By Cai Ordinario, July 20, 2020; Business Mirror

Incurring more debts, bailing out firms not immediately requiring such aid and printing money should be avoided by countries during the pandemic, according to an expert from the Asian Development Bank (ADB).

In an Asian Development Blog, ADB Economic Research and Regional Cooperation Department Principal Economist Jong Woo Kang said current and long-term economic policies during the pandemic will help define the level of prosperity of future generations.

Kang said recent “aggressive measures” such as large stimulus packages to support households and businesses are not without cost.

According to Kang, while diverse policy recommendations are flying high, governments are ultimately the ones held accountable for both short-term and long-term repercussions of policies adopted.

“Extraordinary circumstances require extraordinary responses,” he said. “Nevertheless, how wisely governments cope with current long-term economic challenges will be a more important defining factor for the prosperity of our and future generations.”

Kang said governments, particularly in emerging market economies like the Philippines, should explore other sources of funds apart from incurring debts and raising taxes.

These other sources may include mobilizing private capital for infrastructure investments and privatization of state-owned enterprises.

He added that emergency assistance from multilateral institutions remain crucial, especially for health and economic recovery.

Kang said that income and credit support to households and firms should focus on the vulnerable segments of society and industry.

The ADB principal economist said assistance such as a time-bound universal income subsidy program would not be efficient considering that rich households can use this for other expenditures, limiting the impact of the assistance on the economy.

“Third, emerging economies in particular need to fend off the temptation to resort to money printing to fund the necessary resources beyond short-term, immediate needs,” Kang added.

Stimulus packages

In an interview on CNN Philippines last Friday, Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said the government expects Congress to prioritize the stimulus measures when it resumes session on July 27.

Chua said the stimulus package would have three primary components: fiscal support for affected sectors and workers; support for micro, small and medium enterprises by lowering loan rates and extending guarantees; and, helping the financial sector so that it can extend a lifeline to more small-scale and medium-scale enterprises or SMEs.

Chua explained the third component means the government would help banks dispose bad debts and assets to free up resources that they can lend to SMEs.

This move has been encapsulated in what the economic team called the Government Financial Institutions (GFIs) Unified Initiatives to Distressed Enterprises for Economic Recovery (Guide) bill.

The bill will cover the efforts of the GFIs, particularly the Development Bank of the Philippines (DBP) and Land Bank of the Philippines (LBP) as well as the Philippine Guarantee Corp. (PhilGuarantee) to help ensure liquidity and prevent insolvency.

The Guide bill used to be part of the Bayanihan II Act. However, the National Economic and Development Authority (Neda) earlier told the BusinessMirror that the bill had to be a separate one from these bills because of the “one rule, one bill” canon.

The Neda said the Bayanihan II focused on emergency subsidies, wage subsidies and reallocation of budgets for infrastructure projects and health and testing.

The bill could also not be lumped with the Corporate Recovery and Tax Incentives for Enterprises (Create) bill since it focuses on incentives for private sector firms.

The initial design of the Guide bill—when it was still part of Bayanihan II—was to extend P50 billion for LBP and DBP as well as another P20 billion for PhilGuarantee.