Against this ominous backdrop, the IMF has come out with recommendations and prescriptions for the Philippines to follow in addressing the country’s present economic woes. The IMF directs the Arroyo administration to immediately implement bold reforms such as a drastic reduction in the budget deficit and a slew of new tax measures. In short, the IMF prescription if for government to keep expenses as low as possible while increasing revenues, through more taxes, as high as can be done in order to bridge the budgetary gap between revenues and expenses –that is, to balance the budget.
With all due respect, we dare say that the IMF formula is a sure road to the further contraction of the already sluggish economy. Government belt-tightening of expenses – especially in the form of investments in infrastructure and utilities as well as in affording long-term credit facilities to the local businessmen and companies – will depress economic activities even more, causing slow-downs if not shut-downs of businesses, lay-off of workers, lessening of profits and the consequent reduction in taxes that businesses will and could pay. The twin measure of imposing higher and newer taxes, at the same time, will moreover exacerbate the constriction of the economy as the taxpayers, already hard-pressed to pay the rate of taxes as they are today, shall be further burdened financially from a situation that is already economically hideous as government does not assist them at all in their plight. The taxpayer, with already little money left is coerced by government to cough-out more by way of taxes, leaving a scanty residual amount for himself and his family. And, as if rubbing salt to an open wound, the little that is left is diminished in real value due to the shrinking of its purchasing power.
By following the IMF prescription, and extrapolating its natural consequence, it will not be hard to foresee that, somewhere down the road, the current hungry 15 percent of Pinoy households will double or even treble into more miserable Filipino homes.
The current Philippine situation is not unlike a field of planted crops that is low on water cultivation. The rice stalks and cane stems are starved for water as only the barest minimum of it is made to irrigate the fields. Yet, despite the obvious solution of expanding the water supply in order to nurse the plants with the proper water nutrient they need to make them grow, the foreign farming consultant ironically prescribes the lessening of irrigation flow. By this aggravating measure, the planting field will of course sooner turn into a parch land, arid and desert-like. The plants will surely die.
The analogy is no different from the anemic person who, instead of being transfused with more blood, is instead made to donate blood himself, leaving him to die a certain death. It is the same with the lethargic economy dangerously low in money supply. The IMF prescription will strangle the money supply line even more with the cut-back in government spending/investments and the collection of more taxes. The little money supply in circulation will be further depleted leading to zero economic activity if no countermeasures are instituted. How then can more taxes be collected from a moribund economy?
We do appreciate and recognize the lofty aims of the World Bank and IMF to assist member countries the world-over attain their dream of economic progress and prosperity through managed and regulated credit and loan assistance. To achieve this end, we can be certain that these international agencies would put the interest of their debtors, especially small countries like the Philippines, uppermost in mind in prescribing economic, fiscal and monetary measures for their debtor nations to adopt and implement.
In reality, however, using experience as the yardstick, we cannot help but observe that the WB-IMF must be falling short of their sacred mission going by the miserable economic performance of most of their debtor-countries who religiously implemented their loan conditionalities. In fairness, though, to the IMF, it recently admitted the mistakes in its prescriptions for Indonesia that only resulted in more hardships for the Indonesian people and economy.
If such is the case, we are at loss to fathom why these very same admittedly failed pain pills (of holding back on government expenses and imposing more taxes) prescribed for Indonesia are being foisted by the IMF upon the Filipino people and nation again. It took a Mahathir to stand up to the dictates of the multilateral lending agencies who, instead, implemented fiscal, financial and monetary reforms designed solely for the benefit and interest of Malaysia. Thus, Malaysia has so much more a successful economy today with a fairer distribution of wealth to its people and a healthy and robust business sector as well as Dr. Mahathir himself reported in his speech before the Philippine Chamber of Commerce and industry just last week.
For the IMF, then, to insist on their usual pain pill prescription upon the Philippines would make it insensitive to its mission of approximating economic parity among nations. We, therefore, plead to the IMF to revise and reverse its prescription to instead allow us, as we should as a sovereign nation, to expand our economy by expanding our monetary supply consistent with our needs and requirements for development and decent living.
We must be allowed to expand our money supply in order to create the means to generate local funds to be lent on a long-term, low-interest basis to both government and our local entrepreneurs so that we need not be forced to seek credit financing from foreign sources which is the root cause of our economic difficulties today. Expanding the money supply will provide us the wherewithal to expand the economy in turn by building all the infrastructure and establishing all the utilities for the country as well as funding for food, shelter, clothing, health and educational needs of the people. By doing this, our local entrepreneurs shall have the chance to grow and be competitive with their foreign counterparts. By doing so, more jobs will be created, more people will be employed, more salaries and wages will be earned, more profits will be made, and more taxes will be generated for the government.
As we keep repeating, the mechanism to achieve this end is by allowing and even mandating the central bank to directly buy long-term government bonds by issuing the corresponding local money. This increased local money supply will feed the credit needs of both government and the private business sector that will be used for productive purposes to expand the economy. Government must never bother about the deficit spending that will ensue as the bonds shall eventually be paid for and retired when taxes, which are dead certain, are collected from the expansion of the economy.
In summary, the satisfaction of the needs of the people can neither be postponed for tomorrow nor be delayed for the day when we shall have the money to finance them. One who is hungry cannot wait until there is money for food. He will starve. A sick man cannot wait until there can be money for his medicines and medical care. He will die. A child cannot wait for his parents to have money before he can attend school. He will grow up to be ignorant. A people cannot wait until their government shall have the money to build their roads, ports, airports, bridges and to establish their power, water and telecommunications facilities. They will forever be a backward nation.
But we can borrow against our future taxes now and provide for all our needs now. Deficit spending is as natural for a developing country as are falls to a toddler learning to walk.
The food coupons program announced by government to feed the poorest of our poor is fine. The hungry have to eat. But let the money to support the food coupons program come from internal credit as should the finances that will be lent to our local food producers who shall thenceforth produce the nutritional requirements of our people. We must never use government funds to support entrepreneurs other than Filipinos, so that they will grow, satisfy our needs, employ people, pay more taxes and expand the economy.
For starters, we must amend the central bank charter to allow it to directly purchase government bonds. In the meantime, the IMF must revise its pain pill prescription for the country and instead allow us to determine the extent of our local credit and the level of our money supply.
The country cannot wait.
You may write your comments / suggestions at 15/F Equitable Tower, Paseo de Roxas, Makati City or through e-mail at 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.)