If the fundamentals weren’t sound, as Winnie Monsod asserts in her Inquirer piece “So much for sound fundamentals”, we’d be worse off to begin with. Mareng Winnie attempts to dismiss even the smallest iota of optimism in the prognoses issued by the country’s economic managers saying these are all just coming from people whose job is to “always cast things in their most positive light.”
Finance Secretary Carlos Dominguez has been proactive in addressing the economic disruption caused by the pandemic. The Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Act) has been passed. This is Package 2 of the Tax Reform Program which has been amended as part of the administration’s adjustments to the pandemic. CREATE lowers the corporate income tax rate and rationalizes fiscal incentives and was designed to provide fiscal stimulus to domestic corporations. The Financial Institutions Strategic Transfer (FIST) Act has also been passed. This law allows banks to offload their non-performing loans in order to maintain their financial standing and capital ratios. FIST is an upgraded version of the Special Purpose Vehicle Law which was passed in response to the Asian financial crisis of 1997 only after five years or in 2002. FIST will allow banks to dispose of their non-performing loans (NPL) portfolio in order to preserve their asset base and maintain the integrity and viability of the Philippines’ financial system.
Banks are also given incentives and privileges upon the incorporation of an Special Purpose Vehicle (SPV) for this purpose. It also guarantees that the rights of the borrowers under existing laws are not impaired. The GUIDE Act is pending before the Senate. The last measure is the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery Act. GUIDE allows government financial institutions to form special holding companies to extend bridging equity funds to Micro, Small and Medium Enterprises (MSMEs), strategic to economic recovery but temporarily experiencing liquidity issues due to the pandemic. GUIDE also allows Government Financial Institutions (GFIs) to expand their credit programs for MSMEs under Bayanihan 2.
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Mareng Winnie, as an economist, is cognizant of the reality that growth forecasts aren’t cast in stone. The economic cluster chaired by Dominguez has to perform a delicate balancing act between borrowings and maintaining the viability of the country’s fiscal position. As it is, the government has been able to maintain its debt-to-GDP ratio at 54.5%. The comparative figure for the ASEAN 5 is 51.5%. Borrowings have increased due to pandemic response but these are at preferential rates owing to the excellent credit rating of the country in the financial markets abroad. The Department of Finance has been closely monitoring the debt mix even before the pandemic. Both the debt stock and the amount of interest on borrowings were actually down pre-pandemic.
The Philippines is nowhere near an economic crisis that is being bruited about by the Opposition’s prophets of economic doom. We are not the “sick man of Asia” again. In fact, our reserves are more than enough pay for all external debt. The Build Build Build (BBB) Program continues as the main pump-priming activity of government together with the continuing social amelioration program.
It’s easy for “economists” in the Opposition to push for amelioration stimulus but the issue is money once spent is spent. The administration hasn’t been able to fully plug the infrastructure gap in five years. The BBB is a better investment because it provides employment, tax revenues and stimulates economic activity leading to growth. As Professor Emeritus at UP, Mareng Winnie should know better. Riling the public in a time of crisis doesn’t do anyone any good.
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