[ANALYSIS] ‘Freezing’ the PH economy: Can we survive it?
The Philippine economy needs to pull a Han Solo.
If you’ve ever watched Star Wars: The Empire Strikes Back, one of the most iconic scenes is the “carbon-freezing” of Han Solo (played by Harrison Ford).
He was flash-frozen and encased in a substance called carbonite, such that he still lived and his vitals were kept intact. He was later thawed and brought back to life at another side of the galaxy.
In the time of COVID-19, economists argue the economy also needs a similar freezing.
To stop the coronavirus in its tracks, everything needs to be shut down – except the bare necessities for society to function. Later, once this nightmarish epidemic is over, we can similarly thaw the economy and stimulate it no end.
Such an economic hibernation, as you might expect, is extremely costly. Thousands of businesses might close shop, and even more workers will be thrown out of work, save those lucky enough to work from home. Millions could go broke and hungry.
To prevent widespread despair and chaos, government must pull out all the stops and provide billions worth of financial assistance to almost everyone in the economy – at least until this pandemic ends.
But what kinds of financial assistance should the Duterte government provide? How large should these be? Are they forthcoming? Do we have the money?
Menu of assistance
Financial relief could come in many forms.
Workers. Government must ensure that workers can still pay their bills – and buy groceries, medicines, and other necessities – even if they can’t show up at work.
One way to do this is by subsidizing and expanding paid leaves or directly handing them unconditional cash transfers.
To avoid a wave of defaults and foreclosures throughout the economy, zero-interest personal loans, interest waivers, and loan and rent payment extensions could help.
Not every worker will stay on the payroll. For those who will be laid off or forced to work fewer hours, unemployment insurance – equivalent to their full salaries and lasting several months – could tide them over.
Businesses. As people hunker down at their homes, lots of businesses will lose cash flow. With bills to pay, many businesses might be forced to fold.
Some suggest billions worth of corporate grants or bailouts. But the last thing we need right now is to needlessly line the pockets of big corporations and their shareholders. Economists prefer instead zero-interest business loans: at least taxpayers can get their money back once business resumes as usual.
Another way to help businesses is by extending tax payments and the filing of tax returns. Government might also consider tax relief and tax credits for firms that, say, promise they won’t lay off any of their workers.
The poor. Most of all, government must look after the welfare of millions of poor Filipinos, as well as workers in the informal sector – vendors, street sweepers, tricycle drivers – for whom no amount of paid leaves or unemployment insurance will help.
Handing out money to the poor should be relatively straightforward because there’s an infrastructure in place, thanks to programs like the Pantawid Pamilyang Pilipino Program (4Ps).
But even simpler is a temporary universal basic income (UBI) which involves giving every Filipino (or Filipino household) a fixed amount of money to help tide them over.
'Bayanihan to Heal as One'
To its credit, the Duterte government has already incorporated a number of these financial remedies in the “Bayanihan to Heal as One Act” signed by Duterte in the wee hours of March 25 (read the full text here).
For instance, for two months, government promises to give 18 million of the poorest households an “emergency subsidy” ranging from P5,000 to P8,000 a month.
The Bayanihan law also expands and enhances 4Ps to include households not currently enrolled in it.
The law also mandates a 30-day grace period for the payment of rents and loans. It also postpones the payment of taxes and filing of tax returns.
To ensure the availability of credit, the law also provides for the lowering of interest rates and the reserve requirements of banks (although the Bangko Sentral ng Pilipinas or BSP already did these over the past week).
Finally, under the law Duterte could also “reprogram, reallocate, and realign” savings from other budget items of the executive to help communities and industries affected by COVID-19.
Although a good start, the Bayanihan law is not enough.
First, will the emergency subsidy of P5,000 to P8,000 be enough for a family of, say, five, to replace lost income and survive this shuttered economy?
Recall that a few years back people were outraged by suggestions supposedly coming from government that P10,000 will suffice for a “decent life.” What more now?
Second, the Bayanihan law fails to provide a specific amount of financial assistance to businesses, especially small ones.
Congress needs to pass a separate spending bill for this, like the P108-billion package crafted by Marikina Representative Stella Quimbo which includes P50 billion worth of loan packages and subsidies for micro, small, and medium enterprises.
Unfortunately, Congress might not tackle a proper “stimulus” package until May – by which time many businesses may already have gone bankrupt.
Third, the law seems to underestimate the magnitude of the economic problem.
A group of economists from the University of the Philippines recently estimated the government needs anywhere from P100 billion to P300 billion to “protect our people, avert a recession, and arrest the misery” wrought by the coronavirus.
In a much-awaited report, meanwhile, the National Economic and Development Authority (NEDA) estimated our economic losses could fall somewhere between P429 billion and P1.36 trillion.
By itself, the emergency subsidy for poor households already costs about P270 billion (assuming a mean payoff of P7,500 per household per month).
Can Duterte raise such sums just by shifting around savings from existing projects?
At any rate, the whopping P300 billion liquidity infusion of the BSP should give the national government some financial leg room. Finance Secretary Carlos Dominguez III is also scouring for loans from multilateral agencies amounting to $1 billion-$2 billion.
Fourth, there’s the issue of transparency and accountability.
The Bayanihan law requires Duterte to report every Monday all uses of funds and how he realigned savings for the COVID-19 effort.
But I pointed out weeks ago that the Duterte government has been fiscally irresponsible of late. (READ: How the budget deficit exploded under Duterte’s watch)
With billions of additional funds soon at Duterte’s disposal – and a spotty track record of transparency and accountability – we should all watch the money trail closer than ever.
Can we pull through?
For the first time since 1998, the Philippine economy could shrink. But it’s a necessary shrinkage: we have no choice but to “carbon-freeze” our economy and put it in hibernation until we rein in COVID-19.
Han Solo did eventually survive and recover from forced hibernation.
Will Duterte’s Bayanihan law allow the Philippine economy to pull through as well? – Rappler.com
The author is a PhD candidate and teaching fellow at the UP School of Economics. His views are independent of the views of his affiliations. Follow JC on Twitter (@jcpunongbayan) and Usapang Econ (usapangecon.com).