STIMULUS PACKAGE ARROYO STYLE

The Philippine Star
02/06/09

The word ‘stimulus’ is probably a candidate for one of the more used and abused words in economics of late, and judging from how the global slump is proving to be deeper and longer, the word is going to be on top of everybody's lexicon for a while.

Now that the world's biggest economies have fallen into a recession and prospects of global prosperity are dim, each country is doing its best to shield itself from what appears to be the worst crisis in almost 80 years. The Philippines isn't an exception.

The Arroyo administration's version of a stimulus package, dubbed as the Economic Resiliency Plan, while sounding every bit like what any rationale, efficient and sincere government should be doing, still puts most of us on guard.

When you live in a country listed as one of the most corrupt in the world, giving a corruption-tainted government a blanket license to spend could send chills down your spine.

The P330-billion package may just be loose change compared to what big leaguers like the U.S. are talking about to revive their flagging economies, but for a country like ours, where more than half of the population lives on less than the cost of a tall cappuccino in Starbucks, every centavo disbursed by the government for fiscal stimulus is a serious matter.

Sufficiency and source of funding unclear

The first concern is where the P330 billion will be coming from. Based on my understanding of government releases and official statements, bulk of that will be coming from the proposed P1.4-trillion budget for the year that hasn't been officially approved.

It's also not clear whether all the P330 billion will be coming from the budget or if the proposed P100 billion fund with the private sector is already part of it.

Most of the economists have the view that the P330 billion, which is equivalent to about 0.5 percent of our GDP, isn't even enough to resuscitate the economy. Experts believe that in this kind of a crisis, the fiscal package has to be about 1.5 percent of the GDP to be really effective.

While the fourth-quarter GDP growth of 4.5 percent beat most analysts’ expectations, and the 2008 full-year growth of 4.6 percent was within government's target, expansion still slowed markedly from the three-decade high 7.2 percent in 2007. That is, of course, assuming that the government statistics are accurate and the state hasn't been padding the numbers.

I'm not claiming any expertise on the subject but based on how the word stimulus has evolved in the recent economic context, the idea seems to be for governments to spend more than what has been originally budgeted to pump prime engines of growth and hopefully prevent them from grinding to a halt.

Unproductive promise

Arroyo's plan, according to the statement issued by her chief economic planner Ralph Recto, is to spend 60 to 80 percent of the "productive portion" of this year's budget in the first half to finance infrastructure projects with simple engineering requirements that don't have any right-of-way issues.

The productive portion, I guess, refers to that part of the budget that excludes debt servicing and overhead costs like salaries, phone and electricity bills.

The issue of accelerating spending takes us to about a year ago when the president herself vowed to spend something like P250 billion in the first half of 2008 to fast track public works and social welfare projects and help cushion the economy against what was then already a brewing global storm.

It turned out the frontloading plan was just lip service because the government, which makes up about 20 percent of our gross domestic product, actually spent only 30 percent of the budget in the first semester of 2008.

The culprit, according to the official line, is the inefficient "absorptive capacity" of agencies; also known as bureaucracy or red tape in the lingo most of us would be familiar with.

What makes Recto or Arroyo think this year would be any different when it comes to cleaning up the bureaucracy when no significant reform had been made in that area during this administration or the scores that came before GMA.

Elections in the game plan

Truly, what we've read, heard and watched so far about the “stimulus ala GMA” have been mostly vague, which tends to fan suspicions that automatically come when there's no absolute transparency.

As the days quickly fly by, the Arroyo administration's version of a stimulus rescue package continues to remain a concept given that the annual appropriations law hasn't even been passed. Yet we already get signals from the government that with the kind of spending that's needed, the budget deficit may widen more than the target for the year.

Such posturing should worry us because it seems our public servants are already setting us up, managing our expectations and laying down a scenario that may give them room to maneuver the budget freely for whatever purpose that may serve them.

This bring us then to the next and equally important point of what the government is actually going to do to with this stimulus money, now that the May 2010 elections is only a year and a half away.

How sure are we that the allocated budget to build roads, repair bridges, and construct new schools aren't padded such that any commissions will be channeled to building up the campaign kitty? How do we ensure that the cash transfers, the livelihood assistance and training programs aren't used as platforms to boost the popularity of the administration politicians?

The recent decision of the World Bank to cancel a $33-million funding for a road project brings to fore the issue of festering corruption not only in the public works but in almost all sectors of the government.

A cynical realistic scenario

Let us assume that somehow this government is able to source the P330 billion and manage to spend and disburse the same. Since we cannot expect corruption to be eliminated overnight, therefore the standard “take” (anywhere from 20 percent to 40 percent of project cost) of unscrupulous politicians and government officials in connivance with private sector businessmen will happen.

However, all is not lost. Because of the elections, the money will flow back into the system and some form of benefits will trickle down, unless, of course, the “greedy and more influential ones” are able to salt it away to some foreign safe havens.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.