The Perfect Is The Enemy Of The Good

We are approaching the April 12 deadline for lifting of the lockdown. The situation is under review by the COVID19 Inter-Agency Task Force (IATF). This is my take on some contentious issues being discussed:

I. Localized vs Non-localized Quarantine 

We have a Luzon wide lockdown yet each province and barangay can set its own containment measures. The result is confusion, burdensome checkpoints and disruption to essential travel and the supply chain.

For borders to work they must have a natural geography. The island of Luzon is a natural border but that, say, between Laguna and NCR is not. The latter is a political delineation with no basis in economics or health. Empowering the different LGUs to establish their own health and physical fiefdoms is a huge mistake: It is health wise ineffective, it is economically damaging.

Some advocate for a barangay model where communities with positive cases will be locked down. This is better than provincial quarantines in that it is less disruptive to the collective. Still a Barangay is a large politically (not a health) defined area with varying population densities and infrastructure. Multiple infections in say a residential building  has not and should not trigger a Barangay-wide shutdown. A better way is to ring-fence the hotspot regardless of barangay and set its radius depending on population density and physical configuration.

II. Mandated vs Self-Policing Quarantine 

In a mandated quarantine the Government dictates economic activity, social behavior and freedom of movement.  A self-policing quarantine allows the market to set the economic and social protocols. Our ECQ is a mandated quarantine.

The premise behind a mandated quarantine is that the community cannot be trusted: Citizens cannot be trusted to follow safe hygiene and social distancing, restaurants and public gathering places cannot be trusted to voluntarily shut down.

A self-policing quarantine assumes that citizens will behave appropriately when adequately informed of the dangers and will stay home. It assumes businessmen are rational: Restaurants and factories will close when there are no customers, BPOs will work from home, bus companies will limit their rides when the riding public diminishes. Government does not have to oblige them to do so. Supply and demand, not the Government, is the most efficient way to allocate scarce resources.

We should adopt a hybrid: Malls and gathering places should be closed but factories and public transportation should be market-based to allow essential travel for emergencies and work. 

III. Nuclear vs Targeted Approach 

Our Government has opted for a nuclear solution. In the absence of information on the whereabouts of the virus, the Government has shut down the whole community and with it the economy.

We are fighting an enemy that is invisible and travels exponentially. We need a targeted approach, one that works smart, uses probabilities and technology to identify the virus’ location and concentration. Nuking the community at random produces untold collateral damage. What we need is a guided missile, not a cluster bomb.

 IV. PCR vs Rapid Testing

PCR tests are the definitive test for COVID19. However they are in scarce supply, expensive, require technical knowledge and facilities, are dangerous to the attending healthcare worker and have delayed (up to 2 weeks) results. Rapid testing devices are now plentiful, inexpensive, can be easily conducted and produce results in 15 minutes. They are the canary in the coal mine, the first sign of an infection. However they have limited outcomes. They only test for anti-bodies not for the virus itself: Positive results for anti-bodies confirm you are infected. Negative results, however, do not guarantee you are virus-free since anti-bodies can take up to 21 days  to show up from infection. 

The DOH has resisted rapid testing because it can produce false negatives: You think you are virus free when you possibly are not. The only sure way is to conduct subsequent tests over an extended period.

Vital companies in food, export and banking are suffering because workers are not showing up for fear of contamination in the work place. To assuage workers’ anxieties, businessmen would like to adopt rapid testing to clear the air. The tests are not 100% confirmatory for the virus but will provide a level of comfort.

The PCR vs rapid testing is a non-argument since they are not mutually exclusive. Businesses and individuals who on their own accord and money want to rapid test should be allowed to do so. If nothing else rapid testing can identify those positive for anti-bodies and therefore the virus. This information will help define the curve and contact trace.

V. To Spend Or Not To Spend

The Dept. of Finance is understandably concerned about the budgetary impact of the Bayanihan Bill. It is being asked to increase spending for economic relief even as taxes and custom duties are falling from the slowdown in the economy. Sec. Dominguez estimates that fiscal revenues will decline by P32 billion for every 1% drop in GDP. At zero growth, the tax hit is P287 billion.

A number of things:

  1. The drop in tax revenues will depend on the health timeline. The earlier we get out of the mess, the lower the tax impact.
  2. We have room to borrow. In the last years the Treasury has reduced our debt to GDP ratio from 70% to 41% prompting an upgrade in our credit rating. Our creditors understand any fiscal excess is not due to mismanagement but to a worldwide exogenous factor. 
  3. All governments are blowing out their budgets. The U.S.’ budget deficit is going from $1 trillion to $2.4 trillion. The EU is allowing member countries to exceed the 3% ratio of deficits to GDP.
  4. Our spending need not exceed our current budget of P4.1 trillion if we can defer non-critical projects and reallocate savings to the crisis.
  5. We may not be able to spend all we want because of the absorptive capacity of our welfare and health care system. There are many displaced workers who are neither registered with the DOLE nor the SSS and therefore cannot be identified for welfare payments. Again, there are not enough ventilators, masks and PPEs even if we had the money to buy them. Only so many quarantine centers can be built in our timeframe.
  6. The fiscal gap could be financed by low-interest Corona Patriot bonds to be sold to local investors.

VI. To Conclude

  1. We should drop all  provincial and barangay checkpoints since they are based on artificial political delineations, not health or economic ones. Instead we should ring-fence hotspots and define their radius.
  2. We should move from a mandated quarantine model to a hybrid that will combine directed behavior with market based protocols especially in public transportation. We should trust that the public and businesses will behave rationally.
  3. We should sniper fire the virus not shotgun it.
  4. We should allow for voluntary rapid testing to whoever wants it and pays for it. PCR testing can be reserved for the critical few who need it.
  5. We should not be afraid to spend all it takes for the poor and our healthcare system.

One last point  and this is important. The DOLE announced that a hundred thousand plus (().003% of the officially employed) have been displaced by COVID19  and entitled to welfare. The real figure must be a significant multiple of this.The truth is millions of unemployed workers are falling through the cracks of our safety net because of under-reporting by employers. IATF, please look into this.

COVID19 is both a health and an economic crisis. There is no price for a life lost to the virus but neither should there be for livelihoods sacrificed. There are no correct answers to the equation. We can only pray we do not throw the baby out with the bath water.

A Birthday Message From Our Supreme Leader

My Dearest Countrymen,

How are you?

That was rhetoric. I know, I know, things really suck.

Yeah, this p___ inang virus is really annoying. It has put millions out of jobs, destroyed thousands of businesses and will kill many of us especially the elderly and those with existing conditions like myself.

But this crisis shall pass certainly, I can assure you, within my lifetime and I just turned 75.

There are some bright spots: No traffic, clean air, summer is upon us which the virus hates, and of course the Bayanihan Bill which I just signed into law with many in attendance. I did not get the memo on social distancing.

The only one uninvited to the launch was Koko. I mean what the f—k did that idiot think he was doing infecting our healthcare workers in Makati Med? 

Koko claims he did not know he was positive at the time. When asked for a reaction, the public voted: Lying 109 million/ Not Lying 1.

Koko incidentally is not the only Senator claiming to be positive for the virus. It is the new badge of honor, the testament to courage in the line of duty. Not to be outdone our wannabe “frontliners” in the House unveiled a banner that they too are doing their part like cornering test kits for them and their families and generally wasting taxpayers’ money.

What can I say, I am surrounded by freaking morons. Maybe we should flatten these people together with the curve.

The Bayanihan Bill is awesome, the mother of all rescues. It allows me to channel the pork barrel in the Budget to the vulnerable and to our real front liners.The vultures in business and politics will be all over this money so I have instructed Sec. Dominguez to be judicious while ensuring its rapid release to those truly in need.

The Bill prioritizes the health care sector because that is the battle ground on which this war will be fought. And yet I am not seeing any major initiatives to test and trace, to build quarantine centers. Mayor Francis Zamora is leading the way but everybody else seems to be sitting on their haunches, waiting to be spoon fed. I need to kick-ass, get the army involved. Is DOH Sec. Duque up to the task?

The key to the epidemic is to test, test and test and to trace, trace and trace; while isolating the vulnerable. We cannot know where the virus is headed if we do not know from where it came. We received over 100,000 test kits but we really need to distribute them to more than just our Congressmen and Senators.

We are approaching the April deadline I had set for the Quarantine. Should I lift it or not? First some background.

You know how much China loves me. They gave me the Wuhan playbook -for free, I might add- which seems to have worked for them. I had to make a difficult call when the crisis first erupted between this and the less invasive models adopted, also successfully, by S. Korea and Singapore. 

The jury is still out whether I am right. The economic sacrifice from the quarantine is horrible and I ask myself every night whether the lives I am trying to save is worth the livelihoods I have sacrificed. Some estimate each CV19 life potentially saved is costing us over P100 million in lost jobs and economic damage. A study in the U.S. puts that figure in America at $9 million (P450 million). President Trump is struggling with the same dilemma, at what point is the cure worse than the disease, how many lives is his re-election worth? He just extended the social distancing deadline but he was kicking and screaming.

China announced it would lift its lockdown once there are no new domestic infections over 14 days. They are now there so Wuhan will be liberated on April 8, the Chinese’ lucky number.

To recall the first CV19 case appeared in China on Nov.17 2019, was first reported in the first week of December by a 34 year old ophthalmologist and officially confirmed by the authorities and reported to the WHO on Dec. 31 2019. On Jan. 23 2020, the Chinese Government locked down Wuhan/Hubei; one day before the Chinese Lunar year when 400 million travel for the holidays. In late February Wuhan disclosed that the curve had flattened. To prove the point Chinese Premier Xi visited the city on March 10. In short, Wuhan was able to see daylight 4-5 weeks after its shutdown.

Many are hoping our lockdown will similarly be lifted in mid-April which is 4 weeks from onset. An over eager official of the Corona Task Force announced it will (Grrrh, another idiot!). That announcement was premature, it raises false hopes. The fact is we have not tested enough to know where is the curve much less whether it has flattened. The public is chomping at the bit but staying the course needs to be considered. A second lockdown would seriously destroy public morale and question whether we know what we are doing. We do not want to be half pregnant. We do not want to flatten the curve, we want to get rid of it altogether.

As I self-quarantine in the enormity of Malacanang, I realize things must really be rough out there. How are the poor living ten to a room supposed to social distance? How can workers claim their unemployment insurance without public transport? Maybe on April 14 we can ease the rules on movement while monitoring social distancing e.g. 20 to a bus, 30 per MTR car. Might as well put our checkpoints to some use.

There are some positive outcomes from our crisis:

One, as a community we have become closer. Zoom meetings have proliferated as families, friends and neighbors reach out to each other. As a society we had become disconnected and isolated in our individual worlds of Facebook and social media.

Two, uh, let me get back to you on two.

Saturday was my birthday. Thanks to all my well wishers especially to my dear spokesperson: Bro, your birthday message was awesome, a sip-sip on steroids. I did not know you cared. And the prose, my goodness, the prose! Did you google the cliches or was that all original content?

OK, I got to go but one last thing: Here is a  shout out to our healthcare workers, our heroes. You people are incredible, the nation owes you big time.

Bye. I miss you, I love you. Do not panic, do not be afraid. Life is, frankly, overrated.

Mabuhay ang Pilipinas!


Your beloved President

The Bayanihan Bill: Who, How, Where and When?

 “Wars are not determined by who is right, but by who is left.”

The President just signed into law the Bayanihan Bill, an economic package to fight the  Coronavirus crisis. The amounts have still to be determined but if we were to follow the U.S. and Singapore who allocated 10% and 11% respectively of their GDP for a similar exercise; our number would be P2 trillion. Even with the expected fluff as the rescue is made to appear greater than it is, the final figure will be far far from 13 digits and for reasons not totally related to money. More on this later.

NEDA has now estimated the damage from the virus at between P400 billion to P1.4 trillion over 3 months. The median of that is P900 billion or P300 billion/month. (Incidentally, that was my earlier back-of-the-envelope estimate.)

An economic lifeboat is not just about the money. It is also about its make-up, who gets the goodies, how it is distributed and how quickly; and the accountability. The money is not free, it is a taxpayer liability that eventually has to be repaid by the Filipino.

But first a really boring primer on how our economy works. The Government manages the economy through monetary policy and fiscal policy. The first is administered by the Bangko Sentral: The BSP can change interest rates to influence borrowing costs, it can ease banks’ reserve requirements to induce bank lending, it can expand liquidity by buying Government securities; and it can print money to stimulate the economy. Monetary policy does not put money directly into Filipinos’ pockets: It is just a catalyst for banks to extend loans.

The BSP has recently cut interest rates by 50 basis points, reduced bank reserve requirements and is ready to buy up to P300 billion in Government securities. Businesses are frantically hoarding cash and maxing out their bank credit lines so the BSP initiatives are timely.

The monetary easing will not necessarily help SME borrowers. Why would banks lend to an enterprise, small or big, that will not survive a 3 month lockdown? The U.S. Fed is struggling with the same problem, how to get the banks to lend to SMEs in a bad economic environment? The Fed is considering back stopping such  loans. The BSP has no such ammunition.

Fiscal policy is run by the Treasury: It can lower taxes to stimulate consumption and investment. With the Budget Department it can target spend. Fiscal policy is therefore a more powerful tool than monetary policy in that it can write checks directly to Filipinos. The Treasury Is the Sugar Daddy of our economy.

DOF Sec. Dominguez has it right. He said the Bayanihan Bill will focus on helping workers and the vulnerable, strengthening our healthcare system and supporting the basics of the economy. Big business will have to go to the back of the line.

The Bayanihan Bill has a hard and a soft component. The former involves cash dole-outs to the distressed. The U.S. Treasury is mailing checks directly to the public: $1,200 for every individual earning less than $75,000 p.a.; $2400 for every couple jointly earning less than $150,000 p.a. and $500/ child. In addition there is unemployment insurance to cover full salaries for at least 4 months. The DOF has still to announce its arsenal but there are pockets of monies that even now can be released:

– Expedite the budgeted Cash Transfer program of P146 billion. This money goes to 20 million “officially classified poor” involving 4.4 million households.

– Temporarily waive SSS and Pagibig employee contributions totaling P19.3 billion per month over the life of the crisis. Unfortunately there is only about 40% SSS compliance, mainly by big businesses, so many SME workers will be out in the cold.

– Immediately release unemployment insurance. Now this only covers workers registered with the Dept. of Labor (DOLE). Most SMEs do not register their employees so, again, their workers are stranded. They comprise the majority of those laid off.

DOLE and the DOF should set up a temporary facility to provide unemployment insurance for such workers who fall in the cracks, perhaps as a temporary extension of the Cash Transfer program. That facility can eventually be rolled into the DOLE’s  unemployment insurance program.

The soft component of the Bayanihan Bill involves credit assistance to SMEs, mainly micro and small businesses who constitute over 90% of this sector. The latter are generally unregistered, have no collateral and are unbanked. They depend on usurers and wet-market lenders who are not in the BSP network. SMEs have a shelf life of 3 months if that. How will they be saved?

I believe a rescue for SMEs should only be triggered after an all-clear from the health authorities. Anything earlier will not save the small business owner, only his landlord, his suppliers, his utility providers and his bank, all of whom are richer than him. His workers should be paid through the Government sponsored unemployment insurance. When normalcy returns, the SMEs should be helped provided their landlords, etc. provide counterpart relief like rent and utilities condonation, loan moratorium and extended supplier credit.

Big business is lining up with their begging bowls. These include companies in the tourism, transport, entertainment and logistics industries; highly indebted enterprises, crony capitalists; and their creditor banks hiding behind them. Many are essential to our economy and are leveraging this to extract big concessions from Government: No bailout, no service, no more fun in the Philippines. Sec. Dominguez should hold out: Companies and banks seeking a lifeline must take a haircut, infuse counterpart capital and condone debt. As for crony capitalists, you know the answer to that: No way, Jose.

The Bayanihan Bill correctly prioritizes the healthcare sector and, yes, the healthcare workers. Funds are needed for testing, tracing, remediation, physical capacity -beds, ventilators, masks. Front-liners should be given hardship pay, accommodations, transportation, protective gear and health and life insurance for them and their immediate families. They are literally giving their lives to this nation.

To conclude, for it to succeed the Bayanihan program must be targeted, efficient, comprehensive, immediate, transparent, and accountable; but equally important it must assume risks. It must be bold but not stupid. It must expand the coverage of the Cash Transfer program, liberalize unemployment insurance beyond DOLE registered workers, temporarily waive the SSS/Pagibig contributions for employees, expedite loan releases without complete documentation; extend SME credits at the right time provided they retain their workers and their landlords, suppliers and banks extend equivalent support.

The rescue program should necessarily follow the health timeline. The earlier we get the virus under control the smaller the lifeline needed.

The program must accept there will be leakages as businessmen, public officials and the politically powerful game the system. These should be minimized but recognized as the cost of doing business. 

What we do not need is a program that will be steeped in bureaucracy and delays for those most in need.

What we do not need is a bail-out of the big boys and a Mother-Of-All slush fund for the corrupt while saddling Filipinos with a massive bill that eventually we will have to pay.

What Is The Appropriate Policy Response?

What is the damage to the economy and what should be the Government’s policy response to  COVID19?

The NEDA has not offered a number, not even a baseline estimate. You would not know it but NEDA is the body mandated by the Philippine Constitution to run the economy. Its closest answer is a statement from NEDA Sec. Ernesto Pernia that “we cannot rule out a recession”, an under-statement only matched by the over-statement of Alan and his band of Congressional wannabe “frontliners” that they too have stepped up to the task (Sirs, you can only be our heroes if you were to quarantine yourselves, like, permanently). Sec. Pernia  is the same person who just a few weeks thought we could still hold to a growth rate of 6%. That is statistically a pivot of P1.2 trillion. Oh well.

CV19’s damage to the economy comes in various forms and degrees: It has put millions of Filipinos out of work, destroyed hundreds of thousand of businesses mainly SMEs and self-employed who collectively are the largest employers in this country, ravaged the travel and tourism industries, and jeopardizes the credits of corporations and individuals and our banking system.

As of the latest census the Philippines has a labor force (defined as those 15 years and older) of about 72 million. Of  these 37 million are officially employed and 6.3 million under-employed (no full time jobs) or a total of 43.4 million. The numbers exclude many household workers and others not officially documented. 

It is unclear how many workers have been affected by the business shutdowns. Assuming 80% of the employed or 34.6 million people, at an average monthly salary of P8,000/month the peso value of livelihoods lost is P275 billion/month.

SMEs are crushed. In 2016 the Philippine Statistics Office reports there were 915,726 registered business enterprise of which 89.6% were micro-sized, 5% small, 4% medium and 0.4% large. Assuming an average SME of P75,000 and a failure rate of 80%, the economic damage is easily north of P54 billion.

Some large businesses in the travel/tourism industries could well not survive e.g. airlines and hotels. A bailout of PAL alone could cost at least P50 billion. The tourism industry directly employs 5.4 million workers and indirectly a multiple of that.

The ultimate damage to the economy depends on the length of the pandemic and the speed and resources -financial and otherwise- that are thrown at the problem. The Wuhan pandemic officially started Dec. 8 2019 when the first case was discovered. The crisis is abating and might be over by May 2020 assuming no recurrences; which would be 6 months from onset. The Philippines has responded late to the crisis, we have less resources to devote, but we are further up the learning curve; so we just might make it out of here in another 6 months. By that time the economic bill could be around P1.8 trillion.

The Government’s initial response was to offer a lifeboat of P27.1 billion of which only about P3 billion was immediately operable. That is is less than 1/7th of 1% of the amount needed.

Twenty three business associations indicated that 100 times that or P280 billion may be the better number which is still only about 15% of what is possibly required. P280 billion is the estimate of what the Government could additionally borrow without impairing its international credit standing.

The single largest source of funds for a rescue is the National Budget of P4.1 trillion. Much of the Budget has been committed mainly for salaries, multi-year capital expenditures and interest payments on Government debt. These are untouchable. The only monies that may be carved out for a lifeboat would be funds for still to be defined infrastructure projects (Build-Build-Build)  mainly of the DPWH (P582 billion budget) and Dept. of Transport, (P101 billion budget); savings, reserves for contingencies, discretionary funds of the President and, lest we forget, pork barrel. Let us assume a carve out of say 8% of the total Budget or P320  billion. The recently passed Senate Bill would allow the President to re-allocate the Budget as required.

Another source of funds may be a temporary waiver of SSS and Pagibig contributions in favor of employees. Currently employees must contribute 7.5% of incomes exceeding P16,000/annum to be matched by employer contributions of 3.63% or a total of just over 11% of monthly payrolls. However the actual compliance is only about 40%. Assuming a monthly salary of P8,000/month, our base case, the annual SSS contributions would be P76.2 billion for the 6 months period that the epidemic could last (Note: These numbers may be overstated because of the loss of jobs and therefore their contributions)

The waiver of contributions would not be a permanent dent on SSS’ finances. It would just front-load monies the SSS would eventually pay pensioners on their retirement.

Pagibig has 14 million members each paying around P200/month or P2.8 billion. Over 6 months this is P16.8 billion.

Government employees still have jobs so their GSIS contributions can be preserved even if they could have family members in trouble.

Philhealth contributions should stay to fund free tests and potential hospitalizations.

The U.S. is considering a similar measure as part of its CV19 stimulus plan: Currently American employees pay a payroll tax of 6.2% that goes to the SSS and 1.45% to Medicaid. These numbers are matched by the employers.The suggestion is to waive these contributions in favor of the employees.

The National Budget has allocated P109 billion for the Pantawid Pamilyang Pilipino Program (4Ps) popularly known as the Conditional Cash Transfer (CCT) program; and P36.5 billion for the Unconditional Cash Transfer program. Both are dole outs to approximately 20 million “officially identified poor”. The 4Ps requires recipients to meet certain requirements like schooling of their children. These conditions might be waived for this crisis. Total of both programs is P145.5 billion.

Pagcor and other Government agencies may be good for say P70 billion. PAGCOR had revenues of around P70 billion last year and contributed about P50 billion to social (and political?) projects. 

The private sector is seeking to raise some P20 billion for CV19.

The sum of the Big Business request of P280 billion, Budget carve out of P320 billion, 6 month waiver of SSS/Pagibig contributions of P93 billion, Cash Transfers of P146 billion, P70 billion from PAGCOR & Co. , and private sector contributions of P20 billion; total P929 billion. This is 4.7% of our GDP of close to P20 trillion. It would approximate America’s USD1 trillion proposed stimulus of 5% of its GDP.  Our rescue package would be spread over 6-12 months depending on the length of the virus. A six month virus would take us to the end of the Government’s fiscal year. Anything beyond that would require a new allocation of funds.

The P929 billion would be about one half of the P1.8 trillion estimated damage to the economy. The balance could be partly covered by soft support from the private sector in the form of rent alleviation by landlords, credit extensions/condonations by financial institutions and utilities, etc.; and by soft loans from Government financial institutions.

A financial response is only one of several components of a CV19 lifeboat. One other priority is food security which is presently hampered by a number of bureaucratic obstacles. Thus food companies are complaining of the multi-checkpoints (some as many as 40) that are delaying transport of critical food deliveries. Another is the increasing shortage of manpower: Some  food factories are experiencing reduction of up to 50% of production as workers refuse to show up because of potential virus contamination and lack of transport. 

Some frontliners complain of hoarding of vital supplies by politicians, businessmen and Government officials like the 150,000 test kits from China. Again at one point the DOH required all healthcare workers to secure IDs from the DOH thus adding to the burden on these heroes of our crisis. 

Vultures appear in times of death and pestilence. Our crisis is no different. A critical issue is the physical distribution of the rescue funds: With close to P1 trillion of cash potentially available, politicians, higher-ups in national and local Government, and businessmen will be frothing at the mouth at the riches to be had. They should be considered PUIs and quarantined in, say, Bilibid.

In short, to the question of what is an appropriate policy response to the crisis, the answer is everything including the proverbial kitchen sink.

We Need To Shock And Awe

We need to buy the problem.

The Corona virus is a health and a money concern.The health is being addressed, hopefully, by the Enhanced Quarantine program. We don’t know if it will succeed, how long it will take. Things are beyond our control. 

But the money issue is not: It will be a stretch but we must do it because what is at stake is the economic life of this nation.

NEDA estimates the Corona virus will cost the economy between P100-200 billion before the multiplier effects. I believe this vastly underestimates the damage for remediation and reconstruction.

SMEs which collectively account for the majority of employment are going out of business. 

The international cruise industry has shut down and with it possibly 100,000 Philippine seafaring  jobs with a direct annual contribution of P20 billion and an indirect of at least twice that.

Philippine Airlines, our national carrier, ended flights on March 20 2020, Cebu Pacific is possibly not far behind. It is estimated PAL will need an equity injection of at least P50 billion and a restructuring of its liabilities of close to P300 billion. With these airlines go our tourism industry and the 5.4 million Filipinos it supports. The tourism industry contributes P228 billion to the economy or 1.3% of GDP.

The loss of public transport has pummeled our BPO industry as staff are unable to go to work. BPOs employ about 1.7 million people and generate over USD 25 billion (P1.2 trillion) in revenues. 

And let’s not even talk about the stock market.

The line of industries with begging bowls runs around the block.

The Dept. Of Finance has announced a rescue package of P27.1 billion consisting of: 

  • P14 billion for the tourism industry
  • P3 billion for TESDA re-training and scholarships. 
  • P3.1 billion for healthcare equipment and support
  • P2 billion for DOLE workers support
  • P1.2 billion SSS fund for unemployment benefits
  • P2.8 billion for agri-loans
  • P1 billion for micro financing

The package looks impressive but actually is not.The allocation for tourism is useless if our airlines are not flying. Worker re-education is a medium term exercise. The loan components are bureaucratically laden. Only about P3.2 billion or 12% of the package can be immediately transfused to the economy.

 The BSP announced a 50 basis point cut in interest rates but that does not help the poor and the SMEs.They need cash in their pockets and quickly.

The President has asked the big conglomerates to step up. He said he will personally guarantee loans to food stall owners which is nice of him but unfortunately will not cut it. It  speaks to his sense of helplessness but may also reflect his appreciation of the scale of the problem.

Some CEOs are raising a feeder fund of P1.5 billion. Big landlords have waived rents, credit cards and utilities extended this month’s payments, banks will be lenient. It is all good and laudable but unfortunately still pale. This is not a Yolanda rescue, this is a rescue of the Republic of the Philippines. We cannot send a row boat to save the Titanic.

We need a Big Daddy for a giant plan and there is only one, the Philippine Treasury.

Twenty three business groups have officially asked Government for a fiscal stimulus of P280 billion. This will bring our budget deficit to 5% of GDP which is the maximum we can allegedly afford to preserve our credit rating. The stimulus represents about 1.4% of our GDP. By contrast the US has unveiled an initial stimulus of USD 1 trillion which represents about 5% of US GDP of $20 trillion. If we were to match that ratio, our stimulus should be of the order of P1 trillion. That may send Sec. Dominguez back into confinement. (In another another article we will address how the rescue will be distributed and financed.)

Our 2020 Budget was passed when things were normal. We must now accept that we will lose 12-18 months of our economic life and roll our plans into the future. This is the analogy: We have an economic house and had a budget to expand and remodel it; but our house caught fire. We now need to re-allocate this money to save our house.

 Similarly we need to review our current Budget of P4.1 trillion and find savings and defer certain investments to the tune of, say, 10% of the total or P400 billion. Where can we cut and paste?

 The budgets of the DPWH (P582 billion) and Dept. of Transport (P108 billion) were hiked by 25% and $45% respectively mainly for infrastructure (Build-Build-Build). The latter could be partially deferred and funds released for CV19 relief. Unfortunately these two departments are the largest sources of pork barrel so Congress may balk.The stimulus and re-distribution of the 2020 Budget will require a special Congressional session and approval.

Our Social Services budget of P1.5 trillion and the President’s Discretionary Fund may have pockets that can be re-distributed.

The P280 billion stimulus, P400 million of a re-giggered Budget and P20 billion of private sector contributions could raise a rescue fund of around P700 billion to be spread over 18 months. Admittedly this a bad time for the Treasury to write big checks. Its tax revenues are themselves suffering from the economic slowdown. We will blow our budget deficit and risk our credit rating but it is what it is. Our creditors will understand that this is not fiscal mismanagement:This is an exogenous shock from which we will recover. The strength of the peso even today is proof we may have more goodwill with the financial community than we think. This goodwill may dissipate if our economy dies and social unrest sets in. So we need to go all in, err on the side of excess.

But there is an end to our plight. A vaccine will be available in 12-18 months. What we need is to bridge the gap with a lifeline that is commensurate to the scale of the problem. Otherwise all the work and sacrifice to save thousands of CV19 lives will have gone to naught if we cannot save the millions of Filipinos who will not economically survive the crisis.

We need  an aircraft carrier to rescue the Titanic. We need to shock and awe.

Is There An Alternative?

On March 14 2020 the Government launched a community quarantine program to contain the spread of the Coronavirus in M. Manila. Two days later the Government expanded the coverage to Luzon, imposed a curfew and further restricted movement. There is almost a manic obsession with tightening the screws.

The jury is still out but already we know the program:

  1. Will push to the brink the poor and SMEs. The latter collectively account for most of the jobs in this country. 
  2. Will kill the airlines and tourism.
  3. Will strain the banking system
  4. Has weakened the peso.
  5. Has pummeled the stock market.
  6. Has frozen public transportation even for emergencies.
  7. Has disrupted and confused the public.

In the meantime infections have jumped. There is no public disobedience but Filipinos are reeling.

Option B

Is the Government open to an alternative? If so here is one that will address some of the perceived weaknesses of the current program. The app is in beta testing but already will adopt the following protocol:

  1. It appreciates the Government is well meaning and pressed.
  2. It recognizes the Government does not have the financial and human resources to do all it has set out to do in the time it is needed to do.
  3. It believes public/private co-operation is essential with buy-ins from businesses and the common man. Unlike the current program it will trust instead of mandate health, social and economic behavior from the public. It believes the Government cannot dictate public protocols if it wants public support.
  4. It suggests the market set the economic terms, that businesses are rational. They will voluntarily shut down if there are no customers, will operate from homes to protect their employees. The Government does not have to order that. Similarly, the program will trust individuals will behave responsibly and follow health procedures. Fewer public gathering places will automatically promote social distancing.
  5. It accepts that a remedy has costs to the economy and the poor. There will be a trade-off between physical lives and economic lives. However the cure should not be substantially worse than the disease. One life lost is one life too many but hundreds of livelihoods lost are also hundreds too many.
  6. it will emphasize self-policing: It will encourage users to police health practices rather than deploy scarce Government resources to monitor and control public behavior. These resources can then be channelled to the more urgent needs of tracking, testing, capacity building and remediation in the quickest possible time.
  7. It will work hard but, more important, it will work smart. It will apply probabilities to unknown outcomes, target focus rather than shotgun, use technology to execute. It will act, not react.
  8. It will take calculated risks while fire-walling the vulnerable segments of society from the virus.
  9.  It will adopt best practices from others -Singapore, S. Korea, Sweden, China- and tweak them for local conditions..
  10. It understands clear, timely, credible and consistent messaging is critical.
  11.  It  will welcome suggestions.

The Program

These are the main features of the program. It will:

  1. Test, test, test- Testing will be a priority. We cannot contain the epidemic if we do not know the numbers and, more important, their location and concentration. 
  2. Track, track, track- The program will identify probable concentration of cases using data from Immigration and other Government institutions, hospitals, funeral parlors, mobile location apps, etc. These will include travelers from high-risk countries, cruises, and POGOs. Once identified the app will contact track for secondary engagement.
  3. Segment the population into the vulnerable and the healthy. The elderly and those with pre-existing conditions will be quarantined. The healthy will be allowed to work and move freely. They may get infected but probably not die. The mortality rate among the young is less than 1%. The young constitute the vast majority of the work force so jobs will be protected.
  4. Focus on the critically ill to preserve healthcare capacity. Those with symptoms will be asked to self-quarantine but will be monitored and must report in regularly at the risk of penalties (#3 and #4 have been successfully applied in Singapore and Sweden. Singapore has zero deaths).
  5. Allow freedom of movement and minimize checkpoints. The soldiers will instead  be used for labor-intensive tracking and to build urgently needed quarantine facilities.
  6. Launch an awareness campaign to promote wellness.
  7.  Release an economic package for the poor and SMEs even at the risk of the budget deficit. It will put money quickly and directly in people’s pockets rather than in long term skill enhancements, interest rate subsidies and bureaucratically laden programs.
  8.  Possibly allow schools to open on a voluntary basis as in Singapore and Sweden. The latter have not seen any “evidence of risk” in the very young. This will allow parents to work.


We do not know that the current quarantine or others will succeed. The current program  is well intended but incorrectly assumes Government can do it all, that it can mandate a solution to a complex problem. The Wuhan model from which the program is derived is a command and control architecture, one that is culturally suited to a communist nation that has the money to cushion its economic impact. The Philippines does not have such a luxury: Wuhan may be a good one, seems to be working but it may not be for us.

Here is what we know: Per NEDA the current program will break the economy by at least P100-200 billion before the multiplier effects. We know the burden will be largely on the poor. We know the suffering could destroy our social fabric.

The alternative offered  is something we can better afford, something that balances the need to save lives with the need to preserve jobs..

There are risks to the proposal. Free movement and irresponsible health behavior will open our defenses. Here is where we must trust: We must trust the Filipino’s capacity and empathy to take care of himself and the collective good; we must trust empowering rather than mandating social and economic behavior is the way to go; we must trust the natural forces of the marketplace. This will release Government’s scarce resources for the urgent task of quickly identifying and destroying the enemy we face. 

 Our alternative is not perfect but it could be a start. Remember: There is an end. There will be a vaccine in 12-18 months, clinical trials are being rushed all over the globe. What we do not want is a program that will economically and socially wound us so badly getting to the finish line will be a pyrrhic victory.

May God have mercy on us.

Lockdown 2.0: How Much Is a CV19 Life Worth?

Three days after announcing a localized quarantine for M. Manila, our Government directed a Luzon-wide lockdown. The announcement coincided with the first day of implementation of the original measure. 

It is unclear what prompted the sudden change since no significant new CV19 numbers were announced. We can only assume our Government was surprised at the disruption that ensued.

Lockdown 2.0 is out of the Wuhan playbook. Our Government is enamored with everything Chinese which now includes its health emergency measures.  The problem is we are not quite Wuhan. Thus: 

– The Wuhan outbreak was worse.

– China is a command and control society. No need for messaging or coaxing, just muscle. It can make things happen. People follow.

  • China learnt from SARs so has the experience and capacity to execute. It has budgets for test kits. It builds quarantine centers overnight. It provides free meals to households. 
  • China has the money to mitigate the financial impact on the poor. 
  • PH has an underfunded, under equipped and undermanned healthcare system.
  • Our local enforcers may not be as disciplined or experienced as in China. 
  • PH has no money for an economic safety net.

Our lockdown has severely affected  SMEs and the poor. A small stall owner said she would prefer to die by CV19 than be unable to support her ailing father and two children. This sums up the dilemma: What is the trade-off between a CV19 life and jobs?

There are 49 million people in Luzon of which, say, 1 million bread winners are economically distressed by the lockdown. In a household of four that is 4 million economic lives. 

On the other hand there are today 142 reported CV19 cases and around 15 deaths. If we  assume the true numbers are 5 times as high we would today have 710 CV19 cases and potentially 75 deaths. This means every potential CV19 death is equivalent to around 53,000 economic lives (4,000,000/75).

At a monthly salary of P10,000/ breadwinner, every potential death then has a monthly monetary equivalent of P130 million (1 million breadwinners multiplied by P10,000/month divided by 75 CV19 potential deaths). Wow! The stall owner is right: Give her P130 million and she (and arguably many Filipinos) will gladly submit to be infected and potentially die.

Of course the numbers may be wrong and will change dramatically as the CV19 takes hold and the infections and potential deaths rise; but so will the economic pain.

 BDW, our model does not include:  

  1. The social unrest that could result from an economic collapse: chaos, looting, petty crime, deaths as soldiers seek to restore order in the community. The latter alone could exceed the potential CBV19 death toll.
  1. An extended lockdown: CV19 is not going away on April 12. That means P10 billion in lost income to breadwinners for every month we are in lockdown.
  1. The credit and business losses, the plummeting peso and reduced fiscal revenues from a prolonged shut down. Our airlines will go bankrupt and with them our tourist industry.

4. Impact on OFWs

  The orders of magnitude are so staggering that maybe a policy rethink is in order. When is the cure worse than the disease? Is anybody even thinking of the issue?

Our leaders are understandably concerned at the human dimension of CV19. One cannot put a peso number to a lost life but should we put a peso number to an economic life? A study estimated that the UK should be prepared to accept a mortality of 60,000 people to save its economy.

President Duterte announced  we have the money to save the poor. With all due respect I do not think so. Sec. Dominguez has unveiled a P27 billion lifeboat that includes re-skilling of workers, healthcare support, loans and such; but these are arguably insufficient and will take too long. The marginalized cannot wait for the results to filter to their level.

The private sector has been asked to step up -and it will, marginally- but this is hard to do when it is trying to survive.

The President has offered to personally guarantee loans to “carinderias” which talks to his emotional pain.

The problem is our leaders -D30 admits as much- do not trust Filipinos to act responsibly on CV19, that they must be forced to comply.That assumption is questionable particularly if the alternative is starvation.

I believe it is time to review Lockdown 2.0. Singapore, Korea and Hong Kong  with some admittedly smaller populations; have successfully adopted a less invasive model which finely balances CV19’s human and health dimensions against its economic and social consequences. The model relies heavily on private/public sector trust and co-operation. 

The really, really good thing about Lockdown 2.0 is that it has dramatically raised our awareness of CV19. But having learnt from the shock maybe there is now a better way to move forward.

CV19: Where Are You?

The worldwide hunt is on. 

There is an all out effort  to track CV19, a serial killer who has murdered thousands of people with more to come. The criminal is invisible to the naked eye and reproduces at an exponential rate. 

There is no bounty on this killer but if there was it would run in the trillions which is the value of lost lives and the economic damage it has inflicted on the world.

Looking for CV19 is like looking for the proverbial needle -or needles- in the haystack. We have some clues as to its whereabouts but it moves incessantly and inhabits multiple places – human cells, droplets, door knobs. The only way to track CV19 is to follow its scent.

 We know very little of CV19’s genesis other than it was probably born in a cave, grew up in a wet market in Wuhan, China; descended from royalty  (Corona) and has family – SARS, MERS, HiN1. After murdering thousands in its birthplace, CV19 travelled offshore, initially to South East Asian countries with a significant Chinese diaspora – Hong Kong, Taiwan, Singapore- then to Europe, most particularly Lombardy in northern Italy where it has been particularly virulent. Outside of China Italy today has the most number of confirmed CV19 cases (3,858) after S. Korea (6,286); most number of new cases (769 vs 518 in S. Korea); and deaths (148 vs 42 in S. Korea).

Why Northern Italy?

It has to do with fashion.

 Over the last decades there has been a large influx of Chinese immigrants to Lombardy,  principally to the city of Prato and smaller communities like Codogno and Veneto. They are  all in the vicinity of Milan, the fashion capital of the world. The migration started around the 80’s when manufacturing in Europe became non-competitive. The Chinese bought out struggling leather and garment factories, brought in cheap Chinese labor, imported inexpensive cloth from China and sold the finished products as affordable “fast fashion” or  “Pronto Moda”. They then became outsources to higher value brands like Guess, Gucci and Prada who could now label themselves as “Made in Italy” and command the high premiums over “Made in China”; even as their products were manufactured by lowly paid Chinese. It is globalization in reverse.

Today, Prato has the second largest population of Chinese in Europe after Paris. Legal Chinese comprise 10% of the 200,000 population of Prato, 20% if you include the illegals. There are direct flights to China. 

Why is this relevant to the hunt for CV19 and for the Philippines?

There is clearly a statistical correlation between the number of CV19 cases in northern Italy and the number of Chinese living there. In the Philippines there are reportedly around 200,000 POGOS mainly in the NCR, or 5 times the number of Chinese in Prato. If the correlation holds, we are in for a CV19 surprise: If we extrapolate the Italian numbers, the Philippines could see CV19 cases spike from 140 today to 20,000 and deaths rise from single digit to 4,000.

These seem highly improbable surges -and well they might be- but not if you believe as I do the current numbers are significantly under reported for lack of testing. Remember the Government reported only 10 cases just two weeks ago, now they are at 140, a 14 fold increase. Again, would the Government have taken the extraordinary step of locking down 48.5 million Filipinos in Luzon if cases were as low as reported? Do the authorities know something we do not?

If POGOs are a potential source of CV19 why are there no reported POGO infections and deaths in Manila? This may be because 1) There is a shortage of testing in general; 2) The  POGOs are young. They may have the symptoms (and are therefore carriers) but survive them because of their age; and 3) The POGOs deaths are unreported. The latter is not an uncommon phenomenon: Thus, there are few reported deaths of Chinese in Italy despite their significant presence. In 2005 there were 3 reported deaths in Prato in a Chinese population of around 20,000; in other years there were none. Maybe they leave before they die. Another explanation, possibly farfetched, is that Chinese deaths are unreported so their passports can be sold to new immigrants. The theory is Italian authorities cannot distinguish one Chinese from another any way.

Which brings me to my point: We can track the CV19 in the Philippines haphazardly and simply react when isolated cases emerge (by which time it is probably too late); or we can do so pro-actively, target focus and get ahead of the curve. 

We need to identify which population segments have the highest probability of contagion  given their provenance and travel history, isolate and  test them. We do so already for travelers from high risk nations and cruise ships so why not do it for POGOs? It is not racial profiling nor discriminatory. It is just good risk management, a more efficient way of using scarce resources in an unknown environment. 

How do we track the POGOs?

One, POGOs move in groups, live in highly concentrated places. The area around the Mall of Asia is one such cluster. The Alphaland building in Makati is reportedly another. Homes in Multinational Village are densely populated with POGOs.

Two, visit their places of work.

Three, use cell phone location apps. Their numbers should be available from PAGCOR-registered on-line gambling companies and/or the telcos. China uses mobile tracking and face recognition tools to follow its citizens so this is not something new.

I repeat, focusing on POGOs for testing and possible quarantine is neither profiling, undemocratic nor discriminatory. If our Government has locked down 48.5 million Filipinos why should it not do so for 200,000 potentially higher risk POGO’s? We have banned entry for other Chinese nationals so the Chinese Government should not be offended. In fact it may even provide the test kits since they have been pushing to shut down on-line gambling sites.The testing should be a condition for POGO’s work visa.

Tracking the CV19 epidemic is a difficult, expensive and time-consuming exercise. We have neither the money nor, more critically, the time to do so. We are on the clock. To succeed we must work harder but, more important, we must work smarter. So let us get on with it.

(P.S. Northern Italy has reportedly discovered $5 billion in Chinese money laundering. The Milan branch of the Bank of China was allegedly fined $20 million for facilitating the funds. Sen. Gordon revealed similar activities in the Philippines. Others have raised the issues of illegal entry, crime and non-payment of taxes by the POGOs.The Government might use the CV19 exercise to build a comprehensive POGO data base to address in one swoop all of these aforementioned concerns.)

CV19: A Baseline

(In the last few days we have witnessed panic as Government announced an unprecedented series of directives that have upended life as we know it. The purpose of this article is to recover my bearings. I need a baseline of  where we are and where we are headed. It will hopefully guide me, wrongly or rightly, on what and when to expect and how to behave accordingly. I also hope to identify the critical issues and concerns and the drivers that could positively or negatively affect future outcomes).

CV19: What is next?

The answer: Nobody knows. There are no precedents. Neither SARS, MERS or H1Ni come close in terms of scale, number of moving parts and the health, economic, social and political impact. We are back to the Medieval Ages.

I. Quo Vadis?

The Philippines’ CV19 crisis is just beginning. The actual number of infections is almost certainly higher than reported because of lack of testing and under reporting. All we know is that we do not know. The combination of ignorance, fear and the sense that Government is overwhelmed; is what triggers the panic.

The good news is the mortality rate (the ratio of deaths to infections) is probably lower than the consensus number of 2-3% because of the under reporting of actual infections. Thus S. Korea has the lowest mortality rate (less than 1%) in the world because it has the largest number of tests/capita. In contrast, Italy has a high mortality rate because it has a low number of tests/capita. It is just arithmetic.

Where is CV19 headed depends on the virulence of transmission, the policy responses, the quality of available healthcare, the funds for economic safety nets and the discipline of the population. I worry how we score on these.

The current transmission is reportedly 2-3/person (an infected person will infect 2-3 others).

The policy responses range between the Wuhan model (extreme compulsory lockdown) and the S. Korean and Singapore models ( voluntary quarantines, data and policy transparency, responsible messaging, and public/private co-operation). Our Sinophile Government has chosen the Wuhan model which prioritizes health over jobs without the accompanying economic safety nets that China provided. It is a tough call. The Government could impose further restrictions.

South Korea, Singapore and Taiwan have the best CV19 results because of the speed and quality of their policy responses, the availability of test data, the discipline of their people, their economic resources and healthcare systems. Theirs is the best balance between social and economic disruption and health initiatives.

II. Issues and Concerns

A. The Trade-Offs- The dilemma for policy makers is  the trade-off between the health concerns and the economic and social impact of any remedies: For example, how many jobs should we sacrifice in a quarantine to save a given number of lives? It is physical lives vs economic lives, who should carry the burden, a very hard choice.

B. A healthcare meltdown- Our healthcare infrastructure will be overwhelmed by the speed and scale of the epidemic. With limited resources, health givers have to decide between sacrificing the more vulnerable cases for those with greater hope of life. Somebody has to play God: Who should that be? Are we talking of unattended bodies in hallways left to die?

C. Policy responses- Should the Philippines adopt the Wuhan or the South Korean/Singaporean model? Which is more effective given our culture, economic and health resources, and geography?

Italy tried a localized quarantine system in Lombardy like our Manila lockdown; but abandoned it for a national program.

D. Social order- As the health and economic pain deepens social unrest becomes an issue.

E. Lack of data- The solution to the crisis depends on testing, knowing the extent and, very important, the locations of the problem. S. Korea is testing upto 15,000 cases/day, has tested over 250,000 people in a population of 60 million.. The Philippines has 2,000 test kits, ramping to 6,000/week for a population of 100 million.

III. Timeline

In the Philippines the timeline of the crisis will depend the virulence of the epidemic, our policy responses, our healthcare system, the availability of a vaccine and our economic resources. I expect the virus numbers to rise at least until third quarter, hopefully plateau in the 6 -12 months thereafter as we learn more and execute better. A vaccine is expected in 12-18 months which should cap the crisis.

IV. Economic impact

The Government’s prediction for a mid-single digit growth rate even in this crisis is optimistic. Highly impacted are retail and manufacturing, travel/tourism; and small and medium (SME) businesses. Retail sales in M.Manila are down 30-70% even at this nascent stage; manufacturing middle double digits; and travel/tourism much worse with more to come. Financial institutions which have overweighted consumer credit and small business lending; will be impacted. Highly indebted companies and projects may not survive.

Airline companies are in trouble. The ban on China, Hong Kong and S. Korean travel; tourist cancellations and now the domestic travel ban has put them on their heels. Should the epidemic worsen and the Philippines be classified by the U.S./Canada as a no-entry country, the profitable trans-Pacific traffic will disappear. it is difficult to see how PAL can survive on its current financials. Short of a Government takeover or a painful bankruptcy proceeding, we could lose a national carrier..

Filipino overseas workers will be highly impacted by PH classification as a high-risk health nation.

Fiscally, the Government will see lower tax revenues at a time when it most needs it. Current plans to lower corporate income taxes may be deferred.

The PHP peso has remained remarkably stable in the crisis. The positive interest rate differential vs the USD, the reduced Import bill from lower oil prices and  depressed economic activity; may explain the peso strength. The BSP is likely to cut interest rates which will narrow the interest rate differential. Combined with investor panic, lower exports and OFW remittances, and a possible credit downgrade; this could weaken the peso.

Financial markets worldwide will exhibit a W shaped behavior with high volatility. April is earnings season: Expect Q1 corporate profits to surprise on the downside. Even with the recent downturn which erased all the 2019 gains, the  is still  trading at levels of 12-15 months ago. Coupled with rising CV19 numbers I expect a further leg down. On the other hand the vast liquidity, low interest rates, a 2008-style TARP bailout for, say, the airlines; fiscal stimulus and the anticipation of a vaccine in 12-18 months could propel a sharp market recovery in Q2 or Q3.

V. What could change my baseline?

  1. Earlier prospect of a vaccine.
  2. Extreme and rapid surge of CV19 cases.
  3. Government policy panic.
  4. Social unrest.

VI. What To Do?

  1. Accept we are in a new world. Do not panic. We can have fear but fear should not have us.
  2. Stay positive. The Purrell bottle is half full, not half empty. The air is cleaner. Time at home will force us to reflect on our personal ethos, the value of our human relationships and prayer.

3.  Follow orders but speak up constructively.

4. Save and stay healthy.

VII. In short

The Philippines’ CV19 crisis will get worse before it gets better but there is, I think, an end with a vaccine.

Our challenge is how to bridge the next 12-18 months. Will our Government panic and over-react when overwhelmed? What will the carnage look like? Will those at the margin of society survive? Hopefully, the Government will address the economic impact of its CV19 measures and provide a safety net.

If we succeed we shall as a nation be stronger from the experience.