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NEWS UPDATES 1 June 2009

Philippine central bank repeats call for govt spending boost

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Philippine central bank Governor Amando Tetangco reiterated the need to boost government spending to aid the economy, saying there should be a 'good policy mix of fiscal and monetary measures', reported Reuters.

Tetangco said last week the government should step up spending to support an economy that is teetering on the brink of recession.

The Philippine economy contracted a seasonally adjusted 2.3 percent in January-March from the last three months of 2008, its worst performance in two decades, because of the global downturn.

“As we have said, there has got to be a good policy mix of good monetary and fiscal measures,” Tetangco told reporters at the weekend.

“On the monetary side, we have adopted an easing stance since the fourth quarter of 2008, so I think if public spending can be accelerated, then that should help boost the economy.”

The central bank on Thursday trimmed its benchmark rate by another 25 basis points to a fresh 17-year low of 4.25 percent, bringing total cuts to 1.75 percentage points since December.

Increasing public spending could widen the state's budget deficit to up to 3 percent of gross domestic product amid weaker tax collections, but Tetangco said the government had no choice but to take that bitter pill.

“You see fiscal consolidation happening in the medium term so you can have a big fiscal deficit for a short time.

“But over the long term, if the market believes that over the mid- to long-term, the government can go back to a fiscal consolidation path, then there should be no negative market reaction to that,” he said.

Finance Secretary Margarito Teves said on Monday the government may consider raising the fiscal deficit for a third time this year from the current target of 199.2 billion pesos ($4.2 billion), or 2.5 percent of GDP.


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