Debt relief pushed for CARP beneficiaries
Raul Fabella
PHOTO FROM ECON.UPD.EDU.PH
Noted economist Raul Fabella has proposed debt condonation for agrarian reform beneficiaries as a high-impact but low-cost economic stimulus that the government should include in its coronavirus recovery plan.
“A good stimulus for agriculture is for the government to exonerate wrongly indentured farmer beneficiaries by writing off its minuscule agrarian reform collectible,” Fabella said in a commentary sent to the Inquirer.
For Fabella, the best stimulus policy should have both short-term demand boost and a longer-term boost for higher sustained growth.
“These twin requirements are met by infrastructure spending, say, for a second Kaliwa Dam. While it creates jobs and incomes now, it also ensures badly needed added bulk water supply for the future,” he said.
Debt condonation for comprehensive agrarian reform program (CARP) beneficiaries is another stimulus spending that clearly meets such criteria, the economist added.
“Condonation will cost the government pittance compared to its proposed forward condonation of CIT (corporate income tax) payments for firms; more importantly, it will partly restitute the farmer for wrongful indenture due to three decades of a wayward land law,” Fabella said.
CARP beneficiaries amortize the debt they incurred in order to repay the government for acquiring the awarded land, but such payment accounts for a very small part of government revenues and the repayment rate is only 17 percent, he noted.
“Up to 75 percent of the beneficiaries are delinquent in their payment but perhaps for a reason. For this payment scheme is part of an elaborate scam: government buys a 100-hectare farm at market price; subdivides it into effectively 50 two-hectare plots, and awards these on condition that the awardees amortize the government for the purchase price of the 100 hectares,” Fabella said.
But 50 two-hectare plots would be way less valuable than the 100-hectare single farm because of scale economies, mechanization and innovation possibilities and access to formal sector banking, he pointed out.
“In other words, the separate plots are to amortize a debt much higher than the real value of the separate plots. That is a recipe for bankruptcy. If beneficiaries are not paying, perhaps they shouldn’t,” Fabella said.
Apart from the short-run demand stimulus, Fabella said such CARP debt condonation would also have a long-run boost to farm productivity: beneficiaries can now rent or sell their lands to consolidators who will attract large private capital to go into industrial scale farming as what is now being done in China and Taiwan.
Fabella cited one study showing that fragmentation of farm size was one of the worst blight to farm productivity. He cited Adamopoulos and Restucia (2019), which noted that CARP had reduced average farm size in the Philippines by 37 percent, which in turn reduced average farm productivity by 17 percent.
Different branches of government are currently deliberating on how best to arrest the economic downturn arising from the COVID-19 pandemic.
The Department of Finance and National Economic Development Authority contend that the best way is to grant private corporations breathing space via a corporate income tax (CIT) reduction, the centerpiece of its Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) program while Congress contends that the best recovery program is to save jobs, through the Accelerated Recovery and Investments Stimulus for the Economy (ARISE) program that has passed the Lower House’s third reading. The COVID-19 Unemployment Reduction Economic Stimulus (CURES) bill, on the other hand, seeks to ramp up infrastructure spending to create jobs.
“To my simple mind, ARISE and CURES conform better to the time-honored and evidence-based view that the fastest way out a deep economic crisis where millions of workers lost their jobs and millions of households lost their only means of livelihood is a demand-side stimulus: putting money directly in the hands of the poor and creating millions of jobs though ramped up infrastructure spending,” Fabella said.
On the other hand, Fabella does not believe that CREATE would be an effective stimulus program. He argued that such CIT reduction would qualify as a stimulus to business activity only if private businesses would be making profit in the subsequent years. INQ
