Taking a long term view

Published September 7, 2020, 10:00 PM

by Dr. Bernardo M. Villegas

Part 3

As President Duterte announced in his State of the Nation Address last July 27, 2020, the Government will play a leading role in addressing the challenge of the recession that is expected for the next twelve to eighteen months.  It has already disbursed P32 billion  cash grants that have been given to some 5.1 million poor households to help them to protect their purchasing power during the pandemic. Furthermore, Congress is considering an additional P140 billion stimulus fund.   Also very crucial is the help to Micro, Small and Medium-Scale  (MSME) enterprises in the form of subsidies to their employees amounting to some P51 billion.  The Social Security System (SSS) is also helping out in the pump priming of the economy by giving loans amounting  to P7.5 billion.  To assist in the transition of many sectors like banking, education, trade and entertainment towards digital solutions, the Government Service Insurance System (GSIS) is offering loans of a maximum of P30,000 per individual for the purchase of computers and other digital devices.  This is especially crucial in the shift of education from in-person classroom instruction to online and blending learning.  Many families are struggling to continue supporting their children who want to enrol in high-quality private schools.  The Land Bank has launched a study now, pay later program with an initial P260 million fund.  Fortunately, there are private fund managers who have discovered the educational loan program as a way of investing their funds that can yield reasonable rates of return, considering the very high priority given by middle-income households to the education of their children.  In fact, there are real estate companies that are also taking advantage of this priority for quality education of middle-income families by building condominium towers close to the University of the Philippines, Ateneo University, De La Salle University, the University of Sto. Tomas in the Metro Manila area and similar university cities all over the country so that parents can invest part of their savings in these very sellable units in which college students can stay while they are enrolled  in these quality universities.

As Secretary Carlos Dominguez reported in his pre-SONA address, other government programs to help the economy to recover from the recession brought about the pandemic are the infusion of additional capital to government  financial institutions; allowing banks to dispose of non-performing  loans and assets; immediate passage of the CREATE bill that, among other benefits, will lower corporate income taxes (from 30 percent o 25 percent) which can infuse further liquidity to the economy through increased private investments; and  a significant increase in the support to the agricultural sector, especially in the improvement of rural infrastructures.  Another possible government initiative that was proposed in a Webinar for CPAs and auditors last July 28 is to increase the amount that the Government is spending to directly address the pandemic (former NEDA Secretary General Ernesto Pernia pointed out that the Philippines has the lowest per capita expenditure on directly addressing the COVID-19 crisis among its ASEAN peers).  This can be done by shifting part of the huge budget for the Build, Build, Build infrastructure projects away from some of the urban infrastructures that are facing all sorts of technical delays because of right-of-way and other legal and bureaucratic reasons toward bigger investments in the capital and operating budgets of the Department of Health and the Department of Education.    This would be an effective way of increasing consumption further in the two sectors that logically  are leading whatever growth is happening in the economy:  the health and wellness sector and educational sector.

Since, as mentioned above, there is great potential for a quicker recovery in the OFW sector, it is paramount that Congress should act as soon as possible on the request of the President in his last SONA to create  a Department for OFWs.  As he said this sector is sufficiently important to the Philippines , not only on economic grounds but on humanitarian considerations  that we cannot continue with the present practice of treating the offices that have to do with OFWs as appendices of the Department of Labor and Employment   (DOLE).  DOLE  is already swamped with too many problems and concerns affecting the very large domestic labor force that there is very little  attention paid to the welfare of the people we call heroes, the OFWs.  This became evident in the very inefficient way tens of thousands of OFW returnees were treated during the height of the pandemic.  Some of them were forced to live under bridges while they were waiting to go home to their respective provinces or in public places ill suited to social distancing required of people during the pandemic.  Having a separate Department promoting the welfare of OFWs could improve the attention the Government is paying to these very important resources of our economy.

 As a final note, I would like to strongly recommend that our monetary authorities seriously consider the disservice we are giving to the OFWs and their families by allowing the peso to appreciate.  This is one time when we should manage the currency to make  it depreciate (say from the P49 to P50 level  to an average of P52 to P53 over the next six to eight months).  This moderate depreciation of the peso will have two salutary effects.  First, it will stimulate higher consumption on the part of the relatives of the OFWs who will now be receiving more pesos for every dollar they receive, also helping them survive better the economic slowdown.  The second benefit is that a  depreciated peso may help boost our manufactured exports, competing more  effectively with our peers like Vietnam and Indonesia.  These countries have lower minimum wages and electricity rates and in the case of Vietnam a more attractive environment for Foreign Direct Investments. A depreciated peso may help in making our manufactured exports a little more competitive. Furthermore, with record low domestic inflation rates of 2 to 3 percent,  a peso depreciation is very unlikely to lead  to inflationary forces.

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