Neo-liberal economist Ernesto Pernia has resigned from his post as socio-economic planning secretary of the Duterte administration because of manifested differences in economic philosophy between him and other members of the cabinet who formed the Inter-Agency Task Force for Covid-19 crisis.
Pernia was reportedly advocating for a “modified lockdown” scenario for the post-April 30 period with a proposal for a resumption of critical infrastructure projects, reopening of business, and return to work of workers. He emphasized that the Philippines is a market economy, which means that our primary engine of growth is the private sector.
The resumption of work and business activities under a modified lockdown scenario suggests that it would cushion the negative effects of Covid-19 on the economy. Pernia’s proposed steps might have been a “rescue mission” so that the Dutertenomics will not further deteriorate. But there is no turning back, President Duterte’s administration is already held captive by the impacts of Covid-19 especially on the economy.
According to the International Monetary Fund (IMF), Covid-19 will bring the worst economic fallout since the Great Depression (1929 to mid-1930s). “This crisis knows no boundaries. Everybody hurts,” said IMF managing director Kristalina Georgieva.
Georgieva added that “the bleak outlook applies to advanced and developing economies alike.” The outlook demonstrates that the Philippines is included, considering the fact that our economy is inter-connected with the rest of the world – globalized market economy. As a member of a globalized economic network, the Philippines could not just move forward alone while the rest of its associates are reeling from the impacts of Covid-19.
Everybody is now struggling for a bailout support. Nearly half of the world’s nations or around 90 countries have already inquired about bailout package from IMF. World Bank, on the other hand, have received inquiries regarding its program from at least 60 countries. The Asian Development Bank have likewise mobilized debt facility for countries who needs finance support.
Apparently, Covid-19 have exposed the fiscal health of every economy, advanced or developing, and that is without exception to the Duterte administration. For a country with a president who is overflowing with machismo chitchat yet with an insufficient resources to fund needed actions, the post Covid-19 Dutertenomics horizon is evident – inflation, taxes, and borrowings.
Finance secretary Carlos Dominguez have declared that government could increase borrowings from multi-lateral and commercial banks for post Covid-19 bounce back stimulus package. Dominguez affirmed that the country has strong macro-economic fundamentals in 2019 comprised of a 5.9 percent GDP growth; high revenue effort of 16.9 percent; manageable debt-to-GDP ratio at 41.5 percent; and with an inflation rate of 2.5 percent, which was well within the target level as of March 2020.
In spite of claims that the country has a strong economic fundamentals, however, the disruption that Covid-19 have caused on the economy vis-à-vis global economy have crippled gains. The figures speaks for itself and Georgieva’s “everybody hurts” rings true while the economic wound goes deeper.
First, debt will hurt. Debt servicing will be the Duterte administration’s legacy in parallel with the war on drugs. This is demonstrated in the Four Pillar Socio-Economic Strategy Against Covid-19 prepared by the Dept. of Finance which requires a P1.4 trillion budget. The 4-Pillar bounce back package is made possible from various sources and with a P310-billion borrowings from World Bank and the Asian Development Bank.
Second, tax will hurt. The country is expecting zero growth, but tax reform must proceed, said acting socio-economic planning secretary Karl Chua. He emphasized that “borrowed money does not come free from heaven and our children and grandchildren will be paying the money that government will borrow today.”
The component of the Tax Reform for Acceleration and Inclusion (TRAIN) law due for implementation this year is expected to proceed if the Duterte administration will adopt Chua’s stand that funding the health crisis requires the passage of tax reform package.
Chua have mentioned the pending tax packages that needs to move in Congress: the proposed Corporate Income Tax and Incentives Reform Act (Citira), the Passive Income and Financial Intermediary Taxation Act (Pifita), and the real property valuation reform bill.
Definitely, the government will not be able to attain tax collection target for this year considering weak trade and the slowing down of domestic demand; hence, it intends to move other components of the TRAIN law.
Budget deficit will hurt. While Sec. Dominguez underscored strong macro-economic fundamentals, he has projected zero to 0.8% negative growth hovering over us for the rest of the year. It means that we are also expecting budget deficit to balloon to 5.3 percent of the GDP.
Budget deficit was already at P14.6 billion in the first two months this year – the onset of Covid-19.
Lastly, the ultimate hurt. What is hurting is not only the economy – people’s trust and confidence on the Duterte administration is wounded. This is brought about by its ability to “divide and rule,” rather than to unite and collectivize people for a concerted action.
Low trust and confidence is a prevailing perception by many Local Governments, business, and people who received deficient support from the national government in this period where it is most needed. The perception is also reinforced by weak systems during the pandemic and by the many incompetent officials who were appointed to the position.
The projected economic indicators is only one element that drives economic recovery. The circumstances remains fluid and both the economic and political elements are expected to evolve in the coming months. The consolidated impact of Covid-19 remains immeasurable and the situation can change for the better or it may turn for the worse, depending on the ability of the Duterte administration to employ economic interventions and political unity.
Creating a momentum for recovery is not all about money. It also needs renewed trust and confidence in the government.