PH economic stimulus: Do savings save us?

- manila times

PH economic stimulus: Do savings save us?

KATRINA QUIROLGICO

HOW do you solve a problem like Manila? That is the question Sonny Dominguez and Benjamin Diokno
have been trying to answer. Woe are they.

Last Friday, Bangko Sentral ng Pilipinas (BSP) governor Benjamin Diokno, slashed interest rates by 25
basis points for the third time this year, tugging the overnight borrowing rate down to 4 percent, the
overnight lending rate to 4.5 percent and the overnight deposit rate to 3.5 percent. The reserve
requirement ratio (RRR) was also cut by 100 basis points last Friday, requiring only 15 to 16 percent of
universal and commercial banks, and as low as 3 to 4 percent of rural banks. Moody’s augurs another cut
by the end of 2019. It is clear that the BSP is scrambling.

Finance Secretary Carlos “Sonny” Dominguez 3rd, on his end, has lobbied for Citira (the Corporate
Income Tax and Incentives Rationalization Act). On September 13, Citira made it past the 18th Congress,
through House Bill 4157, in a landslide vote of 170-8-6. Most will be familiar with Citira through its old
moniker, the Trabaho Bill (Tax Reform for Attracting Better and High-quality Opportunities). The intent is
to lower the current corporate income tax rate, from 30 percent to 20 percent, in annual decrements of
2 percent until 2029. A slow process.

The Manila Times Online | Home logo

PH economic stimulus: Do savings save us?

KATRINA QUIROLGICO
HOW do you solve a problem like Manila? That is the question Sonny Dominguez and Benjamin Diokno
have been trying to answer. Woe are they.

Last Friday, Bangko Sentral ng Pilipinas (BSP) governor Benjamin Diokno, slashed interest rates by 25
basis points for the third time this year, tugging the overnight borrowing rate down to 4 percent, the
overnight lending rate to 4.5 percent and the overnight deposit rate to 3.5 percent. The reserve
requirement ratio (RRR) was also cut by 100 basis points last Friday, requiring only 15 to 16 percent of
universal and commercial banks, and as low as 3 to 4 percent of rural banks. Moody’s augurs another cut
by the end of 2019. It is clear that the BSP is scrambling.

Finance Secretary Carlos “Sonny” Dominguez 3rd, on his end, has lobbied for Citira (the Corporate
Income Tax and Incentives Rationalization Act). On September 13, Citira made it past the 18th Congress,
through House Bill 4157, in a landslide vote of 170-8-6. Most will be familiar with Citira through its old
moniker, the Trabaho Bill (Tax Reform for Attracting Better and High-quality Opportunities). The intent is
to lower the current corporate income tax rate, from 30 percent to 20 percent, in annual decrements of
2 percent until 2029. A slow process.

The hope of both Diokno and Dominguez imperatives is to boost the economy, to “prime the pump,” in
the language of economists. With lower corporate income taxes, less money would be directed towards
government coffers, incentivizing the private sector to invest in industries and businesses. With lower
interest rates, it less profitable to keep money stagnant in the bank. In tandem, these liberate more
funds to course through the economy.

PH economic stimulus: Do savings save us?

KATRINA QUIROLGICO

HOW do you solve a problem like Manila? That is the question Sonny Dominguez and Benjamin Diokno
have been trying to answer. Woe are they.
Last Friday, Bangko Sentral ng Pilipinas (BSP) governor Benjamin Diokno, slashed interest rates by 25
basis points for the third time this year, tugging the overnight borrowing rate down to 4 percent, the
overnight lending rate to 4.5 percent and the overnight deposit rate to 3.5 percent. The reserve
requirement ratio (RRR) was also cut by 100 basis points last Friday, requiring only 15 to 16 percent of
universal and commercial banks, and as low as 3 to 4 percent of rural banks. Moody’s augurs another cut
by the end of 2019. It is clear that the BSP is scrambling.

Finance Secretary Carlos “Sonny” Dominguez 3rd, on his end, has lobbied for Citira (the Corporate
Income Tax and Incentives Rationalization Act). On September 13, Citira made it past the 18th Congress,
through House Bill 4157, in a landslide vote of 170-8-6. Most will be familiar with Citira through its old
moniker, the Trabaho Bill (Tax Reform for Attracting Better and High-quality Opportunities). The intent is
to lower the current corporate income tax rate, from 30 percent to 20 percent, in annual decrements of
2 percent until 2029. A slow process.

The hope of both Diokno and Dominguez imperatives is to boost the economy, to “prime the pump,” in
the language of economists. With lower corporate income taxes, less money would be directed towards
government coffers, incentivizing the private sector to invest in industries and businesses. With lower
interest rates, it less profitable to keep money stagnant in the bank. In tandem, these liberate more
funds to course through the economy.

When more money is released into the money supply, the exchange rate drops, thereby inducing
inflation and making our goods and services cheaper for foreign markets. With the recent rise in oil
prices because of the Saudi oil attacks, the adverse impact of the African swine fever outbreak on our
livestock, along with the fall in rice and power prices, however, inflation has stalled to a meager 0.6 to
1.4 percent. The odds seem never in our favor.

It is tough managing an economy. It is not just a matter of pulling a few fiscal and monetary levers, to
make the invisible hand slightly more visible.

Besides the seemingly insurmountable odds of an unwieldy economy, there too, of course are the odds
of public criticism. Case in point is Albay’s First District Rep. Edcel Lagman who called Citira “a classic
example of how skewed the Philippine tax system is against the poor.” Even Philippine Economic Zone
Authority’s Director General Charito Plaza has not been all too supportive of Citira, indicating concerns of
making her office redundant. Where these critics fail is seeing the bigger picture.

PH economic stimulus: Do savings save us?

KATRINA QUIROLGICO

HOW do you solve a problem like Manila? That is the question Sonny Dominguez and Benjamin Diokno
have been trying to answer. Woe are they.

Last Friday, Bangko Sentral ng Pilipinas (BSP) governor Benjamin Diokno, slashed interest rates by 25
basis points for the third time this year, tugging the overnight borrowing rate down to 4 percent, the
overnight lending rate to 4.5 percent and the overnight deposit rate to 3.5 percent. The reserve
requirement ratio (RRR) was also cut by 100 basis points last Friday, requiring only 15 to 16 percent of
universal and commercial banks, and as low as 3 to 4 percent of rural banks. Moody’s augurs another cut
by the end of 2019. It is clear that the BSP is scrambling.

Finance Secretary Carlos “Sonny” Dominguez 3rd, on his end, has lobbied for Citira (the Corporate
Income Tax and Incentives Rationalization Act). On September 13, Citira made it past the 18th Congress,
through House Bill 4157, in a landslide vote of 170-8-6. Most will be familiar with Citira through its old
moniker, the Trabaho Bill (Tax Reform for Attracting Better and High-quality Opportunities). The intent is
to lower the current corporate income tax rate, from 30 percent to 20 percent, in annual decrements of
2 percent until 2029. A slow process.

The hope of both Diokno and Dominguez imperatives is to boost the economy, to “prime the pump,” in
the language of economists. With lower corporate income taxes, less money would be directed towards
government coffers, incentivizing the private sector to invest in industries and businesses. With lower
interest rates, it less profitable to keep money stagnant in the bank. In tandem, these liberate more
funds to course through the economy.
When more money is released into the money supply, the exchange rate drops, thereby inducing
inflation and making our goods and services cheaper for foreign markets. With the recent rise in oil
prices because of the Saudi oil attacks, the adverse impact of the African swine fever outbreak on our
livestock, along with the fall in rice and power prices, however, inflation has stalled to a meager 0.6 to
1.4 percent. The odds seem never in our favor.

It is tough managing an economy. It is not just a matter of pulling a few fiscal and monetary levers, to
make the invisible hand slightly more visible.

More in Headlines

‘I have only started’

Late goal brings Azkals U22 to a draw with Cambodia

‘War on drugs not for student Robredo’

Sara tells lawmakers: You did not listen to me

SEA Games: PH routs Indonesia in floorball

Besides the seemingly insurmountable odds of an unwieldy economy, there too, of course are the odds
of public criticism. Case in point is Albay’s First District Rep. Edcel Lagman who called Citira “a classic
example of how skewed the Philippine tax system is against the poor.” Even Philippine Economic Zone
Authority’s Director General Charito Plaza has not been all too supportive of Citira, indicating concerns of
making her office redundant. Where these critics fail is seeing the bigger picture.
These economic stimulus measures are not about the “poor” or simply ousting an office or a sitting chief.
In fact, the “poor,” supposedly impacted adversely, are not even directly impacted at all. The poor
typically do not maintain bank accounts for not only do they often lack the funds to meet minimum
deposit requirements, but more importantly, they are averse to bank charges and the thought of
maintaining a reserve they cannot access should the need arise. Those impacted are those people with
funds — and hefty ones at that.

PH economic stimulus: Do savings save us?

KATRINA QUIROLGICO

HOW do you solve a problem like Manila? That is the question Sonny Dominguez and Benjamin Diokno
have been trying to answer. Woe are they.

Last Friday, Bangko Sentral ng Pilipinas (BSP) governor Benjamin Diokno, slashed interest rates by 25
basis points for the third time this year, tugging the overnight borrowing rate down to 4 percent, the
overnight lending rate to 4.5 percent and the overnight deposit rate to 3.5 percent. The reserve
requirement ratio (RRR) was also cut by 100 basis points last Friday, requiring only 15 to 16 percent of
universal and commercial banks, and as low as 3 to 4 percent of rural banks. Moody’s augurs another cut
by the end of 2019. It is clear that the BSP is scrambling.

Finance Secretary Carlos “Sonny” Dominguez 3rd, on his end, has lobbied for Citira (the Corporate
Income Tax and Incentives Rationalization Act). On September 13, Citira made it past the 18th Congress,
through House Bill 4157, in a landslide vote of 170-8-6. Most will be familiar with Citira through its old
moniker, the Trabaho Bill (Tax Reform for Attracting Better and High-quality Opportunities). The intent is
to lower the current corporate income tax rate, from 30 percent to 20 percent, in annual decrements of
2 percent until 2029. A slow process.
The hope of both Diokno and Dominguez imperatives is to boost the economy, to “prime the pump,” in
the language of economists. With lower corporate income taxes, less money would be directed towards
government coffers, incentivizing the private sector to invest in industries and businesses. With lower
interest rates, it less profitable to keep money stagnant in the bank. In tandem, these liberate more
funds to course through the economy.

When more money is released into the money supply, the exchange rate drops, thereby inducing
inflation and making our goods and services cheaper for foreign markets. With the recent rise in oil
prices because of the Saudi oil attacks, the adverse impact of the African swine fever outbreak on our
livestock, along with the fall in rice and power prices, however, inflation has stalled to a meager 0.6 to
1.4 percent. The odds seem never in our favor.

It is tough managing an economy. It is not just a matter of pulling a few fiscal and monetary levers, to
make the invisible hand slightly more visible.

More in Headlines

‘I have only started’

Late goal brings Azkals U22 to a draw with Cambodia

‘War on drugs not for student Robredo’

Sara tells lawmakers: You did not listen to me

SEA Games: PH routs Indonesia in floorball

Besides the seemingly insurmountable odds of an unwieldy economy, there too, of course are the odds
of public criticism. Case in point is Albay’s First District Rep. Edcel Lagman who called Citira “a classic
example of how skewed the Philippine tax system is against the poor.” Even Philippine Economic Zone
Authority’s Director General Charito Plaza has not been all too supportive of Citira, indicating concerns of
making her office redundant. Where these critics fail is seeing the bigger picture.

These economic stimulus measures are not about the “poor” or simply ousting an office or a sitting chief.
In fact, the “poor,” supposedly impacted adversely, are not even directly impacted at all. The poor
typically do not maintain bank accounts for not only do they often lack the funds to meet minimum
deposit requirements, but more importantly, they are averse to bank charges and the thought of
maintaining a reserve they cannot access should the need arise. Those impacted are those people with
funds — and hefty ones at that.

Citira, on the other hand, impacts only corporations, which already have enough capital to start a
business to begin with. As for rendering a government office redundant, a house bill and fiscal
restructuring are great lengths to tread for the simple shutdown of a government office which could be
achieved in one fell swoop, with a few meaningful signatures. I doubt this is the intent of Citira.
Naysayers, alas, characterize what Nietzsche called the “ethic of resentment” which seeks to wreak
havoc with cunning and with words in attempts at relevance.

The Manila Times Online | Home logo

PH economic stimulus: Do savings save us?

KATRINA QUIROLGICO

HOW do you solve a problem like Manila? That is the question Sonny Dominguez and Benjamin Diokno
have been trying to answer. Woe are they.

Last Friday, Bangko Sentral ng Pilipinas (BSP) governor Benjamin Diokno, slashed interest rates by 25
basis points for the third time this year, tugging the overnight borrowing rate down to 4 percent, the
overnight lending rate to 4.5 percent and the overnight deposit rate to 3.5 percent. The reserve
requirement ratio (RRR) was also cut by 100 basis points last Friday, requiring only 15 to 16 percent of
universal and commercial banks, and as low as 3 to 4 percent of rural banks. Moody’s augurs another cut
by the end of 2019. It is clear that the BSP is scrambling.

Finance Secretary Carlos “Sonny” Dominguez 3rd, on his end, has lobbied for Citira (the Corporate
Income Tax and Incentives Rationalization Act). On September 13, Citira made it past the 18th Congress,
through House Bill 4157, in a landslide vote of 170-8-6. Most will be familiar with Citira through its old
moniker, the Trabaho Bill (Tax Reform for Attracting Better and High-quality Opportunities). The intent is
to lower the current corporate income tax rate, from 30 percent to 20 percent, in annual decrements of
2 percent until 2029. A slow process.

The hope of both Diokno and Dominguez imperatives is to boost the economy, to “prime the pump,” in
the language of economists. With lower corporate income taxes, less money would be directed towards
government coffers, incentivizing the private sector to invest in industries and businesses. With lower
interest rates, it less profitable to keep money stagnant in the bank. In tandem, these liberate more
funds to course through the economy.

When more money is released into the money supply, the exchange rate drops, thereby inducing
inflation and making our goods and services cheaper for foreign markets. With the recent rise in oil
prices because of the Saudi oil attacks, the adverse impact of the African swine fever outbreak on our
livestock, along with the fall in rice and power prices, however, inflation has stalled to a meager 0.6 to
1.4 percent. The odds seem never in our favor.

It is tough managing an economy. It is not just a matter of pulling a few fiscal and monetary levers, to
make the invisible hand slightly more visible.

More in Headlines

‘I have only started’

Late goal brings Azkals U22 to a draw with Cambodia

‘War on drugs not for student Robredo’

Sara tells lawmakers: You did not listen to me

SEA Games: PH routs Indonesia in floorball

Besides the seemingly insurmountable odds of an unwieldy economy, there too, of course are the odds
of public criticism. Case in point is Albay’s First District Rep. Edcel Lagman who called Citira “a classic
example of how skewed the Philippine tax system is against the poor.” Even Philippine Economic Zone
Authority’s Director General Charito Plaza has not been all too supportive of Citira, indicating concerns of
making her office redundant. Where these critics fail is seeing the bigger picture.

These economic stimulus measures are not about the “poor” or simply ousting an office or a sitting chief.
In fact, the “poor,” supposedly impacted adversely, are not even directly impacted at all. The poor
typically do not maintain bank accounts for not only do they often lack the funds to meet minimum
deposit requirements, but more importantly, they are averse to bank charges and the thought of
maintaining a reserve they cannot access should the need arise. Those impacted are those people with
funds — and hefty ones at that.

Citira, on the other hand, impacts only corporations, which already have enough capital to start a
business to begin with. As for rendering a government office redundant, a house bill and fiscal
restructuring are great lengths to tread for the simple shutdown of a government office which could be
achieved in one fell swoop, with a few meaningful signatures. I doubt this is the intent of Citira.
Naysayers, alas, characterize what Nietzsche called the “ethic of resentment” which seeks to wreak
havoc with cunning and with words in attempts at relevance.
On the surface, while Dominguez and Diokno seek to expand the economy and save us from coming
close to a recession, undergirding these measures is a desire to shift the economy to one that thrives on
spending and credit more than it does on saving. This may be the most insurmountable of odds. Nations
already possess certain “habits of the heart,” to use the language of Tocqueville. Such habits are difficult
to change.

In the West, especially in the Anglo-Saxon world, it is not difficult to incentivize spending. The economies
of the United States and the United Kingdom, especially after the Great Depression in the aftermath of
World War 1, were saved by the graces of Keynesian economics. Spending became corollary with
expressing patriotism. The argument was that if citizens dipped into their savings and shared their
wealth, the national economy would be saved from ruin. It was, therefore, a patriotic duty to spend. The
government followed suit with Roosevelt’s New Deal programs. Even plays of the time reinforced this
philosophy: the main character in Thornton Wilder’s “The Merchant of Yonkers” (on which the musical,
“Hello, Dolly” was based), Dolly Levi, is remembered for saying, “Money is like manure: it isn’t worth a
thing unless it is spread around, encouraging young things to grow.” So, spend the West does.

PH economic stimulus: Do savings save us?

KATRINA QUIROLGICO

HOW do you solve a problem like Manila? That is the question Sonny Dominguez and Benjamin Diokno
have been trying to answer. Woe are they.

Last Friday, Bangko Sentral ng Pilipinas (BSP) governor Benjamin Diokno, slashed interest rates by 25
basis points for the third time this year, tugging the overnight borrowing rate down to 4 percent, the
overnight lending rate to 4.5 percent and the overnight deposit rate to 3.5 percent. The reserve
requirement ratio (RRR) was also cut by 100 basis points last Friday, requiring only 15 to 16 percent of
universal and commercial banks, and as low as 3 to 4 percent of rural banks. Moody’s augurs another cut
by the end of 2019. It is clear that the BSP is scrambling.
Finance Secretary Carlos “Sonny” Dominguez 3rd, on his end, has lobbied for Citira (the Corporate
Income Tax and Incentives Rationalization Act). On September 13, Citira made it past the 18th Congress,
through House Bill 4157, in a landslide vote of 170-8-6. Most will be familiar with Citira through its old
moniker, the Trabaho Bill (Tax Reform for Attracting Better and High-quality Opportunities). The intent is
to lower the current corporate income tax rate, from 30 percent to 20 percent, in annual decrements of
2 percent until 2029. A slow process.

The hope of both Diokno and Dominguez imperatives is to boost the economy, to “prime the pump,” in
the language of economists. With lower corporate income taxes, less money would be directed towards
government coffers, incentivizing the private sector to invest in industries and businesses. With lower
interest rates, it less profitable to keep money stagnant in the bank. In tandem, these liberate more
funds to course through the economy.

When more money is released into the money supply, the exchange rate drops, thereby inducing
inflation and making our goods and services cheaper for foreign markets. With the recent rise in oil
prices because of the Saudi oil attacks, the adverse impact of the African swine fever outbreak on our
livestock, along with the fall in rice and power prices, however, inflation has stalled to a meager 0.6 to
1.4 percent. The odds seem never in our favor.

It is tough managing an economy. It is not just a matter of pulling a few fiscal and monetary levers, to
make the invisible hand slightly more visible.

More in Headlines

‘I have only started’

Late goal brings Azkals U22 to a draw with Cambodia

‘War on drugs not for student Robredo’

Sara tells lawmakers: You did not listen to me

SEA Games: PH routs Indonesia in floorball

Besides the seemingly insurmountable odds of an unwieldy economy, there too, of course are the odds
of public criticism. Case in point is Albay’s First District Rep. Edcel Lagman who called Citira “a classic
example of how skewed the Philippine tax system is against the poor.” Even Philippine Economic Zone
Authority’s Director General Charito Plaza has not been all too supportive of Citira, indicating concerns of
making her office redundant. Where these critics fail is seeing the bigger picture.

These economic stimulus measures are not about the “poor” or simply ousting an office or a sitting chief.
In fact, the “poor,” supposedly impacted adversely, are not even directly impacted at all. The poor
typically do not maintain bank accounts for not only do they often lack the funds to meet minimum
deposit requirements, but more importantly, they are averse to bank charges and the thought of
maintaining a reserve they cannot access should the need arise. Those impacted are those people with
funds — and hefty ones at that.

Citira, on the other hand, impacts only corporations, which already have enough capital to start a
business to begin with. As for rendering a government office redundant, a house bill and fiscal
restructuring are great lengths to tread for the simple shutdown of a government office which could be
achieved in one fell swoop, with a few meaningful signatures. I doubt this is the intent of Citira.
Naysayers, alas, characterize what Nietzsche called the “ethic of resentment” which seeks to wreak
havoc with cunning and with words in attempts at relevance.

On the surface, while Dominguez and Diokno seek to expand the economy and save us from coming
close to a recession, undergirding these measures is a desire to shift the economy to one that thrives on
spending and credit more than it does on saving. This may be the most insurmountable of odds. Nations
already possess certain “habits of the heart,” to use the language of Tocqueville. Such habits are difficult
to change.
In the West, especially in the Anglo-Saxon world, it is not difficult to incentivize spending. The economies
of the United States and the United Kingdom, especially after the Great Depression in the aftermath of
World War 1, were saved by the graces of Keynesian economics. Spending became corollary with
expressing patriotism. The argument was that if citizens dipped into their savings and shared their
wealth, the national economy would be saved from ruin. It was, therefore, a patriotic duty to spend. The
government followed suit with Roosevelt’s New Deal programs. Even plays of the time reinforced this
philosophy: the main character in Thornton Wilder’s “The Merchant of Yonkers” (on which the musical,
“Hello, Dolly” was based), Dolly Levi, is remembered for saying, “Money is like manure: it isn’t worth a
thing unless it is spread around, encouraging young things to grow.” So, spend the West does.

But, over here, while there are segments of the population that spend with little care for the savings of
tomorrow, a vast majority, especially of both the traditional and the landed, save. We did not tread the
same New Deal path of FDR. We do not have robust government infrastructure on which to rely should
our finances fail us. Trump may laud the strength of American capitalism in its ability to absorb shocks
and the bank insolvency of corporations, but over here, once bankrupt, we do not have the measures to
rope us back into the economy — beyond the kindness of friends and of family. The welfare state is, alas,
not all that well.

And so, we rely on savings. It is to this we owe our resilience in the face of the 1997 Asian financial crisis
and the 2008 Lehman Brothers meltdown. Unlike in the West where, in the language of Francis
Fukuyama, the rise of liberal of democracy has led to a kind of End of History where war, in the words of
Secretary of Foreign Affairs Teodoro Locsin Jr. at UNGA last week, “is really ultima ratio regis” (the final
argument of kings), here the memory of war is still very much present — not just through the memories
of our grandparents with the Japanese, but also in the memories of our parents during the political
upheavals of the 1970s and 1980s. Moreover, our experience of war was on our shores, unlike the US,
which often fights wars on foreign borders. And so, we save.

Such saving saves us, too. Case in point: we have not been as impacted by the vagaries of the
international market as other nations more involved in trade in the world market. Savings does buffer us,
but it does not allow us to grow. It is a tough call.

How, then, can we incentivize spending when the culture of saving permeates deep into the habits of the
Filipino heart? No matter the stimulus, the investment is slow. We must rely on the bravado of younger
generations, fueled by their youth, for riskier behavior in the market. But those younger generations do
not often have the investment power of their older parents. At least, not yet.

Thus, the multiplier is slow and is weak. For every fiscal and monetary measure that travels a mile, our
habits budge an inch. And woe are the BSP and the Department of Finance for it.
Our only saving grace is perhaps the increase in foreign direct investment or FDI the Citira bill can
harvest, especially towards big-ticket public-private partnership or PPP projects. This is classic Hayek
economics of private (foreign) investment in public markets. In many ways, this already is the world
trend of privatization. From Europe to the Middle East, to a few of our airport developments, the model
is gaining traction. But, truth be told, to be impactful, Citira needs to decrease its tax rate a lot quicker
for foreign companies to truly be incentivized to invest on our shores.

How do you solve a problem like Manila? Economics is one answer — but it is not the full answer. Habits
need to change for a country to change. And that takes time.

The author an economist who holds master’s degrees in Government and International History from the
London School of Economics, and a bachelor’s degree in International Politics from Georgetown
University. She has trained at Harvard University on International Education and Admissions.

Follow her on Twitter (@kq_avisrara).