COLUMN:  MONETARY  SOLUTIONS  TO  OUR  FISCAL  PROBLEM

MANILA, January 31, 2005 (STAR) By Atty. Romeo G. Roxas  -  Monetary reforms and the shift of our monetary policies are the solutions to our persistent fiscal problem. The monetary solution is the extension of long-term, low-interest credit at the proper amount to enable local business entities to perform their economic functions of employing people, producing goods and rendering services as well as paying taxes to government. Without viable credit extended to them, local enterprises cannot contribute their vital role of improving the economy and uplifting society.

Sad to say, the Monetary Board, which is the policy-making body of the Central Bank and the lead agency in defining the monetary policies and directions of the country, has been acting more as a regulating and regulatory office with respect to credit and the level of money supply. It has not fulfilled its progressive mandate of assuming a lead role towards the establishment of a healthy and expanding economy. On the other hand, the Monetary Board has only succeeded in presiding over the deterioration of our economy into the moribund state that it is.

This is not surprising. A cursory look at the charter of the Central Bank readily reveals that, by law, the primordial mandate of the Bangko Sentral is to maintain price stability, meaning to control inflation. Even so, the Central Bank has never really successfully put a check on inflation as we witness the continuous rise in the prices of even the most basic of goods and services beyond most of our impoverished people to afford.

We ask then why the Central Bank has failed even in its primary mandate to maintain price stability? The answer should be clear. It is simply because our Bangko Sentral has never properly addressed the problem of the inadequacy of our money supply. Truly, the present level of money supply is way below the requirements for the development of the country. As a natural consequence, there is not much in the manner of extending credit in the right amount (quantity), the right period (term), and at the least interest (cost).

Bearing in mind that effective governance is nothing more than the prudent management of resources, it should be all too clear that good government cannot be successful without the continuous flow of money to the economic players in the society. Just like a ricefield that cannot produce a bountiful harvest without continuous water, so will business not grow without a continuous supply of money.

As it is, this valuable commodity we call money has not been successfully provided to the people who needs it. Our local business enterprises and companies who have to rely merely on financing through their own meager resources cannot, in turn, be expected to expand and grow, employ more workers, pay higher and better wages, be globally competitive with their foreign counterparts, and pay more taxes for the government’s coffers.

It is against this backdrop that we draw on the sense of mission of the IMF, which is to help foster economic development especially in the less developed countries, in order to assume a truly responsive and sympathetic role in our country’s guest to avail of valuable credit. While it appears that oftentimes we have no alternative but to seek foreign funding from international multilateral agencies, we request of the IMF to kindly impose only conditionalities that are consistent with and supportive of our desire for economic self-sufficiency and progress.

Being an international agency for world development, we can be hopeful that the IMF and other foreign lending agencies will grant developing nations such as the Philippines reasonable terms and conditions for access to their credit facilities.

The more lasting solution, of course, to the alternative our government of seeking foreign loans to fund local development, is to undo the provisions in the very own charter of our Central Bank that prohibits it to buy government bonds and securities. With this prohibition on the part of the Bangko Sentral to extend local credit to the government, we have been tied down to the provisos of the IMF as and when we seek for their credit assistance, as we continuously do so.

We call on, therefore, our policy-makers to revisit and review our monetary policies with the end in view of making our monetary planning independent from external impositions and responsive to the ultimate goal which is to achieve, not merely price stability, but more importantly the total development of the country. This first and foremost goal of economic development and progress should be the ultimate vision of government as it harmonizes all the different players in the economy.

The resultant economy, of course, is a product of the interaction of several economic factors. Yet the most significant factors are always the government and the business sector. More precisely, the relationship between government and business is a vital cog in assuring the economic well-being of the country and people. This relationship must be symbiotic and forged as a true and real partnership.

Obviously, because of external economic factors and forces beyond the control of government and business, there will be disturbances in the fiscal performance of government owing to shortages in revenues that could not meet all the necessary expenses of government. Hence, budget deficits occur.

These are, however, temporary fiscal imbalances which can be corrected and solved through the proper monetary policies and thrusts. The key to achieving this is the setting-up of the proper mechanism whereat long-term, low-interest government bonds are directly bought by the Central Bank through the issuance of the corresponding new local money. The money can then be used to put in place all our much needed infrastructure and utilities such as roads, highways, railways, ports, airports, schools, markets and hospitals as well as water, power and telecommunications facilities. The government bonds will then be eventually retired from the taxes generated as and when these infrastructure and utilities are used and consumed by the people.

Indeed, taxes are as sure as death. We must then take advantage of the certainty of its collection by precisely using future taxes to collateralize present loans that are urgently needed for the development of the country and the upliftment of the lives of our people. To be able to do this, as we have continuously repeated in our earlier articles and in the opening portion of this piece, the asphyxiating provisions of the charter of the Central Bank that bars the Bangko Sentral from issuing new local money for the purchase of long-term government bonds must forthwith be repealed. Our monetary authorities must be armed with the requisite monetary tools to enable them to be at the forefront in the drive towards economic development and, in the process, even achieve price stability.

This should be the priority of our lawmakers in calling and conducting investigations in aid of legislation. Indeed, what can be a more timely investigation at this moment than an inquiry into the iniquity of our monetary policies and an investigation of what should be done in terms of legislation, to put our monetary laws in the right track in order to make a positive impact in the lives of our people.

You may write your comments / suggestions at 15/F Equitable Tower, Paseo de Roxas, Makati City or through e-mail at HYPERLINK "mailto:rgroxas2004@yahoo.com"

(Note: We beg the indulgence of our readers who are at times tasked to read a lengthy piece. The purpose of our writings, however, being advocacy and not merely commentary in nature, compels us to dissect a given problem, analyze its causes and effects, and offer studied solutions. The length of the article should be irrelevant to such an approach.)


Reported by: Sol Jose Vanzi

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