Economy, Fiscal issues, Poverty

Why Gloria’s P330-B “Stimulus Package” Will Fail (Part 1)

A Critique of the Economic Resiliency Plan (ERP)
Part 1 of a two-part series, originally published in

gloria-pointing-up1The Economic Resiliency Plan (ERP) is a package of programs put together by the Arroyo administration in response to the global financial and economic crisis. Its stated objectives include the mitigation of the crisis’ impact and the invigoration of the domestic economy through a mix of accelerated government spending, tax cuts and public-private sector investments in infrastructure projects.

For the Filipino workers, the ERP aims to save and create as many jobs as possible and to protect the returning overseas Filipino workers (OFWs) and workers in export industries. The whole package costs P330 billion, of which almost half would be funded by the increase in the 2009 national budget. (See Table 1)

Funding issues

Publicized as a “stimulus package”, the ERP is criticized even by neoliberal economists as severely lacking in funds to stimulate economic activity amid the global downturn. According to them, a real stimulus package needs significant additional resources on top of what the government has already planned to spend. But it is estimated that of the P330 billion (US $6.92 billion based on current exchange rate of USD 1 = PhP47.672) allocated for the ERP, only P50 billion ($1.85 billion) can be considered as new funds. The said amount represents the sum realigned from the P252 billion allotted for servicing debt interest payments in the P1.41-trillion ($ 29.58 billion) national budget for 2009.


The P50 billion ($1.85 billion) forms part of the P160 billion ($3.35 billion) allocated for the ERP from a total P188-billion ($3.94 billion) increase in the 2009 budget. Thus, P110 billion ($2.3 billion) of the said amount could not be considered a stimulus fund because it was already a planned increase without accounting the global crunch. If we compute the P50 billion as a portion of the gross domestic product (GDP), it is equivalent to only 0.67 percent, said economist Winnie Monsod. Compare it with, say China’s stimulus package, which is about 18 percent of its GDP. In a briefing paper, think tank IBON Foundation pointed out that the 2009 national budget is equal to only 16 percent of the GDP – the lowest since 1986! It confirmed that the current budget was not designed to respond to the global crisis.

Meanwhile, the P100 billion ($2.09 billion) of which a portion would be bankrolled by government financial institutions and social security institutions is facing serious uncertainty. A counterpart fund is supposed to come from private investors to raise the amount needed to fund large infrastructure projects. But as of this writing, administration officials have yet to clinch a definite commitment from private business. They have been negotiating with the Philippine Chamber of Commerce and Industries (PCCI) but the said group threatened to back out in February if they will not get guarantees from government and if the projects will not start in the first half of the year. A portion of the P100 billion ($2.09 billion) will be also sourced from the Social Security System (SSS), which proposed to shell out P12.5 billion ($26 million) for the ERP. However, it is facing uncertainty as well due to strong resistance from SSS members and some lawmakers.

The P40 billion ($839 million) in tax cuts under the ERP are of course not fresh funds provided by government. They represent the estimated additional savings for low- and middle-income earners and corporations accruing from the Reformed Value Added Tax (RVAT) Law enacted in 2005. Finally, the P30 billion ($629 million) in additional benefits to members of social security institutions like the SSS and Government Service Insurance System (GSIS) are also unsure. They will depend on the viability of the said institutions’ investments. Arroyo’s own economic adviser, Albay Governor Joey Salceda, doubted such viability and pointed to the “paper losses” of the SSS and GSIS in their stock market investments, a consequence of the global economic turmoil.

More debts, more onerous taxes

Aggravating these funding problems is the perennial shortfall in government revenues to support its expenditures. The budget deficit this year is expected to jump to P177.2 billion ($3.71 billion) up to as much as P257 billion ($5.39 billion), which some analysts predicted as not even the worst case scenario. Such high budget deficit is not entirely due to government’s pump priming efforts, which as already discussed, could not even be considered real pump priming. Revenues will surely fall this year as corporate incomes drop and the number of wage earners decline because of the global crisis, adding to the already significant number of businesses that have been folding up and displacing workers even before the recession of the world economy. Already, the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) have both lowered their collection targets for this year by P44.4 billion ($923 million) and P39.8 billion ($834 million), respectively.

The Arroyo administration then will have to further increase its borrowing. This year, it plans to increase its foreign debt by $500 million and its domestic debt by P55.45 billion ($1.16 billion). But borrowing from domestic banks will further worsen the situation for local businesses scrambling for much needed capital as they will need to compete with government for loans and raise interest rates in the process. Government thus would have to turn more to foreign creditors. But the question is will the foreign loans be available? According to the Institute of International Finance (IIF), net bank lending to emerging economies this year will see a negative swing of $227 billion (i.e. more outflows than inflows) as investors become more risk averse amid the deepening global crisis. With a tight supply of credit from foreign sources, government would be forced to accept even more onerous terms, including more burdensome conditionalities such as liberalization, deregulation and privatization, tied to these foreign loans.

To fund these debts, government is pushing for more onerous taxes on consumers already heavily burdened by the regressive VAT. Proposals to impose a tax on text messaging have been revived in Congress aside from plans to enforce new taxes on so-called sin products, soft drinks, and other consumer items. These additional taxes on ordinary consumers amid massive displacements become more outrageous considering that at the same time, proposals to provide new tax perks for big business are also being pushed in Congress while fresh liberalization commitments – reducing or eliminating tariffs on imports – through free trade deals are in the offing.

They include House Bill (HB) 6073 of Speaker Prospero Nograles which intends to attract more agribusiness firms in the country by giving them a host of tax incentives, implementation of new liberalization commitments under the ASEAN Free Trade Area (AFTA) and the Japan-Philippines Economic Partnership Agreement (JPEPA), as well as negotiations for new deals such as the Partnership Cooperation Agreement (PCA) with the European Union (EU). All these will deprive the country of billions of pesos in potential revenues, which the Arroyo administration plans to compensate as usual by burdening consumers and ordinary income earners with more taxes.

Social (in) security

Aside from paying for the additional debt that government will surely incur to fund the ERP, ordinary income earners and taxpayers will also directly shoulder a significant amount of the Arroyo administration’s stimulus package. The supposed added benefits to members of social security institutions apparently would come from their extra contributions, and not from government funds. NEDA, for instance, is proposing to extend P10, 000 ($209) in so-called “unemployment benefits” to SSS members affected by the global economic turmoil. The said agency did not specify where it intends to source the money for this, but SSS raised the option of increasing the contributions from its members to bankroll the unemployment benefits.

As part of expanding the benefits of members of social security institutions, the SSS has already approved a P500-million ($10.48 million) fund to allow its members hit by the global crunch to avail of a maximum P15, 000 ($314) in emergency loans. But because the scheme involves loans instead of grants, it only threatens to bury in deeper debts the jobless SSS members who face a worsening uncertainty of finding a job soon, if at all. The said social security institution has also set strict and highly restrictive guidelines for those who can avail of the emergency loan. To illustrate, only SSS members who were retrenched from work starting January 1 are eligible, must have updated contributions and updated loan amortization. In other words, the SSS is further milking the workers dry instead of making available to them funds, which come from the workers themselves through their contributions, to help them cope with the raging crisis.

The ERP also intends to supposedly expand government’s social protection programs including the so-called Conditional Cash Transfers (CCTs). But this program is also criticized for being extremely limited both in funding and scope. For instance, out of some 4.5 million poor households nationwide, CCTs target only 321,000, mostly in Metro Manila. (See Table)


The CCTs is an old program of the Arroyo administration that is being funded mainly through the so-called “Katas ng VAT”. But since a huge portion of government’s VAT collections comes from the poor and ordinary income earners through their VAT payments for petroleum products, electricity, water and other essential goods and services, the ordinary people themselves are the ones funding the CCTs. Furthermore, CCTs are also meaningless amid skyrocketing cost of living, deteriorating jobs crisis and worsening poverty in the country that remain unaddressed and are even aggravated by wrong economic policies of government.

Meanwhile, the education and health components of the ERP will not have an impact on the social protection needs of the people as long as the overall policy direction of government is to privatize and commercialize the country’s public hospitals and schools such as HB 3287 of Rep. Roque Ablan Jr., which intends to corporatize 68 public hospitals nationwide. ERP’s health and education programs are also lip service in the context of meager and declining national budget for social services. In fact, compared to the Aquino, Ramos and Estrada administrations, the Arroyo administration posts the lowest annual budget allocation for health (1.7 percent of the national budget), education (15.2 percent, second lowest behind Aquino’s 12.3 percent) and housing (0.4 percent). (To be continued)


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