Stimulus–really?

To stimulate an economy you need to create jobs, to get money into consumers’ hands, to build infrastructure that encourages businesses and farmers to get their products to the market.

The government had planned to spend P1.71 trillion this year, a 12.2-percent increase from last year. Stimulatory spending like infrastructure was supposed to increase by 8.4 percent to P242 billion while maintenance and operating expenses were programmed to rise by 18.2 percent to P215.2 billion. Social services had the highest allocation—and growth in allocation—at 33.7 percent to P409.1 billion, due to the conditional cash transfers and other subsidies to the poor, as well as the increased provision for basic education and health services.

But eight months have passed, and year-to-date cash spending was down 8 percent to P947 billion, the first time cumulative expenditures were down in two decades. In the first half alone, government spending was running P140 billion below target.

The President has now announced a P72 billion “stimulus package” to correct this. In doing so, he stressed it came from commendable savings, not underspending.

I’ve no idea what the relevance of that is. Savings in interest payment, if I remember correctly, hardly exceeded P30 billion. It doesn’t matter where it came from. Whether it came from savings or borrowings (a perfectly legitimate thing to do for a government way below its programmed deficit for the year) is irrelevant.

What is relevant is this: What are the funds being used for? Ten billion pesos spent to relocate squatters does not stimulate the economy (except marginally). Improving the LRT and MRT does not stimulate the economy. The funds allotted only make sure an existing system continues to work, and another country benefits from the sale of carriages, etc. Of the P6.3-billion being spent there (LRT & MRT), probably the budget for salaries can be considered a stimulus. Tax subsidies, equity infusions, and the upgrading of buildings and equipment have limited stimulatory impact. But let’s be generous and say P2 billion.

Giving P6.5 billion to local government units makes you shudder—unless those LGUs have truly adopted the President’s ethics. My cynical (for good, historical reason) mind seriously doubts they have. But even if honestly spent, how much of the money will go into projects that would help keep grow the economy? Let’s say P4 billion. Basketball courts don’t stimulate the economy, they stimulate the adrenalin.

A Philhealth subsidy (of P1.5 billion) stimulates human bodies, not economies. A tax subsidy to the National Power Corporation is the same non-event. Oh sure there’s some positive impact, but it is minor.

What is legitimately stimulating is reconstruction of typhoon-damaged infrastructure; irrigation, farm-to-market roads and other agricultural infrastructure and housing that totals about P10 billion. So add to that the P6 billion and P16 billion of the P37 billion, or 43 percent, can be expected to provide stimulus. Projects to be financed by the remaining P35 billion have yet to be specified but let’s say the same ratio, that’s P15 billion. That’s a far cry from some P140 billion that went unspent in the first half of this year to get the economy growing.

On top of that, 10 weeks to spend P72 billion is a tall order based on historical record. As mentioned, spending in the first half was below target. Promises were made to pick up in the second half, despite that promised spending (as of August) was still down. It was still promises. So P72 billion spent in 10 weeks? It can’t happen.

If the planned expenditure for this year had been spent, the economy would be growing at, we estimate, 6.3 percent not the 4 percent it’s now doing. Over 2 percentage points lost through government inaction—whether the reason is good or not—leaves a lot of poverty out there that might not have been. It’s a two-point loss a struggling Philippine economy can ill afford.

So the President is taking a big risk: Pitting economic growth against societal reform. I sure hope it works, or come 2016 the Philippines will be ready for the ICU.

I fully support the President on holding on to projects until he is sure they are clean. But don’t try and fool me into thinking they’ve done something wonderful for the economy here with this erroneously named “stimulus package”. Admit the truth: the economy won’t grow as well as hoped this year because the President insists on total honesty. I applaud him for it, it just may revolutionize this society if it’s maintained for the next five years. It’s a price worth paying. The President should listen to his economist, not his propagandist. Admit the economy is going to slow because of this tough, single-minded decision; but it’s a price that must be paid if cultural reform is to occur. Don’t issue platitudinal promises to placate the public.

Honesty is not just financial, it is also moral and intellectual. Levels of morality I leave to other people, it’s a hugely complicated issue. But on intellectual honesty I’ll dig right in. Stealing people’s minds by fooling them into thinking something is true when it isn’t is as deplorable as stealing their money. What distinguishes man from all other animals is his mind. It’s the most precious thing we have (mind you there are times when another part of a man’s body might disagree) so to steal it is a crime.

Gloria Macapagal-Arroyo was a master at it. Just read my two-part column Fairyland to see what I mean. President Aquino is supposed to be the antithesis of Arroyo. So Mr. President I appeal to you, tell the truth. Sugarcoating doesn’t work. It fools people in the immediate present, and greatly disappoints them in the soon-to-be future.

It was intended that some P100 billion would be poured into PPP projects this year, mostly private sector-financed, given the liquidity of the financial system. None of it happened. That’s OK, there are some legitimate reasons, reasons that can be well accepted if explained. And most, most importantly addressed. The first is honesty and as explained above this is a defensible reason for delay: Projects must be clean, fairly priced, needed. But much of the delay was also because the capability to bring them to fruition just wasn’t there. The lack of people and the inherited institutional systems just couldn’t cope. So say so, BUT, and it’s the BUT that matters, say “we are fixing it. We are simplifying the bureaucratic processes. We are going to outsource the conduct of feasibility studies while we look for enough talented people to hire to do it in-house, we are going to set, and announce, and meet deadlines. And so on.

Let me put more words into the President’s mouth: “We realize canceling or putting on hold committed projects is hurting some of our relationships and bringing into question the reliability of this government in honoring contracts. But we will not tolerate dishonesty and the record of the last administration inevitably and unfortunately brings into question all contracts signed then. We must review them, please bear with us. And be assured we will re-enact contracts as swiftly as we can. And I admit we do need to improve here, and I’ve so ordered. I’ve set a deadline of March 31 next year for all contracts to be reviewed and decided upon. Any contract not resolved by then will be accepted. If we can’t find and resolve the flaws by then, then we have no further right to hold them up. Beyond that, every future contract entered into by this government will be honored”.

Now wouldn’t you like the President to say all of that? But he’d better move fast, because he’s beginning to upset not only companies but other countries and their governments too. This he cannot afford. The German government is thoroughly fed up with what Arroyo did with NAIA-3 and the collapse of German ODA and German business investment is a direct outcome. Well, the Belgians are upset over the cancellation of the Laguna Lake dredging project, the French over rescinding the RO-RO ports contract, and several governments over the questioning of the new air traffic control system. President Aquino better move awfully quickly on these to re-establish them (with perhaps agreed amendments) or give proof of fraud.

By awfully quickly, I mean Christmas 2011 ideally, March 31 penultimately. If we go into 2012, or well beyond that, with projects such as these hanging over the President’s head, then the miserable levels of foreign investment will continue to be miserable. The Philippines gets the least foreign direct investments, here’s a major reason. There must be the swiftest of action. Action not words. Words are worthless. Be wordless, act. Fast.

I have a simple philosophy: You can’t shoot someone if you don’t have a gun. It’s that simple.-Peter Wallace, Manila Standard Today