President-elect Marcos comes into office facing the biggest challenge of his life. Being President of 106M Filipinos at a crucial point in time. The world is still in the midst of the pandemic and the global economic outlook is bleak because of rising inflation and the Russia-Ukraine war dragging on and triggering the highest oil prices in two years.
BBM’s economic managers is a formidable team. Ben Diokno, Arsi Balisacan and Alfredo Pascual. Diokno has made it clear he is not for the imposition of new taxes. Balisacan has stated that he is for improving agricultural productivity and establishment of manufacturing companies. Pascual is pushing for the stimulus for MSMEs to help them back on their feet.
The biggest challenge is price increases brought about by market flucutations and peso depreciation. As the US raises interest rates to control inflation, the dollar will appreciate against other currencies. The peso hit the P53.00 mark yesterday. It did not help that overnight, it was announced that inflation hit a 40 year high in the US.
What to do in light of this quandary?
I asked an economist-data scientist friend to put in his two cents worth. His question was, with or without taking into account the politics of each issue? This guy has actual experience in government and the private sector unlike JC Punongbayan who has spent his adult life in the academe and being the head executive assistant of Balisacan during the Aquino administration.
His answer was simple enough. Tax the Roman Catholic Church and all their other money-making activities. It is about time that they make good on their vow to help the poor. Other measures he recommended were slash taxes, hike interest rates, do away with minimum wage and cut down on government expenditures and minimize corruption through digitization.
This, with the caveat of no political considerations whatsoever. In reality, the political considerations are taken into account. So no taxing the Church, though I am confident a lot of Filipinos are in favor of this.
The Philippine Institute for Development Studies released a paper the other day which focuses the national debt and fiscal consolidation. Without adoption of any special measures to close the budget deficit and increase government revenues, it will take ten years before the debt goes back down to pre-pandemic levels.
At a separate press briefing, the World Bank’s senior Philippine economist Kevin Chua said that the pandemic-induced record debt burden “will be a drag” to economic growth.
This was why Chua was pushing for not only sustaining high economic growth but also “careful” fiscal consolidation. The fiscal consolidation pitch of the outgoing Duterte administration’s economic team mainly meant higher or new taxes slapped on consumption plus a three-year deferral of scheduled personal income tax cuts, while slashing public spending on non-priority budget items.
“Pursuing fiscal consolidation will help protect long-term fiscal sustainability,” Chua said.
“The authorities, however, have to carefully manage the risks and trade-offs associated with consolidation. Increased taxation or a reduction of public spending will hold back economic activity in the short to medium term due to the reduction in aggregate demand. However, improved macro management will help safeguard long-term growth,” Chua said.
It would appear that digitization of the bureaucracy should be the first priority of the Marcos administration in order to collect taxes more efficiently, control leakages and minimize losses due to corruption.
The other would be the focus on agricultural productivity considering this is low-haning fruit if only there is an Agriculture Secretary who can get the department bureaucracy firing on all cylinders at the LGU and regional levels. This is probably the reason why Marcos has not announced an appointment to the department yet.
Digitization will also help generate foreign direct investment interest. The single largest drawback is still the cost of power. There is no short-term solution to our energy problem. Power plants take time to build. The pressure is also on Marcos to appoint a competent secretary to head the department. Three names have been mentioned; Agnes Devanadera, Mikey Arroyo and Rodante Marcoleta. Two are lawyers. None are engineers like Geronimo Velasco, who put into place the energy security infrastructure during the first Marcos administration, only for the ministry to be abolished and dismantled during the Cory administration.
Marcos has his work cut out for him after June 30. We can only hope he and his Cabinet are up to the challenge. We are looking at a high interest rate regime coupled with instability emanating from the Russia-Ukraine conflict and the lingering effects of the pandemic on supply chains in China and the rest of the world.
We cannot with stop BBB because there is still much work to be done improving our infrastructure which opens up economic opportunities. More than likely we will have to rely on official development assistance and increased tax collection and focus on the projects with greater economic impact.
The present environment presents the perfect opportunity for political structural reforms as well. We cannot afford to have inward looking politicians even at the local level. We need to elect more forward looking leaders who have a vision of what the future should be for their constituents. I am amazed by what I have seen on TikTok. We do not need TikTokers as politicians.
Hopefully Marcos and the legislators will be able to deliver on their promises. It is really time to do away with the Senate and use the funds consumed by that body for better purposes at the local level. At this point, it does not look that the Senators are willing to do so because they are builing the new Senate complex at the BGC. This is a waste of public funds because Senators do not really bring much to the table. Not even on the intellectual level of public discourse.
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