UP paper underlines gov’t role to ensure businesses survive, workers are protected amid COVID-19 crisis

The Philippine government should immediately put in place various social protection and economic recovery programs to minimize business closures and job losses amid extreme measures to contain the coronavirus outbreak, a UP economic paper said.

“The government must act quickly to ensure that businesses can survive, jobs are secure, and the most vulnerable members of society are protected,” according to the discussion paper dated March 22 and released by the UP School of Economics.

“The message must be decisive and formidable: ‘We will not let businesses fail, and we will not let people go hungry-whatever it takes.'”

It added that the plan begins with recognizing that the economic contraction is immediate and sharp-but temporary.

“There will be a real output loss in the economy, but this is necessary to contain the spread of the virus. The objective is to alleviate the economic, social, and psychological hardships caused by the reduction in economic activity and to minimize any permanent damage to the economy.”

This will involve providing emergency financial and non-financial aid to the most vulnerable households, guaranteeing continuity for businesses and maintaining the employment of their workers, and creating an economic environment for quick recovery and continued growth when the coronavirus crisis wanes.

The authors of the report listed specific actions to achieve this objective including ensuring supply chains are secure and essential services remain open. Supply chains for food and essential nonfood items as well as essential services should continue to be provided. Public transportation-at least along arterial roads-should be available, but with enhanced enforcement of social distancing.

They also sought support for agriculture including making sure its supply chains are unimpeded. “Luzon produces 47% of agricultural value added in the country. Therefore, the lockdown of the island can disrupt agriculture and its related activities,” the paper said.

Government support for farmers can be through input subsidies or access to markets, while agricultural supply chains should be unimpeded at checkpoints.

For industry, meanwhile, the paper noted that the lockdown will handicap businesses and lead to liquidity constraints, a situation in which “an otherwise solvent firm may be forced to go bankrupt.”

“Unable to meet payroll and nonpayroll requirements, businesses will pull the plug and shut down, depriving millions of Filipinos of their only source of livelihood,” the paper warned.

To prevent shutdowns and fast-track recovery, the authors presented more recommendations:
Preserve workers’ jobs. Businesses must be able to pay their workers’ salaries even though the employees are not working. A special kind of unemployment or furlough insurance can kick in. Employer contributions to SSS, GSIS, PhilHealth, and Pag-IBIG can be shared with the government.
Small- and medium-scale enterprises (SMEs) must be provided tax relief. The Department of Finance should explore if temporary adjustments to the provision on net operating loss carry-forward can mitigate the financial stress. “SMEs do not typically have the necessary expertise to tap into the credit and stock market,” said the paper.
Improve the ease and cost of doing business. The government can suspend penalties for late filings and returned checks for at least one month. Payments for business permits and other clearances can be deferred and collected at 0% interest.
Provide emergency loans to SMEs to incentivize retention of their workforce. These loans can be channeled through existing financial institutions with the support of the Bangko Sentral ng Pilipinas (BSP), and paired with tax credits from the government conditional on maintaining employment.
Exporters and importers should receive support. The global economic slowdown means markets for our exported goods will be cut off, and global supply chain disruptions will affect imports of raw materials or other intermediate inputs. This will hurt the competitiveness of firms and put the jobs of countless workers at risk. Measures to alleviate firms’ losses include credit guarantees, special credit windows/facilities for business, loan repayment holidays/loan restructuring, providing an “employment maintenance fund,” and reducing tariffs to stem the cost surge of imported inputs.
The airline industry should receive direct financial relief. Domestic airlines may be temporarily exempted from paying excise taxes and other fees typically associated with their operation.
The BSP should be ready to deploy unconventional monetary policy measures and provide the economic resources necessary to deal with this crisis.

Warning of the enormous liquidity gap facing individuals and businesses due to the contagion and lockdown, the authors said: “The goal of any plan should be to bridge this gap so that we can come out on the other side. In this sense, what we are advocating is a social insurance package.”

The paper pointed out that seven years of economic growth and the enactment of crucial revenue-enhancing measures in the past three years have provided the fiscal space needed to stem this crisis.

“The economic managers estimate the loss from COVID-19 at P187 billion, and to fight this, we should be prepared for the deficit to increase to at least 5% of GDP,” it said.

“Spending at least on the different social protection and economic recovery programs outlined above will protect our people, avert a recession, and arrest the misery that COVID-19 will bring.”

Moreover, all these prescriptions should be done under the principles of good governance, transparency and accountability, while the balance of power should be maintained.

The paper was written by Alfredo R. Paloyo, Cielo D. Magno, Karl L. Jandoc, Laarni C. Escresa, Ma. Christina F. Epetia, Maria Socorro Gochoco-Bautista, and Emmanuel S. de Dios.

Close Menu