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IMF’s call for a Greek One love in three debt holiday goes too far
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B M G | Bloomberg View
HE International Monetary Fund (IMF) is proposing that Greece’s official creditors grant the nation an extended payment holiday on its debts, according to The Wall Street Journal. It’s such a crazy idea that I hope it’s just a negotiating tactic designed to drag Germany to the debating table so that debt relief can at least be discussed.
Under the IMF plan, Greece wouldn’t repay interest or principal on its bailout loans until 2040, the newspaper said, citing officials familiar with the talks. There’s no question that additional debt relief should form part of the package to help Greece restore its economic health. But the idea that German Finance Minister Wolfgang Schaeuble will accept a halt in all of Greece’s repayments for almost two-and-a-half decades, or that Chancellor Angela Merkel would want to go into next year’s German election, having granted what amounts to a debt amnesty to the euro’s most turbulent member, is absurd at best and dangerous at worst. There’s a risk, too, that the IMF’s relations with Greece’s other creditors are becoming so strained as to imperil the entire bailout process. Here’s a chart showing Greece’s debt payment schedule for the next few years, courtesy of my Bloomberg News colleague Nikos Chrysoloras:
Msgr. Sabino A. Vengco Jr.
ALÁLAONG BAGÁ
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O the glory of God is the human being given so much dignity despite frailness and weakness in comparison to the heavenly bodies (Psalm 8:4-5, 6-7, 8-9). In our relationship with the Triune God, we are certain of the love of the Father, made incarnate in Jesus Christ and ever present in the Holy Spirit (John 16:12-15).
Whole Earth full of God’s glory PSALM 8, a hymn of praise to God, depicts the psalmist spellbound by the wonders of the universe and by the role of human beings in it. The heavens come to them as work of God’s fingers; the moon and the stars once thought to be celestial deities are His creatures. In comparison to their grandeur, man is so puny and fragile (“enosh”—a mortal, and “ben adam”—from the soil), yet, the Creator is mindful of them and has shown provident care for them. In fact, God has made human beings just a little less than the “elohim” (literally the “gods”), i.e., supernatural beings or the “angels”, and as such,
entrusted them with the authority to rule over creation. Like royalty, man is pictured as crowned with honor and glory, and other creatures “under his feet” owe him fealty. Job (7:17) could not help but ask God who alone can answer his question, “What are human beings, that You make so much of them, that You set your mind on them?” Reflecting on the Genesis story (1:26), the psalm is echoed by the Book of Wisdom (9:2): “By Your wisdom You have formed human beings to have dominion over the creatures You have made and rule the world in holiness and righteousness.” This incalculable gift and task for man
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in God’s likeness is now fulfilled in Jesus Christ. For “God has put all things under the feet of Christ and has made Him the head over all things...the fullness of Him who fills all in all” (Ephesians 1:22-23). “We do not yet see everything in subjection to Him. But we see Jesus, who for a little while was made lower than the angels, now crowned with glory and honor” (Hebrews 2:8-9).
In the Holy Spirit
TO prepare His followers for things still to come, Jesus focused on the Holy Spirit who will accompany them. The Spirit of truth will come to them and guide them to all truth of the teaching and way of Jesus, which presently they cannot yet fully grasp or bear. The Holy Spirit, coming from the Father in the name of the Son from the very unity of the Divine, will tell them of what is “heard” within the divine communion and announce to them things to come, mysteries and expectations that will be brought to fulfillment. The Holy Spirit given to humankind will fully glorify Jesus and reveal Him as God’s chosen one by unfolding the depths of the myster-
Simplified taxation for MSMEs The debt burden is such that the entire €10 billion ($11.3 billion) of additional aid Greece is expected to receive from euro-region finance ministers meeting on May 24 will disappear into servicing its debts in June and July (although some of it is in treasury bills, which the country’s domestic banks will continue to fund). Then, come July 2017, another €7 billion is needed. The IMF is correct when it says rescheduling is essential if the country is to be on a viable path to recovery. But suspending all debt payments until 2040 is never going to be acceptable to Greece’s lenders, especially Germany. The IMF also insists that a system of automatic triggers be put in place that would impose additional austerity measures worth about €3.5 billion if Greece fails to meet the objectives outlined in its bailout package. But there is little sense, either political or economic, to the idea that a nation struggling to grow its economy by enough to hit its targets would be punished by preprogrammed cuts if it falls short. Greece’s growth outlook remains lackluster at best. Tourism contributes more than 18.5 percent to the country’s GDP, according to the World Travel & Tourism Council. But last week Greek Tourism Confederation President Andreas Andreadis warned that weakness in the first four months of this year threaten this year’s target for €15 billion of revenue, and may mean 2016 is even worse than last year. The IMF proposal to let Greece completely off the hook comes at a tricky time. The June 23 UK referendum on whether to quit the European Union (EU) has boosted other anti-European political forces in the bloc. The EU economy is still fragile, with 13 percent of economists still seeing a risk of a euro-zone recession in the coming year, according to a Bloomberg survey earlier this month. Forgiveness of the kind the IMF counsels may harden sentiment against the EU in core members, further weakening ties. More realism is needed from all the participants at next week’s meetings. Germany needs to accept that limited debt relief makes sense, not least so that Greek Prime Minister Alexis Tsipras has something to sell at home, where his political position is shaky at best. The IMF needs to be less doctrinaire in its economic demands, and recognize that the primary surplus targets it advocates are too onerous. And Greece needs to improve on its limited progress in dealing with the nonperforming loans that hobble its banking sector, and in accelerating the sale of state-owned assets to raise much-needed cash. Otherwise, the euro zone faces the prospect of a repeat of last year’s existential crisis that threatens the integrity of the common-currency project.
Germany is very, very tired B J M Bloomberg View
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VER the past few days the Brexit referendum has taken a nasty turn, with Boris Johnson, the former mayor of London and a prominent “leaver,” comparing the European Union (EU) to Adolf Hitler and complaining about Germany’s growing power in the EU. He should visit Berlin, which I did last week. Far from wanting to rule Europe, Germany’s leaders seem increasingly worn out by its endless crises and, from their point of view, downright ingratitude. This growing fatigue in the continent’s already reluctant hegemon could spell as much trouble for the EU as Brexit does. Postwar Britain famously lost an empire but couldn’t find a role; now, Germany has acquired an empire of sorts, but can’t work out how to run it. All of Europe’s problems—the flood of Syrian refugees, the euro crisis, Vladimir Putin’s belligerence, the euro zone’s anemic growth, Eastern Europe’s drift toward rampant nationalism, Brexit—keep landing
in Angela Merkel’s lap. Germany’s chancellor has usually found some way to cope, most obviously by kicking each problem down the autobahn. But she lacks the power (and too often the inclination) to lead Europe, while her partners, even when they don’t obstruct her, do very little to help. So the problems drift, and frustration in Berlin mounts. Look, for instance, at Europe’s two main enduring crises. On Sunday the Greek parliament is supposed to approve another package of structural reforms, prior to a meeting of euro-zone finance ministers in Brussels on May 24. Greece needs another dollop of aid to meet its July interest payments, but the International Monetary Fund (IMF) has been (rightly) worried that the country’s debt burden is too big and it will miss its target of a 3.5-percent primary surplus in 2018. A Merkellian fudge has been readied: In return for the new reform package, Germany and the IMF will accept some of Greece’s more heroic forecasts and stretch out debt repayments.
The classification is based on asset value following the definition of MSME under Republic Act 9178, the Barangay Micro Business Enterprise law of 2002. Microenterprises are those with assets of not more than P3 million, small enterprises from P3 million to P15 million and medium enterprises from P15 million to P100 million. Of significant mention are the microenterprises of more than 900,000 and described in a report as pertaining to those operating in the informal economy, not registered, not keeping books of accounts and not paying their taxes. These are the home-based businesses, small start-ups, single proprietors, individual service providers and the like. I must emphasize, there are more than 900,000 MSMEs out there operating beyond the borders of our tax laws.
This information is alarming but expected, considering the high tax rate and complicated tax system we have in the country. We hear of many stories where small and micro businesses would want to pay their taxes but ends up not doing so because of two reasons—first, the tax cost is too high to cause the closure of the business, and second, there is fear of inability to comply or sustain compliance because of the difficult and costly processes and requirements. There are two models of a tax system—that which is complicated but fair and the other is simple but practical. Complexity in tax rules results from a desire to remove inequity and provide a fair system of taxation. Thus, the choice is between fair but complicated vis-à-vis simple but practical. The Philippine tax laws are patterned after
US, which follows the first model. Other countries have chosen to sacrifice a bit of fairness in favor of practicality and simplicity. One good example is Singapore. But in an economy where 90 percent of businesses are small and micro enterprises, a complicated tax structure exacerbated by a high tax rate, like ours, simply does not work. It does not and it will not work. Considering the profile of our taxpayers, 90 percent of which are micro and small, a complicated tax structure will only spur the growth of the underground economy and encourage noncompliance, especially in an environment where the chances of being caught is low, and even if caught, may still go unpunished or infractions fixed. The taxation of MSMEs deserves a second look. MSMEs are a distinct segment of the taxpaying population that deserves a special tax regime. After all, they are the principal drivers of inclusive growth and while their contribution to government revenue may be small, they employ around 65 percent to 70 percent of the total work force. What MSMEs need is a simplified form of taxation to encourage them to comply, help them grow, until they are ready to join the mainstream. Simplification should include simplified bookkeeping, simplified forms, simplified tax base (i.e., use of presumptive income bases, or final withholding taxes), reduced frequency of tax filing, file and pay anywhere,
Default has, thus, probably been skillfully averted again. But nobody in Berlin believes Greece will ever be able to pay off its debts. “It is really an emerging economy, not a developed one,” says one senior German, adding wryly that the Greeks should be dealing with the World Bank, not the IMF. Worse, from Germany’s perspective, the lack of progress in Greece is symptomatic of the whole continent’s uncompetitive economy. Six years into the euro crisis, France has barely started structural reform (German ministers roll their eyes whenever you mention “François Hollande” and “reform” in the same sentence), and Italy is still trying to fix its banking system. The single market is worryingly incomplete. Very few of the structural underpinnings of a successful single currency are in place. This contempt comes with a hefty dose of hypocrisy and self-delusion. Merkel has done few structural reforms herself; the hard work was done by her predecessor, Gerhard Schröder. Content in their prosper-
ous economic bubble, German voters have condemned the rest of Europe to needless austerity, resisted liberalization (notably in the country’s lackluster service industries), and refused to stomach common Eurobonds and other long-term solutions to preserving the single currency. So the Germans are not the thrifty saints they imagine themselves to be. But, as they endlessly point out, they are the ones who write the checks every time there is a bailout —and they don’t feel as if they get a lot in return. Germans have more justification for their resentment when it comes to Europe’s other main crisis: the flood of Syrian refugees. On the plus side, Merkel has found a way to stem the flow of people that threatened to overrun her country (and her chancellorship). Turkey has agreed to hold refugees within its borders in exchange for €6 billion in aid from the EU, while Italy and Greece are also getting help in exchange for not letting refugees who land on their coasts surge northward. These deals have brought some
relief in Merkel’s court—but not without nervousness and reproach. Nervousness, because the deals are fragile: Turkey’s President Recep Tayyip Erdogan is already howling about the terms of his (“Since when are you controlling Turkey?”). Reproach, because when Merkel pleaded for help, she got precious little assistance. While Germany has taken in perhaps 1 million refugees, Britain and France have each absorbed a fraction of that. Eastern Europe, which Germany helped rebuild, was more rudely uncooperative. And what, Merkel’s lieutenants wonder, will happen if the refugees start coming again? So it is no wonder that Germany feels fatigue. A decade into her chancellorship (a somewhat tiring milestone for any government), Angela Merkel must have found Boris Johnson’s remarks ironic. Rather than dominating Europe, she has merely the same sort of negative clout that Barack Obama has over much of the rest of the world: She can often stop things, but rarely cause them to happen. Part of that
Atty. Benedicta Du-Baladad
TAX LAW FOR BUSINESS
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ARGE businesses operating in the Philippines are insignificant compared to micro, small and medium enterprises (MSMEs) in terms of numbers. This is based on a 2013 Department of Trade and Industry report which shows that, out of a total of 941,174 business establishments, there are only 3,847 (.4 percent) large enterprises. The rest, which comprise the 99.6 percent, or 937,327 enterprises, are MSMEs. Of the total MSMEs, 90 percent are microenterprises.
ies Jesus proclaimed. The mission of the Spirit to instruct the disciples about all truth, grounded on what Jesus taught, goes beyond into and back to the Father. What belongs to the Father belongs to Jesus. What the Spirit declares of Jesus has been heard also from the Father, and it is the Father who sends the Spirit to bring the work of Jesus to full fruition. The glorification of Jesus by the Spirit means the full revelation of God’s plan of salvation, which is man’s “deification.” Alálaong bagá, what the psalm intimates of God’s special providence and care for us human beings is brought to its fullness in the coming to us of the Holy Spirit, as promised by Jesus and as sent by the Father to continue Jesus’ mission of redemption and sanctification and to lead us ever deeper into the truth that is ultimately God. The Triune God’s involvement with us and for us elicits wonderment and praise, gratitude and commitment. Yes, as God cares so much for us, we too can care enough for one another! Join me in meditating on the Word of God every Sunday, 5 to 6 a.m. on DWIZ 882, or by audio-streaming on www.dwiz882.com.
reduced compliance requirements, dedicated fast lanes and assistance at Bureau of Internal Revenue Centers, among others. In addition, a lower tax rate for MSMEs should be considered. Malaysia, Thailand and Vietnam have adopted a two-tiered corporatetax rate, where a lower rate of tax is applied to MSMEs. In Malaysia, for example, the tax rate imposed on MSMEs is 19 percent, which is 5 percent lower than the regular rate of 24 percent. Thailand, on the other hand, imposes a 10-percent tax on MSMEs, compared to the 20-percent regular rate, while Vietnam passed a law reducing the tax rate to 20 percent and which was applied retroactively for MSMEs. In the Philippines the same rate of 30 percent applies to all uniformly. In this period of Asean regionalization, should we not do something to help ease the tax burden of our MSMEs, too?
is her fault: If she had dared to get ahead of the euro crisis, rather than sticking various Band-Aids on it, she might have staunched it. But Germany is reluctant to lead, and the rest of Europe is reluctant to follow. Domestic politics don’t make this any easier: The rise of the Alternative for Germany party, Germany’s version of euroskepticism, is partly based on its claim to tell the harsh truths about the EU that Merkel keeps papering over. If Merkel, who is still trusted, were to leave, chances are that her successor would have far less leeway to negotiate on Germans’ behalf. The overriding worry is that a vicious cycle has begun: As Germany gets ever more frustrated with Europe’s inability to change, it gets ever less likely to lead, so the change it wants becomes ever less likely to happen. In a strange way, Brexit might alter this dynamic. Merkel is desperate to keep Britain within Europe because she sees David Cameron, for all his Little Englander elements, as a voice for reform.
The author is the managing partner and CEO of Du-Baladad and Associates Law Offices (BDB Law), a member-firm of World Tax Services (WTS). The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at dick.du-baladad@bdblaw.com.ph or call 4032001 local 300.