The President just extended the Luzon-wide quarantine to April 30. This is necessary to protect public health. Now, social and economic policies must accompany it to ensure its sustainability.
Much of the public and private efforts thus far have been directed toward fortifying the fragile safety net that most vulnerable households rely on. To be sure, these initiatives are a first-order concern. But even as we attempt to save lives, we must also save livelihoods.
The enhanced community quarantine (ECQ) has made it impossible for many entrepreneurs to sustain their businesses and pay their workers. Yet there is little indication that adequate relief is forthcoming for micro-, small-, and medium-scale enterprises (MSMEs). There are 250,000 MSMEs in Metro Manila alone, and they generate close to 3 million jobs. These enterprises are responsible for the majority of the economy’s output. Without a plan to save them, millions of Filipinos will lose their livelihoods. With this job destruction will go business knowledge and processes that form the fabric of the Philippine economy.
On March 22, faculty members from the UP School of Economics and I released our plan (“A Social Protection and Economic Recovery Plan”) for how the government can contain the public health crisis while ensuring that there is still an economy to restart when we come out the other side.
A key component of the plan is for the government to provide financial assistance to businesses to preserve jobs.
Recently, the Department of Labor and Employment rolled out the COVID-19 Adjustment Measures Program (CAMP). Those who qualify for the P5,000 cash assistance are workers forced into flexible working arrangements and those who currently do not have work because of a temporary business closure. So far, 200,000 workers — of which 80,000 are in the informal sector — received direct financial aid totaling P622 million. More will certainly be required.
This will save many jobs, but not all. Businesses have non-payroll obligations, too, such as rent. What would be more effective is for the government to subsidize revenue losses proportional to how many workers are laid off. The subsidy can take the form of government-backed bank loans to facilitate the movement of cash into the hands of targeted businesses and their employees. The Bangko Sentral ng Pilipinas (BSP) can take on the default risk of these loans to encourage banks to lend money. After all, the BSP has already relaxed its capital adequacy requirements to encourage banks to part with their cash. In this sense, private financial institutions are merely serving as conduits for what is essentially government aid.
There are several advantages to this approach. One, it ensures business continuity: it will allow owners to pay their workers while also meeting their non-payroll obligations. Two, the administration will be borne by banks which are best-equipped to handle business loan applications. Three, the government will only have to deal with several hundred banks instead of up to a million MSMEs.
Over the weekend (April 4–5), the National Economic and Development Authority and the Department of Finance released a survey to seek input from consumers and businesses. This is laudable, but we did not need a survey to understand that the problem is a liquidity gap for both businesses and households.
Entrepreneurs have closed up shop and laid off workers even as the ECQ had just started. With the signing of the Bayanihan to Heal as One Act, the government took a step in the right direction. The scale of the powers given to the Chief Executive acknowledges the severity of the problem. But the government needs to act much faster than it already has at a scale that the unprecedented economic crisis demands.
Alfredo Paloyo is a Senior Lecturer in Economics at the University of Wollongong, Australia.
Twitter: @AlfredoPaloyo.
