The now closed and empty Water Park Hotel and Resort in the Bulacan town of Guiguinto is usually busy from March and April when tourists and Luzon families come for summer vacation or the Holy Week break. Contributed photo
MANILA, Philippines — Some 370,000 workers stand to lose their jobs due to global trade disruptions caused by the coronavirus pandemic unless the government provides P33.2 billion in “well-targeted” subsidy to manufacturing companies to help them weather the storm, according to a study by economists from the University of the Philippines (UP).
The study, “Vulnerable to the Virus: Globally Oriented Manufacturing Firms at Risk From the Spread of COVID-19,” cited an urgent need to help importers and exporters in the manufacturing sector to stem the effects of COVID-19.
It was conducted by Karl Jandoc, Adrian Mendoza and Stella Luz Quimbo, a former UP School of Economics professor and deputy chair of the Philippine Competition Commission.
Quimbo, who is now a representative of Marikina City, has filed the 2020 Economic Rescue Plan bill, which calls for a P108-billion fiscal stimulus package to counter the economic fallout from the pandemic.
The UP study examined the exporting and importing firms vulnerable to the economic slowdown brought about by COVID-19, using a Philippine firm-level database consisting of trade transactions merged with firm surveys of manufacturing establishments from 2013 to 2019.
Trade with China, others
It found substantial exposure of Philippine trade to countries most affected by the pandemic—China, Italy, Iran, South Korea, France, Spain, Germany, Japan, the United States and Switzerland. Collectively they account for more than half of the value of both exports and imports.
“While large firms are able to withstand, to some extent, the COVID-19 shock, SMEs (small and medium-sized enterprises) do not have such capability. We find that the profile of these SMEs is substantially different [from] that of the larger firms in terms of product composition. These SMEs export food and food products which are highly perishable and more sensitive even to short-term vicissitudes in global demand,” the study said.
The subsidy needed to support SMEs alone was estimated at P9.4 billion for this year. The amount could reach P33.2 billion if large companies were also subsidized for their losses.
The support measures proposed by the UP study included a combination of tax deferrals, loan repayment holidays, loan restructuring, loans or credit guarantees by the state, wage/payroll subsidies, employment maintenance funds and tariff reductions. “These instruments should be fine-tuned to the nature of the firms targeted for assistance. For instance, SMEs may need employment maintenance funds or wage subsidies,” the study said.
“For larger firms, tax deferrals or debt/loan restructuring may be more salient,” it added.
Similar interventions
Other countries are now implementing similar interventions, the economists noted.
Canada and Thailand, for instance, offer companies loan and credit guarantee to ensure credit availability, while New Zealand supports temporary wage/payroll subsidy to prevent layoffs.
Canada has also has deferred income tax payments without penalties or interest, while India has opened a special credit window for business through the banking system.
In the United Kingdom, loan repayment holidays and loan restructuring are offered by government financial institutions and private banks. In South Korea, an employment maintenance buffer is provided to cover the cost of workers’ allowances from leaves of absence.
Support for Philippine firms and businesses, according to the study, must be well-targeted, or it may aid only those that are already capable of recovering from the shock or those not directly affected by the slowdown in international markets.
Even for domestic-oriented businesses, the study said any policy that could slow down markets, such as the Luzon lockdown, might affect their viability.
Export, import situation
The economists found that in 2019, exports to the 10 countries most affected by COVID-19 constituted 55 percent of total Philippine export value, while imports from them accounted for 53 percent of total import value.
Eighty-two percent or 17,610 of importers and exporters in 2019 were transacting with these countries and thus would be at risk from any disruption in supply chains or economic slowdown, they said. Of these, 3,068 were purely importers, 11,800 were purely exporters, and 2,742 were engaged in both.
Exports to and imports from the 10 countries with the highest value are mostly products that serve as intermediate inputs, such as electronics and electronic components.
Companies responsible for trading these high-value products were connected to the global value chain, or those that simultaneously export and import.