Philippine stimulus package hailed, belittled

NEWS ANALYSIS

MANILA: The stimulus package of P72 billion pesos or US$1.7 billion was unveiled by President Benigno Aquino 3rd on Wednesday has been hailed but at the same time belittled by some sectors.

In announcing the package, Aquino said that his administration is optimistic that it could achieve its low-end growth target of 5 percent to 6 percent this year.

The economy grew only 3.4 percent in the second quarter, which was much lower than the 4.9 percent in the first quarter and less than half of the 8.2 percent growth in the same period last year.
Philippine exports also slid the most since 2009 in August, falling 15.1 percent from a year earlier.

Some analysts said that the intervention was timely considering the financial crisis that hit the United States and Europe.

Wire reports quoted Matt Hildebrandt, a Singapore-based economist at JP Morgan Chase & Co., saying that if the package would allow the government “to get spending out the door, then it’ s going to be useful, especially since external demand may soften further.”

“But it is important to realize that if global demand falters further, even a timely and well-designed
fiscal package is probably not going to allow the Philippines to avert a slowdown.”

Before the launching of the stimulus package, some economists have blamed the government for under-spending, the reason why the country’s gross domestic product (GDP) growth was slower than expected in the first half of the year.

Governor Amando M. Tetanco, Jr. of the Bangko Sentral ng Pilipinas (BSP), the country’s central bank, said that the decision of the government to step up spending in the remaining months of the year would boost economic activity after successfully keeping the budget deficit way below the programmed shortfall in the first eight months of the year.

“The fiscal stimulus will give the necessary push to keep our economic growth in a solid upward trajectory. There is sufficient liquidity in the system, the exchange rate is stable, and the inflation outlook continues to be manageable,” Tetangco said.

BSP Deputy Governor Diwa Guinigundo further explained that “if the government is able to spend as
much as it has projected in terms of the acceleration program and we hit the high-end of the range, that is 5.5 percent, that is something that is noteworthy considering the uncertainties of the times.”

The Cabinet-level Development Budget Coordination Committee has slashed the GDP growth forecast further to a range of 4. 4 percent to 5.4 percent from the revised range of 5 to 6 percent for this year and to 5 to 6 percent instead of 7 percent to 8 percent for next year.

Budget and Management Secretary Florencio Abad said that while there was turnaround in our disbursement performance in August, it was not enough. “That is why President Aquino instructed his government to execute these additional projects to bolster economic growth in 2011,” he said.

According to Abad, projects lined up include critical public works and agriculture infrastructure, housing, relocation and resettlement projects as well as additional funding support for local government units.

But observers said that Aquino’s financial package, which is to be implemented in the last three months of the year, does not have a new funding component since it consists mainly of government outlays already programmed but unspent for 2011.

Actually, it will merely realign “savings,” partly arising from government spending below programmed levels in the first half of the year, and use them to accelerate budgetary releases in the remainder of the year.

“It’s not a real fiscal stimulus package,” said Luz Lorenzo, the Manila-based regional economist at securities broker ATR Kim Eng. “It’s just offsetting under-spending by government agencies so far this year.”

In the first half of the year, cash releases for government infrastructure projects fell 56 percent below the target because of slower project approvals and the review and cancellation of some contentious ventures as Aquino’s new administration stepped up anti-corruption drive.

Economics Professor Benjamin Diokno of the University of the Philippines said the term “fiscal stimulus” is a misnomer. He said it should have been called a “catch-up plan with a twist”.

Diokno, a former budget secretary, also said that the plan will have a minimal economic impact considering there are just 10 weeks to go before the end of the year.

But Socioeconomic Planning Secretary Cayetano Paderanga, Diokno’s colleague at the UP School of Economics, defended the plan’s label. “It’s a fiscal stimulus in the sense that government will be spending more than it planned to in the second half of the year,” he said, although he admitted that the planned full-year spending levels will remain unchanged. –Alito L. Malinao, Xinhua News Agency