Before commenting thereon, let us take a look first at the anatomy of a budget deficit as it occurs in a still developing country, as in the Philippines. Government deficits are a simple dislocation of cash flows especially in a developing country with a high population growth embracing a conservative monetary program geared at regulating money supply. In such a situation, it is all too natural that government will incur a budget deficit as expenses to run and maintain the government as well as to deliver the basic services to the people far exceeds government’s ability to raise the corresponding revenues. The situation is exacerbated when market forces are dislocated through economic forces beyond the government’s control such as the Asian currency crisis and its consequential serious devaluation of the peso vis-a-vis the dollar. The imbalance in the Philippine budget is further burdened by the country’s total outstanding external debt of $56.7 billion, Asia’s largest foreign debt.
To bridge our budget deficit, some monetary officials advocate that government collect, collect and collect more taxes on our already burdened people. This traditional way of addressing the problem is a painful antidote as it aggravates the suffering of our people who, economically hard-pressed as they already are, are nevertheless being made to bear the brunt of the responsibility of balancing the national budget. Yet, it is a compelling argument against this traditional approach that government has no moral authority to collect more taxes from its citizenry where it did not fulfill its bounden duty of providing and creating a favorable and friendly economic environment from whence its people can earn more money to pay the increase in tax impositions.
But there is a less painful approach to the situation if only government officials will think out of its traditional box. In fact, there is a happy alternative where both the people and the government will be able to eventually balance the budget at the same time that the country is in the process of achieving its ultimate goal of economic development, progress and prosperity for its people.
We can in the end balance our budget while pursuing our development programs even if we do not as yet have the government revenues to finance them by borrowing locally against future taxes. After all, as the saying goes, only two things are certain in this life: death and taxes. With taxes, therefore, a future certainty, money could be locally generated by government, both national and local including the National Development Co., by floating long-term bonds that shall be bought, not by the private sector, but by the central bank through the issuance of the corresponding new money. This new local money shall then be managed in such a way that the cash is directed to the productive sectors of society via the mechanism of long-term, low-interest credit facilities. This way, the government and the private business sector will be able to invest the funds in the building of all the physical and social infrastructure of the country such as roads, highways, farm-to-market roads, bridges, ports, airports, schools, markets and hospitals as well as to establish utilities such as for water, power and telecommunications. As and when these infrastructure and utilities are used by the people, so will transaction taxes be generated and collected by the government which shall be used to eventually retire the bonds. By this approach of financing our development through local borrowings against future taxes, we will then be able to fully modernize the country and, yet, in the process, be able to eventually balance our budget.
A government entity, heretofore largely under-utilized and unsupported by government but with a strong potential to serve as a catalyst for the general development of the country is the National Development Co. (NDC). Under its Revised Charter (P.D. 1648 as amended), the NDC is envisioned to be at the forefront of the government initiative to start up development projects that the private sector is timid to undertake on account of the huge cost involved and the high risks appurtenant thereto. The mission statement and declaration of policy of the NDC, indeed, mandates this as section 1 of its charter provides: "It is the declared policy of the State to promote overall economic development through assistance to commercial, industrial, agricultural or mining ventures. For this purpose, when necessary, or when private enterprise is not willing or able to undertake vital projects, it may, on its own or in joint venture with the private sector, undertake such projects. In pursuit of this mission the NDC is expressly authorized by law to issue bonds to raise money to finance its development goals."
The charter of the NDC is attuned with the Keynesian theory of economic development that in times of economic downturns and sluggishness, government itself must do the spending and investing in order to propel the economy and business activities. In the specific case of the NDC, it is mandated to do the investments initially especially when the private sector is incapable of or is shying away from investments due to their lack of confidence brought about by an unstable economic and political environment. There must be a purposeful move, therefore, for government to be more supportive of the NDC by seeing to it that this public corporation has the necessary wherewithal to finance and capitalize its economic crusade. This can only be done, of course, by the central bank being mandated to purchase government bonds, such as that of the NDC, through the issuance of the corresponding new local money.
As it is, our Bangko Sentral under section 117 of its charter is prohibited from buying government securities such as the bonds of the NDC. As we have continuously repeated, then a broken record player, there is an imperative need to amend the Central Bank Law to allow and even mandate the Bangko Sentral to buy government long-term bonds that are secured against future taxes by issuing the corresponding new local money. With this new local money in the hands of the NDC, it will then be able to fulfill its mission of spurring economic growth and development by engaging in the vital activities of building roads, highways, bridges, ports, airports, schools, hospitals, markets, government buildings and establishing water, power and telecommunications facilities, all for the good of the country and people.
As we embark on the serious business or pursuing the 10-point program of President Arroyo, we can only warn that this could by the end of her term remain but a "wish list" unless our government officials start thinking out-of-the box and dare to pursue innovations in government policies such as that we have consistently been espousing through this column, and which approach we have not invented but have merely culled from the programs and policies uniformly and successfully adopted by all the advanced countries of the world.
It is high time that we ourselves tread the correct path towards our national economic salvation.
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(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.)