'RP can afford higher deficit'

MANILA, Philippines - Faced with a global economic depression, the government could afford a budget deficit of at least P250 billion this year, going down gradually until the budget is balanced in 2013.

Speaking before the Filipino Chinese Chamber of Commerce and Industry yesterday, presidential economic adviser Jose Sartre Salceda said the insistence on keeping the deficit at P102 billion was a “fiscal fixation” that would not achieve the goal of cushioning the impact of the recession.

According to Salceda, the government should allow the budget deficit to go up to as high as 3.2 percent of the gross domestic product (GDP) in 2009, then gradually pare this down to 2.5 percent in 2010 and two percent of GDP in 2011 before pulling it down back to one percent of GDP in 2012 and then balancing the budget in 2013.

According to Salceda, the government would have to do more and intervene more aggressively in order to just protect the current growth trajectory from the global recession.

Bangko Sentral ng Pilipinas Deputy Governor Diwa Guinigundo said as much and told reporters that the budget deficit could go beyond two percent of GDP especially since the budget is being crafted under a crisis situation.

“This is a crisis situation,” Guinigundo said. “In a crisis, you have to act accordingly.”

The BSP has been pushing finance officials to increase its spending and Guinigundo said this was the perfect opportunity to spend on critical government programs when the market was being tolerant.

“There is even a danger that the market could even penalize us if they think we are not spending enough,” Guinigundo said. “If we are serious about achieving the higher end of the growth target, then we have to spend.”

For his part, Salceda said that out of the P330-billion stimulus package now being discussed by economic managers, only P130 billion could be considered incremental spending.

Out of this P130 billion, Salceda said only the P7-billion program of Philippine Health Insurance Corp (PhilHealth) could be considered incremental and quick-disbursing enough to make the immediate impact.

But Salceda said the Economic Managers Group (EMG) in the Development Budget Coordinating Committee (DBCC) was bent on keeping the deficit at no more than P102 billion, equivalent to 1.2 percent of GDP.

“Economic activity produces taxes,” Salceda said.

Salceda said he was pitching for his so-called No Income, No Job, No Asset (NINJA) strategy that would target low-income households by subsidizing education and expanding the cash dole-out of the government from P10 billion this year to P120 billion every year for the next three years.

Salceda said the government could raise this amount either by borrowing from official development assistance (ODA) donors or by issuing bonds to the market.

However, Salceda admitted it would take time for the DBCC to warm up to his idea which would go beyond the Arroyo Administration whose term ends in 2010.