‘Bold, aggressive, quick’ fiscal policies urged

Published November 16, 2020, 6:00 AM

by Bernie Cahiles-Magkilat

As the domestic economy continued to battle the impact of COVID-19 and the devastation from successive typhoons, Senator Imee Marcos urged the Duterte administration’s economic managers to be ‘bold, aggressive and quick’ economic stimulus response instead of the current “anemic” stimulus economic package and craft incentive policies that will lure foreign investments rather than scaring investors away.

            In a speech at the Q4 General Membership Meeting/CEO’s Forum of the Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI), Marcos, who chairs the Senate Committee on Economic Affairs, has criticized the economic stimulus response the Duterte government’s financial managers have come up with. 

Senator Imee R. Marcos (Senate of the Philippines / MANILA BULLETIN)

            She cited the warnings from Stiglitz and other global economists about global liquidity trap because of global loss of demand following the obsession of consumers to save and slash expenditures as part of belt tightening and spending only for essential goods.   

            “I fear that we in the Philippines have failed to come up with a serious, massive and quick fiscal response. It is important that we do that as soon as possible,” she said even she lauded the Bangko Sentral ng Pilipinas’ P1.9 trillion-worth of liquidity in the market buying local securities, lowering interest rate, reducing and diversifying reserve requirement ratios of banks.

Marcos explained that this monetary policy does not have immediate effect, nor able to stimulate demand quickly. Already, she noted of solvency risks that predominate vulnerable but viable companies that need accompanying fiscal support. “This is where I think we are very slow and timid in responding,” she said.

She raised concerns of a worrying consensus that a prolonged low interest rate has already promoted, excessive risk-taking speculation, which only hides financial stability risks. “The striking disconnect of financial markets from real activity in the recovery of COVID-19 reinforces these notions. Here in the Philippines, this is probably best explained by the suddenly buoyant stock market. So, it is so important that we avoid this,” she said.

Likewise, she also cited the greater risk of currency wars. She said noted that local economists are already calling for the cutting of exchange rate and the weakening of the Philippine peso to avoid a potential global liquidity trap.

To prevent a liquidity trap, she encouraged government spending and not just lending. According to the senator, fiscal authorities must channel funds to actively support demand through cash transfers to support consumption, large scale investment in medical facilities, including many of the products of SEIPI and digital infrastructure depending on output and environmental protection.

A vigorous and robust fiscal response should prevent the liquidity trap. The senator has pending bills on old SPAV (special purpose vehicle) Act, FIST (Financial Institution Strategic Transfer) Act to facilitate the transfer of non- performing assets to financial institutions, and GUIDE Act an urgent legislative measure to expand credit and rediscounting facilities of government banks to assist strategic projects in agriculture, infrastructure and manufacturing. Other pending legislative measures include amendments to the Foreign Investments Act to attract more foreign capital into the country.   

She also noted that the e-commerce acceleration and much vaunted automation represent great opportunity. 

“What can government do to assist in this transformation. I believe that we have to be far more aggressive, far more serious and much quicker on the draw than we have been. I have become very, very impatient. It may have something to do with my age, but surely we must respond nimbly and very, very seriously,” she said.

The eldest child of the former dictator President Marcos even criticized the pending Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill at the Senate, which she described a two-headed monster because while it seeks to reduce corporate income tax it also removes the current incentives being enjoyed by investors. CREATE seeks to remove the 5 percent tax on gross income earned (GIE) enjoyed by investors to be replaced by 10 to 15 years of income tax holiday.

At this time of real difficulties due to the pandemic, Marcos believes that changing the incentives regime is ill-timed.

She cited though the proposal for “grandfather rule” as a good move to ensure continuity and stability of incentives for existing investors.

But, she warned, the imposition of new rules on incentives would make everyone wary of new investments. The push for a new incentives regime, she said, has also derailed many of the plans for expansion.

The senator would rather like to retain the 5 percent tax on GIE for exporters registered with the Philippine Economic Zone Authority.

“But to my mind, it is simply not the moment to scare investors with new rules of the game,” she said.

She lamented the fact that of the more than 38 companies that left China, the bulk hurried to relocate in Vietnam while the rest landed in Thailand and Indonesia, but almost nothing in the Philippines.

“Why are they not coming to the Philippines? And why is there a big rush to go to Vietnam. This is the question that we must ask ourselves, the financial managers,” she added.

She cited the huge economic stimulus package other countries are spending for their economies. Stimulus packages of Vietnam and Indonesia are at 10 percent of their GDP, Thailand 16 percent, Malaysia 22 percent while Europe has spent 20 percent of GDP as against the Philippines’ 5 percent.

            “We have a very anemic response. I think we need to throw much more money.

There’s no ifs or buts. To my mind, we need to embark on more spending,” she said urging to put more money in the pockets of consumers to spend within a timeframe to ratchet up spending and stimulate the economy. He also the same prescription by the IMF and World Bank, which already offered debt moratorium for suffering economies like the Philippines for at least two years.

            She raised the possibility of a bigger Bayanihan 3 economic stimulus package stressing that the previous two Bayanihan laws were just too small. She warned that any smaller follow up stimulus could only erase previous efforts to shore up the economy. Marcos was batting for P750 billion economic stimulus in the original Bayanihan law.

            Even in this time of crisis, Marcos said, there are opportunities to make the Philippines a genuine export hub for manufacturers.