Money woes

No denying the economy is caught up in the pandemic’s destructive vortex.

And with the economy’s dizzying downward spiral threatening widespread bankruptcies, mass unemployment and whatever else there is, only one thing can help — the state.

But what if the state, wanting to intervene and help anyone caught by the pandemic, can do only so much? That it only has this much money? What then?

This seems to be the gist of Finance chief Carlos Dominguez III’s blunt rebuke of the Lower House this week. He told enthusiastic congressmen there isn’t enough money for the grandiose, trillions of pesos worth of proposals they dreamt up to pump-prime our pandemic-hit economy.

The proposals the giddy House is trying to pass are the P1.3 trillion Accelerated Recovery and Investments Stimulus for the Economy of the Philippines (ARISE) and the P1.5 trillion COVID-19 Unemployment Reduction and Economic Stimulus (CURES) bills.

Trillions of pesos and appalled economic managers certainly grab us by the ears, prompting us to listen hard at what they are saying even if we can’t quickly grasp what they are arguing about.

We can afford not to either. While the pandemic indiscriminately affects rich and poor alike, it is above all the numerous poor and the innocent who get bludgeoned the most.

So, why is Dominguez appalled?

Dominguez, government’s main money scrounger, insists the Duterte government can’t borrow the trillions Congress wants because government is in deep enough trouble regarding money.

“It looks like our fiscal deficit is going to be around 8.1 percent of

GDP,” Dominguez says, in technical terms, on the limits on how far government can go.

For the uninitiated, a fiscal deficit occurs when the government spends more than it collects in revenues during a given budget year. To make up for the difference, government typically makes up for this by borrowing money but sets a limit based on what the country can earn.

Usually, people react badly to a government that spends beyond its means and can’t balance its books, fearing it is heading for disaster. While it is true that too much public debt can cause major headaches, too little is also a problem. Even Singapore, whose government is forced by law not to spend more than the money it receives in taxes, finds it essential to borrow money.

Why? Because we are a market society and a market society is oiled by public debt, usually provided by banks, to make it go around. Without public debt a market society

“An unmanageable fiscal deficit, says Dominguez, risks the country’s investment-grade credit rating.

won’t work.

In a sense, debt is also why our economic managers didn’t object when the House quickly passed the Financial Institutions Strategic Transfer Act, which will assist banks and other financial institutions with the loans and non-performing assets that were hit hard by the pandemic.

Why are banks being prioritized? Well, because businesses, whether small, medium or big, conduct their businesses by contracting loans from banks. But when banks belly up, who provides loans? Banks, of course, aren’t saints. But that’s for another day.

Anyway, no matter what one feels about banks or debts, government says it can still stretch its borrowing. Dominguez says they can push the country’s budget deficit higher but only to nine percent of the country’s gross domestic product (GDP).

What this means is that the money they are willing to borrow “is more or less P170 billion to P180 billion.”

Why can’t government borrow more? An unmanageable fiscal deficit, says Dominguez, risks the country’s investment-grade credit rating. A downgrade risk which in turn jacks up borrowing costs, this at a time when the government wants to borrow more for COVID-19 response measures.

At the same time, loans “do not qualify as additional revenues or savings. So we cannot use borrowing as support for that,” Dominguez says.

What Dominguez is answering here is the move of Congress to fund the stimulus by a supplementary budget utilizing government savings and loans.

Finance officials insist this is unconstitutional. “The Constitution says we cannot have a supplemental budget that is not supported by additional revenues or savings. Right now we have no savings, because we have used them all up. And we have no additional sources of revenues on the horizon,” says Dominguez.

With government openly admitting it is in dire financial straits, what does it have to do with us? It’s political.

“That is a political question. I mean, how will it look to the ordinary people, when you’re saying, oh, we promise you so much, knowing that is not fiscally sustainable? I mean, is that the responsible political message you’re sending? I’m not sure,” says Dominguez.

The Finance chief here tells us something important. We don’t deserve lies, no matter how challenging or bad the times are.

“It looks like our fiscal deficit is going to be around 8.1 percent of GDP.