Person Holding Soap by cottonbro.
Most of my writings have touched the concern of the society, but today I want to talk about the concern of the businesses. I saw the plans and actions of the government to reduce the suffering of the common people by providing direct stimulus (basic necessities and cash assistance) thru Local Government Units (LGU), Department of Labor and Employment (DOLE), and Department of Social Welfare and Development (DSWD). The distribution of basic necessities has been already felt by the public, but the cash assistance is not yet but perceived by many to arrive soon.
If coronavirus has a wave (1st, 2nd, and 3rd wave), economic turmoil has also a wave. The first wave is that businesses are incurring losses because the fixed costs are up (salary cost, energy cost and etc) while there is no income coming in. The second wave is that, businesses try to sustain the operation by laying-off some workers, reducing the salary cost, and selling some assets. And the third wave is that, businesses will try to get loans from the banks to further sustain the operation, to save the shrinking ship, but the banks will refuse to provide loans because they see that the business cannot pay in the short term. As a result, the business will be forced to shut down or be sold to other capitalists. The third wave will result in massive unemployment.
In the first wave, the government can focus on daily wage earners whose income has been directly affected by enhanced community quarantine (ECQ); while private firms continue to shoulder the salary of some unproductive workers. In the second wave, the government will have to deal with laid-off workers and daily wage earners who remain income-less. And in the third wave, the government will have to deal with massive unemployment as many businesses close shop; some middle class will be pushed back to lower class due to unemployment and debt.
My goal here is not to create fear but to model the future scenario so that we can be prepared for what is coming. In my view, we are already approaching the second wave of economic turmoil. The first wave has already proven to be head-ache to the government; millions of individuals are already clinging to the government for food and financial security; the second wave will surely create another millions of government-dependent individuals. The third wave will be an economic disaster, with a large portion of the service and manufacturing sector unemployed. The government will need to borrow more funds to sustain the life of unemployed individuals. With this in mind, what we want to do is prevent the second wave from advancing and to make sure we never reach the third wave.
I don’t know the detailed plans of the government, but from what I can see, the government is addressing the first wave by providing basic necessities to affected areas of ECQ, and by providing cash assistance to the poorest family. To address the second wave and to prevent the third wave from happening would require the government not only to provide stimulus to individuals but also, to provide stimulus to businesses. This could be overwhelming in the short term, but the government needs to provide stimulus on both individuals and businesses if it wants to prevent the third wave from happening.
The distribution of business stimulus should be base on the industry, size of the firm, and the capacity to pay after the coronavirus pandemic (this already happened in the U.S. were big firms such as General Motors are being baled-out by the government to prevent massive unemployment, these firms are dabbed-out as “too big to fail”). The government can use debt instruments (bonds and the likes) for the pooling of stimulus funds; however, the government must make sure that it can repay its obligation, not to default, as this could affect its credit score.
The Central Bank must also address the third wave issue by lowering the interest rates and by encouraging commercial and universal banks to be open to restructuring of loans. In other words, Central Bank must encourage local banks to create a restructuring plan to debtors who cannot repay their obligation due to the impact of coronavirus.
This is a time for solidarity and cooperation; we cannot entertain division and selfishness; let us set aside the difference in our political opinion, and let us focus on concrete solutions that will solve this virus.
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