Stimulus package shelved

MANILA, Philippines – Fearing negative effects from a massive one-time spending to shield the Philippines from the fallout of a possible US recession, Malacañang has put on hold a P75-billion stimulus package and replaced it with “performance budgeting” worth P50 billion already in the 2008 national budget.

President Arroyo apparently agreed with her economic managers to temper such spending to spur consumer confidence in the economy.

In her speech yesterday at the National Congress on Education at the Manila Hotel, Mrs. Arroyo said: “Under our fiscal stimulus program to keep us resilient from the anticipated US slowdown, we are scaling up Ahon Pamilyang Pinoy from P50 million to P5 billion this year.”

She said as a more direct incentive to school attendance, the government earlier launched the Ahon Pamilyang Pinoy program of conditional cash donations to poor households who comply with rules that enhance learning and health.

Budget Secretary Rolando Andaya Jr. said the government would enhance its proven move last year of performance budgeting by adding P50 billion more spending in infrastructure, agriculture, education and health. The amount is already included in this year’s P1.227-trillion national budget earlier approved by Congress.

He said frontloading additional funds in the four sectors last year proved to have worked and it did not derail the government’s deficit reduction schedule.

Under performance budgeting, all government agencies are closely monitored in implementing their project by quarters, and if an agency fails to meet a target for a project in the previous quarter, funding for it would be diverted to priority projects in one of the four sectors, he said.

Albay Gov. Joey Salceda, one of Mrs. Arroyo’s advisers and proponent of the P75-billion stimulus package, however, refused to concede following a long and heated meeting with economic managers at the Manila Golf Club in Makati City yesterday, saying his proposal could bring the country’s growth to eight percent this year despite a looming US recession.

He said the country’s fourth quarter and full year Gross Domestic Product (GDP) of above seven percent fully vindicates the feasibility of “Plan 789” of the Arroyo administration that projects an eight percent growth this year and one percent higher in succeeding years.

He said the gains heighten the logic of the economic stimulus to preserve momentum against the threat of US economic slowdown.

“With the 2008 budget set at only six percent growth and the consumer price index at 4.2 percent, this is a cop-out, the P75 billion is both a hedge against US recession and a fuel additive to domestic growth,” Salceda told The STAR.

Salceda’s proposal includes extending discounts on electricity and water as well as education vouchers and tax refunds to individual taxpayers earning below P500,000 a year. The package amounting to P75 billion is equivalent to one percent of the country’s nominal GDP last year.

Economic and finance officials, including Andaya and Bangko Sentral ng Pilipinas governor Amando Tetangco Jr., opposed such a move, saying it would only trigger high inflation and bring the country back to a high deficit regime.

Andaya said when the same move was made during the Estrada administration, the projected deficit of P17 billion swelled to P114 billion. He said the same thing happened early in the Arroyo administration with the target budget shortfall of P40 billion reaching P150 billion.

He said the meeting ended with the consensus that the proposal be placed on standby and only be implemented when the US economy indeed hits a recession.

“What happened (in the meeting) was we took stock of what we have right now and what we did last year and we saw the budget is one of the best tools we have to protect the economy against external challenges,” Andaya said.

“We will continue and improve on what we have done, including administrative measures of improving collections and timely and proper fund releases,” he said.

The country’s top economic managers agreed that there is a need for a “standby program” to help pump-prime the economy should predictions of a Philippine economic downturn follow that of the US’s.

But to preempt a possible local recession, the economic managers also agreed to frontload the release of various government agencies’ budget this year.

This was announced yesterday by Agriculture Secretary Arthur Yap following a meeting with Finance Secretary Margarito Teves, Trade Secretary Peter Favila, Budget Secretary Andaya, BSP governor Tetangco and Economic Planning Secretary Augusto Santos.

Yap said the economic managers did not reject Gov. Salceda’s P75-billion stimulus package, but agreed on the need for some sort of a “standby program” for contingency purposes.

Yap cited economists’ observation that “when the US sneezes, the Philippines catches a cold.”

The US is only one of the Philippines’ major trading partners.

An amount for the standby program, Yap said, is still being firmed up.

Yap proposes at least P10 billion alone for the agriculture sector.

However, he said that the decision to frontload the release of the various government agencies’ budget would already allow leeway in ensuring that the economy does not falter.

Yap said the DA would get the early release in the first half of this year of some P5.9 billion which the department wants to spend on its rice and corn production program, as well as for other raw materials production which, in turn, is used by the country’s food producers, processors and exporters.

Yap said the DBM has agreed to release P1.5 billion in cash to the DA for its funding needs. - With Marianne Go