DOF asked to set aside P10B for program to help SME exporters

As the Arroyo administration pushed for the rationalization of fiscal incentives to enterprises, exporters are asking for a P10-billion "work-out" program for troubled small and medium-scale export enterprises.

The Export Development Council (EDC) asked the Department of Finance (DOF) to consider its proposal for a special work-out program specifically for small and medium exporters that have been hit hard by the 1997 Asian financial crisis and have failed to recover even now.

EDC alternate chairman and Trade Undersecretary Thomas Aquino said in a letter to Finance Secretary Cesar V. Purisima that since the 1997 crisis, small and medium enterprises have depended on purchase orders and informal lenders to service their export orders.

"They have found themselves unable to repay their bank loans so they have been locked out of the formal loan market," Aquino said.

According to Aquino, these "troubled but potentially viable" segment account for over 40 percent of the small and medium export sector and were asking for the work-out program that would provide financing assistance.

Aquino said the EDC estimated the program will cost an initial P10 billion.

Aside from the requirements of troubled small and medium enterprises, Aquino said the entire export sector, as a whole, required incremental financing to support the projected growth in the next two years.

The EDC estimated that exports would grow by 10 percent this year and in 2006 and by 11 percent in 2007, requiring P17 billion for 1005, P18.3 billion in 2006 and P22.3 billion in 2007.

"The financing requirements were computed based on the projected export revenue for the three-year period, excluding exports of eletronics and petroleum products," Aquino said. "The incremental exports to be financed are assumed to be entirely attributed to SME exporters."

According to Aquino, the Philippine Export Development Plan (PEDP) anticipated that these financing requirements will be provided by the government financial institutions and the commercial banking sector with streamlined procedures and requirements to facilitate access.

According to the DOF, however, it was unlikely that the government would be able to afford such a program even for small and medium-scale exporters.

The Arroyo administration has already said its next legislative focus would be on the rationalization of fiscal incentives that would limit fiscal exemptions to so-called footloose industries.

Initially, the DOF said fiscal incentives should be limited to such industries as business process outsourcing (BOP) such as call centers, electronic and semiconductor companies and other businesses where government incentives would be the deciding factor between staying or going.

Purisima said the rationalization of fiscal incentives would be taken up in Congress next and the Arroyo administration intended to limit these incentives to businesses that would otherwise go somewhere else if no incentives were offered.

"Tax revenues have not been growing as fast as GDP and we need to find out why," he said. "We already know that we need to increase our revenues immediately by at least 2.5 percent of GDP simply to get out of our present situation."

Purisima said government revenues should rise to at least 15 percent of GDP to give the government a chance at putting its debt burden at manageable levels while still spending on development projects with the necessary economic multiplier effects.