'Government plan not a good cushion'

By Cai U. Ordinario, Business Mirror

Posted at Feb 18 2009 11:11 AM | Updated as of Feb 18 2009 07:11 PM

The national government's P330-billion Economic Resiliency Plan (ERP), or simply stimulus plan, may not be enough to boost the economy as the global economic recession deepens, according to an expert.

In a presentation at the Forum on the Impact of the Global Financial Crisis, University of the Philippines economist and former budget secretary Dr. Benjamin Diokno expressed reservations on the ERP's feasibility.

Diokno said he doubts whether the ERP will be able to help the economy especially because the plan, in his opinion, merely rehashed and recycled financial programs.

Instead, Diokno said, the government needs to focus on labor-intensive projects that are doable within the year—such as road maintenance—and involve local governments in the implementation.

"Local government units [LGUs] from 81 provinces, 136 cities and some large, first-class municipalities should be involved in the reconstruction, repairs and maintenance of local roads," Diokno said.

All state projects funded under the fiscal-stimulus program should be transparent. This, Diokno said, could be done by posting all projects in the ERP on the web site of government agencies, complete with descriptions, contractors' names, funding agencies and updates.

Overall, Diokno said all programs and projects should be strictly monitored and fiscal accountability observed. This is crucial as he expected the country's revenue shortfall to shoot up to P100 billion this year from P60 billion last year.

However, the executive director of the FMIC-University of Asia and the Pacific Capital Markets Research, Dr. Victor Abola, said that despite the gaps, the ERP will be able to "stimulate" the economy.

Abola said in the last two quarters of 2008 alone, government spending was crucial in keeping the economy afloat. Coupled with low commodity prices, any amount of government spending would stimulate the economy.

"At the end of the day, what matters is how much [the government will be able to pump into the economy]. The increase in growth of government spending was above normal. I don't agree that government will not be stimulative in 2009," Abola said.

According to the National Economic and Development Authority, the P330-billion ERP is composed of a P160-billion increase in the national budget; P100 billion for government corporations, financial institutions and the private sector; P40 billion for corporate and individual income tax breaks; and P30 billion in temporary additional benefits from the Government Service Insurance System (GSIS), Social Security System (SSS), and Philippine Health Insurance Corp.

However, Diokno said the P160-billion budget increase is "bloated" and the real increase is only P75 billion. He explained that P85 billion of the P160 billion is for the increase in personal services or salaries and wages of government employees as, well as the Internal Revenue Allotment (IRA).

Most of the increases in salaries and wages have already been made part of the government's plan, while the increase in IRA was proposed in 2009 but legally mandated under the Local Government Code of 1991.

"It matters whether the project to be funded is labor-intensive or capital-intensive—in some cases, land-intensive like an airport—or whether the project is small or large," Diokno added.

In terms of the P100-billion infrastructure plan, Diokno questioned the involvement of private individuals in identifying, selecting and funding public works.

The government said the P100 billion would go to long-term projects chosen from the P1.5-trillion Comprehensive Integrated Investment Program. The government said the private sector would be given the chance to choose which projects they can fund. Diokno also asked how the government intends to promote transparency and fiscal accountability in the use of money from Development Bank of the Philippines, Land Bank of the Philippines, GSIS and SSS.

"How soon can these projects get implemented? Details are sketchy. [It will] likely not take off," Diokno said.

The reduction of the corporate income tax to 30 percent from 35 percent should not be counted as a fiscal stimulus, he stressed, because it was part of a law passed in 2005. As for the personal income-tax exemption for minimum-wage earners, Diokno said, this was implemented in 2008.

"It has been announced even before the global economic crisis. [It] won't have much effect in an environment where corporate profits are contracting. [The] tax cut for personal income tax was also implemented in 2008 and fully integrated in the individual income stream. It's not new and therefore should not be counted as part of
the fiscal-stimulus package."

As for social safety nets, Diokno said, the details are "sketchy" as laid out in the ERP. It includes condoning interest and penalties for loans of those who lost jobs. This does not make a difference in terms of consumer behavior since there is no direct increase in consumer income, he said, adding that even if it makes a difference, consumption behavior may not change for long because the increase in income is temporary.