Finance Secretary Carlos Dominguez III has told the American investor community that the smaller contraction of the Philippine economy in the third quarter indicates that “the worst seems to be over” for the pandemic-hit country, and that “additional improvements” are expected in the months ahead as the Duterte administration progressively reopens businesses and transportation to clear the way to a strong bounce back in 2021.
As the government makes headway in strengthening the country’s health system to prevent a surge in COVID-19 infections, Dominguez said at a virtual business forum hosted by the Philippine Embassy in Washington, D.C. that “the government intends to continue finding more ways to help revive the domestic economy.”
With the Philippine economy “back in business despite the pandemic,” the Finance secretary said “we see many areas for cooperation between the US and the Philippines” in assorted opportunities for American investments such as in digital technology, agriculture, manufacturing and medical research.
“As we gradually reopen the economy with health interventions, our GDP performed much better. We had a smaller GDP (gross domestic product) contraction of 11.5 percent in the third quarter from a decline of 16.9 percent in the second quarter of this year. On a quarter-on-quarter basis, the economy grew by 8 percent in the third quarter,” said Dominguez at the webinar on “Philippines as Pathway to Asia in a Post-Pandemic World,” which was hosted Friday by the Philippine Embassy in the US capital.
“This (smaller GDP contraction) indicates that the Philippine economy is on the mend,” he said. “This is also a strong signal that the worst seems to be over for the country. The path is clearer to a strong bounce back in 2021.”
Present at the online gathering were Philippine Ambassador to the US Jose Manuel Romualdez, Presidential Adviser on Flagship Programs and Projects Vivencio Dizon and American business leaders led by Charles Freeman, who is senior vice president for Asia of the US Chamber of Commerce.
Dominguez thanked Romualdez for putting together the webinar, noting that “this forward-looking event signals that the Philippines is back in business despite the pandemic.”
“Next year, we expect the Philippine economy to post a strong rebound …. We hope that the Philippines’ strong fundamentals, fiscal stamina and effective governance will continue to make us a promising investment destination and a growing market for US investors,” he said during the webinar held this morning (Philippine Standard Time).
“We expect to see additional improvements in the last quarter of this year as we progressively reopen businesses and transportation,” he said. “While strengthening our health system, we intend to continue finding more ways to revive the domestic economy. We see many areas of cooperation between the US and the Philippines on this front.”
For instance, he said, the Duterte administration is turning the coronavirus-induced global crisis into “an opportunity to boost the competitiveness of our manufacturing and agriculture sectors. We are pushing the use of digital technologies to transform Philippine agriculture into a dynamic, high-growth sector. With the US being one of the world’s greatest food producers, we see immense potential benefit in having American investments in this area.”
“Manufacturing is another key sector that we will revitalize in the post-pandemic era. This is a good time for the US firms that are looking to diversify their supply chains to see the Philippines as a viable source of intermediate products and services,” he said.
He noted that while some of the country’s closest neighbors grapple with ageing populations, “the Philippines has a very young workforce. We have invested a lot in preparing our youth for the competitive world that lies ahead. There is a great talent in our market ready to be unleashed. In particular, we have an extensive pool of highly skilled workers to assist in the development of the US manufacturing and innovative industries.”
“We also see great potential in partnerships with US companies as we accelerate our move to a digital economy,” he said. “The COVID-19 crisis is also a time for renewed cooperation between our nations in the area of medical research.”
“We appreciate the importance of continuing our fiscal discipline to ensure the resilience of our economy,” he said. “Despite the many populist excuses to grow the deficit and bury future generations in debt, the Philippines has chosen the path of fiscal prudence. Our goal is to land our deficit-to-GDP ratio in the middle range of our ASEAN neighbors and credit rating peers around the world. This conservative approach will allow us to continue accessing the financing we need at favorable terms for the Filipino people.”
“The battle against COVID-19 is going to be a marathon, not a sprint. We need to maintain our fiscal stamina. We should have ample ammunition to outlast this enemy,” he said.
As the Philippines traverses very difficult circumstances amid the global health and economic crises, Dominguez said “we intend to maintain fiscal discipline and make our financial sector more inclusive. We are introducing additional reforms that will help us consolidate a pro-business environment.”
The Executive Department is “thankful that the Philippine Congress adhered to our prudent approach by passing a fiscally responsible economic stimulus package called Bayanihan 2,” he said.
He explained that Bayanihan 2 has “put our health response front and center. It provides funds to hire thousands of contact tracers and to support our medical workers. We will purchase safe and effective vaccines when they become available …. In addition, Bayanihan 2 makes possible several streams of support for individuals and enterprises to restart their operations.”
“We are infusing more capital into government financial institutions (GFIs) to dramatically expand their lending to micro, small and medium enterprises (MSMEs). This will have a large multiplier effect in economic activity. Every peso infused into our government financial institutions will generate around 10 times its value in credit. The additional capital will be used to protect the productive parts of our economy,” he added.
Moreover, Dominguez said the Duterte administration is working closely with legislators on the swift passage by the Congress of priority measures designed to further energize the economy and accelerate its recovery from the pandemic.
These key recovery measures include the national budget plan of P4.506 trillion for 2021, which “will provide us with some of the most effective tools necessary to rebuild our economy;” the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill, which will slash the corporate income tax (CIT) and enhance the flexiblity of the incentives system to “proactively attract investments that will bring exceptional benefits to the Filipino people;” and the Financial Institutions Strategic Transfer (FIST) bill, which will let banks “offload souring loans and assets, clean up their balance sheets and extend more credit to sectors in need.”
“Through CREATE, we see an opportunity to deepen our trade and investment partnership with the United States by incentivizing industries with higher value-added,” he said.
Dominguez said another recovery measure is a bill that will enable government banks to form a special holding company designed to infuse equity, with strict conditions, into strategically important companies facing solvency issues. This measure is similar to some of the key features of the US’ Troubled Asset Relief Program (TARP) in 2008.
He said the government will push, too, the congressional passage of complementary bills that will open up the country to more foreign direct investments (FDIs), such as the amendments to the Foreign Investments Act, the Retail Trade Liberalization Act, and the Public Service Act. “These measures will provide more opportunities for our countries to engage in more mutually beneficial investments.”
Likewise, the Duterte administration is committed to pursuing the congressional approval of the remaining packages of its Comprehensive Tax Reform Program (CTRP), including improvements in the property valuation system, and in the taxation on passive income, financial intermediaries and the digital economy.
The Duterte administration is also maintaining its commitment to ramp up infrastructure spending via President Duterte’s signature initiative “Build, Build, Build,” Dominguez said. “With its high multiplier effect, ‘Build, Build, Build’ will play a pivotal role in our economic recovery.”
He said the government likewise seeks to provide greater support to the agriculture sector by increasing credit access to the entire agricultural value chain.
Dominguez said that prudent fiscal management, “Build, Build, Build” and tax reforms along with other game-changing initiatives like the Rice Tariffication Law (RTL) that were carried out since President Duterte assumed office in 2016 have strengthened the Philippines’ fiscal and economic stamina.
“In other words, without this global economic crisis, we had realized better economic outcomes for our people. Our economy was ready to roar,” he said.
Dominguez recalled that when the pandemic struck, the “government prioritized the health and safety of its people above everything else. President Duterte decisively imposed a lockdown in March to protect lives, even if it was clear that this would affect the domestic economy. We were fully aware that such a move would impose heavy costs on the government.”
“The lockdown gave us time to strengthen our prevention, testing, isolation, and treatment capacities. According to our university researchers, the lockdown helped us avert an estimated 1.3 to 3.5 million infections,” he said.
He said, “The Filipino people fully understand the need for restrictions to stem the tide of COVID-19 infection. In fact, they approve of how our government has been handling this pandemic. In the latest survey conducted by an independent public opinion poll, President Duterte received a job approval rating of 91 percent.”
He stressed that it was to the government’s advantage that when the crisis hit, “the Philippines was financially ready” to cover the huge resources required by COVID-19 response. “Little did we know that our financial build-up would serve to buttress our defenses against economic shocks.”
“We also faced COVID-19 with strength on the food security front because we passed the RTL. It has kept food prices affordable and our inflation rate benign during this health emergency,” he added.
One week after the imposition of the lockdown in March, Dominguez said the Congress swiftly passed a COVID relief package called Bayanihan 1, which cushioned the public from the initial economic shock of the pandemic-related lockdown.
“We urgently delivered an emergency cash grant to 18 million low-income families for two months. We distributed wage subsidies to more than 3 million small business workers, also for two months. These interventions cost us about 5 billion US dollars. This is the largest social protection program in Philippine history,” he said.
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