BSP RAISES CONCERN OVER GMA'S ECONOMIC STIMULUS PACKAGE
MANILA, JANUARY 31, 2008 (STAR) By Des Ferriols - Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. expressed concern yesterday over the possible inflationary impact of the P75-billion economic stimulus package proposed by Malacañang.
Tetangco said the proposed package could help tide the country over as the US economy slows down, but pointed out the funds must be spent on productive programs with the highest economic multiplier effect.
The proposed stimulus package was supposed to be supplemental to the P1.227-trillion budget approved by Congress earlier this week, including the expansion of income tax deductions for middle-income earners that would amount to at least P16 billion.
The biggest portion, however, was a P51-billion increase in overall government spending spread across agriculture (P15 billion), infrastructure (P16 billion), education (P12 billion) and health and housing (P4 billion each).
The economic stimulus package was proposed by Albay Gov. Joey Salceda, as President Arroyo’s principal economic adviser.
Salceda explained a balanced budget in national government actually translates to surplus in the entire public sector of about P56 billion in 2007 that is way ahead of schedule.
He made the proposal which, according to him, was “in the face of the rising threats of US recession... policy authorities need to reassess the timeliness of a balanced budget in 2008 as a socially desirable national goal.”
This developed as the President ordered Salceda and her economic managers to fine-tune the proposal.
“We will let the economic managers study that,” Mrs. Arroyo said.
She said her economic team would likely make a formal announcement today on Salceda’s proposal.
Salceda proposed to include extending discounts on electricity and water as well as education vouchers and tax refund to individual taxpayers earning below P500,000 a year, a package amounting to P75 billion, which is equivalent to one percent of the country’s nominal Gross Domestic Product last year.
If implemented, Salceda said it would be the third time the country would resort to such emergency spending. He said it was done during the Estrada administration and in the initial stages when Mrs. Arroyo took over in 2001.
Budget Secretary Rolando Andaya, on the other hand, denied Mrs. Arroyo has already entirely approved Salceda’s proposal.
He added Mrs. Arroyo’s economic managers had been unanimous in opposing a full implementation of Salceda’s proposal.
According to Andaya, Salceda’s proposal “only looks good on paper, but it will not achieve the desired results.”
Andaya said the economic team does not want to jeopardize the hard-won gains brought about by the successive reduction in the budget deficit by spending such a huge amount in one year.
“We are already doing this stimulus package in the 2008 budget by adding P45 billion for spending on key growth areas such as health, agriculture and infrastructure,” he said.
Andaya agreed with Salceda that when the same move was made during the Estrada administration, the projected deficit of P17 billion swelled to P114 billion.
The same thing happened early in the Arroyo administration with the targeted budget shortfall of P40 billion reaching P150 billion, he added.
But Salceda countered the present economic conditions are different from the past.
“Before we did not have the VAT, the global environment was of high interest rates, so his (Andaya) assertion does not hold water,” Salceda said.
Tetangco, on the other hand, argued the supplemental funding for the package is critical in infrastructure spending, as well as social services programs in the health and education sector where it could create more economic activity over the medium term.
If part of the package would be spent on the so-called lifeline programs of the government for families in the lowest income bracket, it would be acceptable, according to Tetangco, since some level of subsidy in utility rates would be necessary.
“That’s a matter of existing public policy,” Tetangco said.
Tetangco, however, warned the use of portions of the P75-billion package for short-term relief could create inflationary pressures that would be more costly to manage overall.
“That is also a more short-term solution when there is clearly a need for longer-term programming in infrastructure and services,” he said.
The proposed economic stimulus package included electricity and water price subsidies and a possible 20-percent tax rebate on all withheld taxes in 2007.
Tetangco pointed out, however, that the country’s investors and creditors were both expecting the government to improve on its revenue generation, particularly in raising the expected revenues from existing tax measures.
Since Malacañang raised the VAT rate from 10 to 12 percent, the government has consistently failed to generate the expected revenues that were supposed to come from the increased tax.
Tetangco said the monetary policy settings of the Bangko Sentral ng Pilipinas (BSP) would allow it to control the release of liquidity into the financial system.
But such liquidity is better used for activities that would generate activity instead of more inflationary pressure, Tetangco said.
He said the expansion in the domestic money supply would not be a problem if the productive sectors of the economy were active enough to absorb it.
“But there is a natural lag between the time when investments are coming in, thereby triggering a rise in domestic liquidity, and the time when that liquidity is absorbed into the economy to trigger further growth,” Tetangco said.
This timing gap, according to Tetangco, was made when monetary policies would have to be calibrated to avoid runaway inflation while being careful not to stifle the growth momentum. – With Paolo Romero
Chief News Editor: Sol Jose Vanzi
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