a sustained and transparent manner. No ifs and buts on this. The initiatives to attend to the needs of the frontliners and provide social amelioration assistance to the vulnerables are good. But such initiatives should be continuing ones because the epidemic and the on-and-off ECQs/GCQs are continuing phenomena. The complaints on the exclusion of the migrants, unlisted informals, displaced middle-income earners can be corrected by making the survival program for the vulnerables truly inclusive, universal and sustained.
Covid-19 also gives the government the opportunity not only to rebuild the broken public health care system but also to make the universal health care law implementation a reality. How? By developing nationwide a system of community-based preventive care systems complete with clinics, doctors, nurses and community health training and readiness programs.
Job creation is central in survival. Given the flattened economy at home and the shrinking jobs prospects in the overseas labor market, the government has to play to the maximum its role as a job creator and employer. But it can do this in a more organized, productive and practical way. For example, the “build, build, build” projects dependent on government funding should be tweaked in support of the rebuilding and re-development of the communities of the poor and the informals—be they in the urban or rural, upland or coastal, or peri-urban areas. Tens of millions of jobs can be developed given the weak infras in these areas and the past government neglect for such infras, e.g., better pathways, multi-purpose community centers, strengthening of dikes, clearing of esteros, better barangay roads, etc.
The government’s call for Bayanihan should be translated into action. As defined, bayanihan is an age-old socio-economic-cultural concept among the poor—solidarity support for one another when starting a productive project such as building a house for newly-weds. Bayanihan is supplemented by the concept of damayan (helping one another in bad times) and tangkilikan (helping one another sustain a growing project such as a farm business or a cooperative). Promotion of solidarity economy based on the triple concepts of damayan, bayanihan and tangkilikan can make the informals and entrepreneurial poor rebuild jobs and communities. In this program, government and civil society should join forces in providing credit, technical and digitalization assistance to the solidarity economy builders.
To be continued in the next issue
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