alacañang has
forecast a budgetary deficit of about P40 billion next year. That is neither
large nor small but there is comfort in the fact that it is lower than before.
A budget deficit is not all that bad. In fact, it can be made
an instrument of growth depending on how the deficit comes about.
If the revenues do not match expenses because a good bulk of
the money that is not even there is spent to finance a bloated bureaucracy, the
entire economy can be in trouble.
The example of raising salaries of state employees including
the doubling of that of the President is an omen of how not to benefit from a
deficit.
The theory, tested in practice, is that prices, commodities
and services tend to go up as people are given what is known as disposable
income although they do not produce much in terms of goods.
More money chasing fewer goods always end up in price push or
higher inflation rate.
However, if borrowed money is spent on public works, some
jobs are created. At the same time, a demand for say, cement and steel products
is similarly created.
Higher demand for raw materials keeps unemployment in some
sectors at bay. There is recognition, however, that public works also translates
in higher inflation rate, though temporarily.
Should the government construct farm-to-market roads in the
hundreds of kilometers, thousands of jobs are created. Since it takes a while to
feel the effects of public works such as farm-to-market roads, public markets,
bridges, etc. there will always be a temporary price push on consumer and other
products while construction is underway.
But after these public works projects are completed, the
farmers can bring their produce to the markets at lesser cost. They are
encouraged to plant more.
The result, at the end of the day, is higher farm
productivity and farm income that will in turn create a demand for the products
of industry.
By then, the effects of inflation would have disappeared.
The sad part is that the Philippines, agricultural in name,
has nearly completely depended on imported farm products. The vegetable growers
of La Trinidad Valley in Baguio have all but given up.
Bongabon, in Nueva Ecija, used to produce the bulk of the
country's demand for onions. The farmers of Central Luzon, particularly Nueva
Ecija, used to have income planting rice. Many of them are now net consumers.
The main reason for all these, as tirelessly explained by
this newspaper, is the head-long accession to the World Trade Organization.
Nobody saw the fact that production costs here are high,
labor is strident, and most important of all, government policies are never
permanent.
Thus, as a result of the membership with the WTO, many
products produced here by multinationals are made in neighboring countries. The
WTO, in this sense, threw many Filipinos out of jobs which were taken over by
competing neighboring producers.
The situation can be reversed, although painfully, if the
government plunges itself into gargantuan deficits to build the structures that
the economy, particularly the farms, sorely needs.
The classical feud between stability and growth will be
highlighted. The Bangko Sentral has at least raised the overnight rates that in
turn increased the lending rates of banks.
All central banks opt for stability with growth. But these
two rarely ever go together. The fiscal sector, represented by the Department of
Finance, would rather see inflation going up for as long as it is accompanied by
growth.
On the other hand, the central bank classically opts for
stability, not exactly over growth but merely to cushion the inflation rate.
Growth and stability are not Damon and Pythias. They are
strange bedfellows. Yet there seems to be some wisdom in expanding the budgetary
deficit if only to finance capital expenditures.
The payback takes time. Meanwhile, the economy has to bear with inflation.
