To succeed in business, Filipinos must have land, labor and capital.

To some extent, the first two are available. The third factor - capital - is a luxury in this country whose low 15% national savings rate means that Filipinos are hard put in meeting basic necessities to even contemplate about savings. Not having savings means not being able to pool capital for a business idea.

Lack of credit, financing or capital has been one of the bane of productivity of most Filipinos. But when credit does become available - the cost of borrowing or the "interest rate" then plays a crucial role in the lives of people.

In the past, the regime of high interest rates did not do the economy any good. High interest rate means an expensive cost of carrying business for borrowers. High interest rate regimes also encourage the indolent rich - who would rather park their millions in banks earning 12% p.a. at certain points in the past.

Crudely, that means if Mr. Millionaire had P10 million in cash - he would rather not go into business and encounter the problems of labor, competition and factory strain and therefore does not invest his money in businesses that would have provided work and employment of Juan de la Cruz. With P10 million Mr. Millionaire sits on his palatial ass and makes a cool P1.2 million in one year - doing nothing.

With inflation largely checked at the middle single-digit level, interest raters also started to go down. For the two are quite inter-related. This would normally encourage businessmen to go entrepreneurial because bank deposit yields are low. It certainly will make the borrowing cost of money for businesses cheaper.

But just what is happening to the country - with so much money floating around?

Still reeling from the 1997 Asian financial crisis and deathly afraid of taking business risks in this turbulent scenario, Mr. Businessman is not borrowing from his banks, petrified by fear in his own mind. The same malady affects the banks as they become too stringent with their requirements for borrowers and would rather invest their excess liquidity in risk-free but low yielding government securities.

This locked in gargantuan liquidity kept within the banks or in government securities puts a brake on economic activity that requires constant expansion and employment to improve the velocity of money in circulation. This is probably one of the reasons why the economy has not hurtled into space with necessary growth rates of 7 to 10% p.a.

Recent tactical moves of government seem to indicate that it is aware of the problem and would like to take this reluctance of private banks to go "gung ho" on lending - into its own hands and redirect the excess money in the system to the most efficient - users of capital who can turn them into businesses that grow income and provide employment.

However, like all knee-jerk reaction to problems, government may over-react to the dilemma and respond with solutions that may create more problems along the way.

Take the two instances where (1) Government has lifted policy to allow government agencies (not banking or investment institutions) to grant micro-financing throughout the country, preferably in the rural areas. And (2) Eliminating the DOSRI limitation of government owned and controlled operations when they borrow from government institutions like the Land Bank, Development Bank of the Philippines and the Department of Agriculture.

The first one can be a dangerous repetition of past administration mistakes. Allowing agencies that do not have the proper training for determining business viability and cash-flow certitude will mean the government will be saddled with a humongous uncollectible pile of debts. Juan de la Cruz, of course, will eventually have to pay for those non-performing assets. The temptation for government agencies to give dole outs to friends and relatives and to use this financial clout to buy election results may be too much to resist.

The second one will allow for so much "sweetheart deals" because of the necessary interlocking interests of many government owned and controlled corporations and the temptation to play ball with kindred souls. If they borrow with the sovereign guaranty of the Republic, the nation will have to shoulder the burden if the accounts become past due and hard to collect.

I see that these twin moves of government to free the credit faucets to push the economy and filter the benefit to the countryside and poorer sectors of society are by themselves worthy causes.

We just advance the thesis that we have to refine the implementing rules of these moves, otherwise this cure could become far worse than the disease it sought to remedy.

What is worse is if these moves are politically motivated as to dispense largesse to favored parties or people or, otherwise, grant disguised access to election funds of political lieutenants and hatchet men.

The Government should give this credit stuff a second hard look.