President Duterte's economic managers are pushing four legislative “imperatives” that include revitalizing the agriculture sector and tapping state banks to come to the rescue of distressed businesses, to help ensure that the economy recovers quickly from the coronavirus-induced crisis in a “strong, sustainable, and resilient manner," according to Finance Secretary Carlos Dominguez III.
In presenting these imperatives to the business committee as head of the economic team, Dominguez underscored the need for all proposed economic stimulus measures, including those pending in the Congress, to be fiscally responsible and sustainable.
Dominguez said these four imperatives needed to spell a quick and strong bounce back for the economy are: (1) infusing more capital to government financial institutions (GFIs) to enable them to assist micro, small and medium enterprises (MSMEs) and other companies hit hard by the coronavirus disease 2019 (COVID-19) pandemic; (2) allowing banks to dispose of non-performing loans and assets; (3) reducing the corporate income tax (CIT) rate from 30 to 25 percent and other investor-friendly reforms through the swift congressional approval of the recalibrated Corporate Recovery and Tax Incentives for Enterprises Act (CREATE); and (4) amending the Agri-Agra Reform Credit Act to make it easier for banks to pump fresh capital into the farm sector.
“Even with a strong and resilient economy, our funds are not limitless. What we constantly underscore with various stakeholders, including the Congress, is the need to have a realistic economic recovery program that is fiscally sustainable because we do not know how long this pandemic will last. Support from the government must be targeted and focused on efforts that will yield the highest multiplier effect on the economy,” Dominguez said at the opening of the Sulong Pilipinas e-conference with the business community held Monday (June 8).
The online ‘Sulong Pilipinas: Partners for Progress’ hosted by the Department of Finance (DOF) and the National Economic and Development Authority (NEDA) gathered around 600 representatives from MSMEs, local chambers and industry associations under the umbrella of the Philippine Chamber of Commerce and Industry (PCCI) to discuss how the economy can bounce back quickly and emerge more resilient from the COVID-19 crisis.
PCCI is the country's biggest umbrella group of business organizations comprising over 30,000 large enterprises and MSMEs.
Dominguez said during the Sulong forum that while the various stimulus proposals being discussed in the Congress are all well-intentioned, these should conform to the constitutional parameters that determine how these measures should be funded.
“The Constitution specifically requires the certification of excess funds and new revenue sources to support the passage of any supplemental budget. In running a business or a company, we know that borrowings or loans are not revenues. We appreciate the wisdom behind the Constitutional provision for in the absence of additional revenues or income, we jeopardize our fiscal sustainability,” Dominguez said.
Article 6, Section 25 (4) of the Philippine Constitution states that: "A special appropriations bill shall specify the purpose for which it is intended, and shall be supported by funds actually available as certified by the National Treasurer, or to be raised by a corresponding revenue proposed therein."
Dominguez said the economic team’s first priority that requires legislative approval is the infusion of additional capital to GFIs such as the Land Bank of the Philippines (LandBank), the Development Bank of the Philippines (DBP) and the Philippine Guarantee Corp. (PhilGuarantee) to allow them to extend aid to MSMEs and “strategically important” companies that were the hardest hit by the COVID-induced global economic slump.
Under the proposal, LandBank and DBP will also serve as rediscounting agents for small and medium-sized banks and microfinance organizations, to get money out to the countryside and revive the rural economy, Dominguez said.
“The multiplier effect of every one peso capital released by banks is 8 and a half times, while a bigger 20 times is generated by guarantees,” he said.
For larger firms, Dominguez said LandBank and DBP should be authorized, through a holding company structure, to make equity investments in companies critical to national interest that are now experiencing solvency problems, subject to stringent conditions.
These conditions include limits on dividends; non-dilution of equity; limits on the bonuses, allowances, retention and incentives of the senior company executives; clawbacks on bonuses; no golden parachutes; and the curtailment of luxury expenditures such as private aviation and transportation services.
“Once this joint venture investment company is organized, we intend to invite multilateral agencies, foreign and domestic investment companies to participate in this company,” Dominguez said.
On the proposal to allow banks to dispose of non-performing loans and assets, Dominguez said these will be done through asset management companies that are similar to special purpose vehicles.
Proposed amendments to the Agri-Agra Law will be done to arm the banking system with the ability to support the whole value chain of agri-enterprises, but with reduced friction costs and with feasible alternatives that will let them comply with the law’s requirements of lending to the agriculture sector, said Dominguez, a former agriculture secretary.
On the need to approve the CREATE bill, Dominguez noted that the benefits under this measure gets pushed back with each passing day that the Congress delays its passage.
Had the bill been approved before the sine die adjournment of the Congress last week, he said the business sector would be enjoying a corporate tax cut of 5 percentage points starting next month.
He said CREATE also includes expanding the net operating loss carryover (NOLCO) to five years so that businesses can use losses incurred in 2020 to lower their tax burdens until 2025; extending to up to 9 years the transition period to a new, highly targeted, performance-based, and time-bound incentives system; and providing the President with the authority to grant longer tax and non-tax incentives for specific investments that will further stimulate the economy and create more jobs.
“We hope that each of you here today will tell your legislators that this is a reform that you want, that you need it as soon as possible,” Dominguez told the business leaders in the forum.
Dominguez pointed out that CREATE, the largest fiscal stimulus plan for enterprises in the country’s history, is “about trusting the private sector” to revitalize their businesses, retain their employees and create even more jobs for Filipino workers, rather than the government spending money on less efficient programs.
He thanked the PCCI leadership, led by its president Ambassador Benedicto Yujuico, for its full support for the immediate passage of the CREATE bill “as a much-needed boost to the recovery of the Philippine economy” and also for helping organize the annual Sulong Pilipinas events since its inception in 2016.
Dominguez noted that PCCI has been a "reliable partner" in the annual Sulong consultations since the first one was held in Davao City in June 2016 before then-Mayor Rodrigo Duterte assumed the presidency.
Among the reform measures that PCCI and other stakeholder groups have helped the government draw up at the end of these Sulong forums, said Dominguez, are the President's signature initiative "Build, Build, Build," Comprehensive Tax Reform Program (CTRP), Ease of Doing Business (EODB) Law, National Identification (ID) Law and Rice Tariffication Law (RTL).
As for the concerns raised by the economic team on the stimulus bills pending in the Congress, Dominguez stressed the following: (1) decisions for the provision of credit should not only be coursed through, but be determined and managed solely by, GFIs, which possess the expertise on such functions rather than the various executive agencies with different mandates; (2) cash-for-work programs are best redirected toward pressing needs related to managing the pandemic, such as hiring of contact tracers; and (3) wage subsidies should be fiscally viable and their beneficiaries should be from areas that remain under the enhanced community quarantine (ECQ), with distribution of the grants done via digital payout technologies.
“I am confident that any of these proposals I have enumerated can be enhanced by your insights. As local and national business leaders, you have a great handle on the situation at various levels of Filipino life,” Dominguez said. “This is precisely the point of Sulong Pilipinas, which seeks to involve Filipinos from different sectors in determining policy priorities and crafting reforms accordingly.”
He noted that last month’s e-Sulong forum focused on youth participants also produced “insightful recommendations” to help the country recover from the pandemic.
Some 400 youth leaders from 100 schools and 35 student organizations participated in last month's e-Sulong, the first such forum this year.
Dominguez voiced optimism that the economy could bounce back quickly, given its strong fundamentals, as reflected in the low inflation rate, the strong peso, high and stable sovereign credit ratings that are within striking distance from the sterling ‘A’ grade; the low coupon rates and high premiums of the government’s recent US dollar-denominated global bond issuances; and the Philippines landing in 6th place in The Economist magazine’s ranking of 66 emerging economies in terms of financial strength.
“Our strong macroeconomic fundamentals—the products of President Duterte’s hard-won policy battles—make us hopeful that the pain brought about by this crisis will be short and our recovery will be strong,” he said.