ECONOMIC MANAGERS are proposing the creation of a new government-owned and -controlled corporation (GOCC) that will invest in shares of large firms now struggling amid the coronavirus crisis.
Finance Secretary Carlos G. Dominguez III on Monday proposed that Land Bank of the Philippines (LANDBANK) and Development Bank of the Philippines (DBP) form a holding company that will be authorized to make equity investments in companies now facing solvency problems.
“Right now, we are suggesting LANDBANK and DBP organize a new GOCC and that GOCC will be capitalized and will be empowered to make investments in companies that are important to the national interest and that need injections of capital in the form of preferred shares, common shares, whatever,” he said during the online Sulong Pilipinas forum on Monday.
Mr. Dominguez said the new GOCC will be capitalized to invest in firms, deemed critical to national interest” such as those in the transportation and manufacturing industries.
“We are still studying the total capitalization initially needed, but definitely, we will be inviting others to invest in this vehicle,” he said, adding that potential investors may include private sector arms of multilateral agencies and foreign and local investment firms.
Companies that will benefit from this will have to meet certain conditions, such as “limits to dividends; non-dilution of equity; limits on bonuses and allowances, retention and incentives of senior executives; clawbacks on bonuses; and no golden parachutes.” Firms should also curtail spending on entertainment and events, office renovations, and private aviation and transport services.
The proposed equity infusion program is one part of the economic managers’ recovery plan to help large companies battered by the coronavirus crisis.
The government is also pushing for the immediate reduction in corporate income tax to 25% in July, but Congress was unable to pass the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill before its adjournment last week.
Senators had issued a joint statement, saying they will tackle the bill and “work to pass it” by August.
Mr. Dominguez said the corporate income tax cut can be implemented retroactively.
‘REALISTIC’ STIMULUS BILL
Meanwhile, Mr. Dominguez said their calculations showed the government can only afford “more or less” a P170-180 billion stimulus package this year, including the estimated P40 billion in foregone revenues from corporate income tax reduction.
“If we are able to get a piece of legislation close to what the Senate wants, which is P140 billion, we can afford both, but we cannot afford P1.3 trillion, that is very simple,” he said, referring to the P1.3-trillion Accelerated Recovery and Investments Stimulus for the Economy of the Philippines (ARISE) bill approved by the House of Representatives last week.
The Finance chief said the pending stimulus bills that have allocations of “over and above the budget” are considered as supplemental budget.
He said the government is constrained by Constitutional limitations where a supplemental budget is not possible if not supported by additional revenues or savings.
“What we constantly underscore with various stakeholders, including Congress, is the need to have a realistic economic recovery program that is fiscally sustainable because we do not know how long this pandemic will last,” Mr. Dominguez said.
Also, he said the economic team will only accommodate a “sustainable budget deficit” of up to 9% of gross domestic product (GDP) this year, to place “right about in the middle of the fiscal deficits of our rating peers and our neighbors, [which] I think we will be in a safe place.”
“Right now, we have no savings (excess revenues) because we have used them all up and we have no additional sources of revenues in the horizon,” Mr. Dominguez said. — Beatrice M. Laforga