Q1 Report Card

The first quarter numbers are rolling in and it is not pretty; and that is with only 15 days of quarantine. Wait till the Q2 figures come out with the full COVID regalia.

Jollibee reported a loss of PHP 2.1 billion, a 253% reversal from a profit in the same period last year. It is cutting its capital expenditure by 63% or PHP 9 billion. Jollibee has 3,317 stores in the Philippines and employs 90,000 people. Jollibee is a bellwether for consumer demand.

Pilipinas Shell lost PHP 5.5 billion in the quarter compared to a PHP 2.3 billion profit in Q1 last year, a swing of PHP 7.8 billion. Shell is an indicator of the economic movement of goods and people.

Meralco reported a 4% drop in industrial sales, a measure of manufacturing activity.

NEDA announced  the economy lost PHP 1.1 trillion in the first 45 days of the quarantine. It predicted the economy would double that loss for the year.

The same carnage is being reported across the corporate landscape. A businessman who spent 35 years building his manufacturing and distribution business to a PHP 6 billion enterprise with over a thousand employees; is considering permanently shuttering his doors. Another with over 200 retail outlets will close some 50-70% of his stores. He will keep the rest until December of this year to leverage the Christmas season after which he will review his options. The quarantines together with the new social distancing measures make the business unsustainable.

The big malls are giving their tenants a 3 month rental reprieve. They are waiving the fixed rent and charging only 5% of sales to encourage stores to remain open. They are concerned a mass closure of outlets will make the malls look like a ghost town and destroy the shopping experience.

Banks are carefully reviewing their client exposures. They do not want to be the last one holding the bag.

Foreign analysts predict the Philippine economy will be the slowest to recover among our neighbors because of the severity and length of the lockdown and the modest stimulus being applied.

September of this year will be the next reckoning date for the economy. By that time we should know, hopefully, what the health and quarantine picture looks like, how many businesses are still standing and whether the Government still has any money. The next three months will show modest recovery even under GCQ as businesses run down their inventory, fill their excess capacity and adjust to the new health protocols. Few are talking about expanding.

Businessmen understand the health imperatives of COVID but they do not totally understand the policy responses from Government. They wonder if the Government fully appreciates the extent of the damage to the economy or what is needed to salvage it. They do not know whether the President has a sense of the crisis or was it simply a turn of phrase or a moment of levity when he announced that he will personally guarantee loans to the small ”carinderias” and sell the Cultural Center as a last resort. 

They do not understand why the authorities have forgotten that workers cannot work if there is no public transport.

They do not understand when the NEDA head reports the crisis is ‘a temporary setback” and there will be a V-shaped recovery. As a perspective, Singapore is spending almost 20% of its GDP on stimulus and yet believes its recovery will be gradual. We are spending, depending on definition, an equivalent of between 0.80% and 7.7% of GDP.

They do not understand how the NEDA’s stimulus numbers stack up, why, for example, the BSP loans to the Treasury are included when it is double counting. Are we fluffing up the stimulus package?

They do not understand why despite the evidence and the clamor of the majority of Senators, the private hospitals, the media, the front liners, the medical practitioners; the President continues to hold on to a DOH Secretary who has not delivered nor is accountable for the supposed overpricing of medical equipment.

They do not understand why the BSP Governor refuses to depreciate the peso when it would be a relief to our much beleaguered OFWs, would boost aggregate demand and make our foreign investments, tourism and exports more competitive with our neighbors. This is the same Governor who has seemingly called out Trade Secretary Mon Lopez for not doing enough to attract foreign companies relocating from China; and DOF Secretary Dominguez for being measly with his fiscal stimulus.

The BSP Governor’s stance of letting the market determine the exchange rate may be ideologically pure and arguably speak to the soundness of his monetary policy; but is not appropriate in this time of crisis. The current peso strength is due to temporary flows like reduced imports from slow growth, not to the underlying robustness of the economy. It could be due to the dollar proceeds from our recent USD 2 billion bond offering which is a loan, not a permanent inflow to the country.

Businessmen do not understand why our economic managers are betting so largely on tax incentives, “the country’s biggest stimulus program”, to revive an economy whose problem is not supply side but demand destruction. Businesses thank the DOF for the 5% reduction in corporate income taxes but wonder if the timing is appropriate or meaningful to promote investment. The reduction will be implemented in July and reduce our tax collection by PHP 43 billion this year. Should not the tax relief be deferred to next year and instead give the PHP 43 billion to the 23 million families desperate for assistance? The tax reduction will only benefit companies that are currently profitable and we know there are not many of those. Again, businesses do not make investments primarily on the tax rate. The profitable companies could well use the tax savings to increase dividends or pay down debt none of which will stimulate the economy.

The extension of the NOLCOs or net loss carryovers is not meaningful if businesses do not expect to survive the next few years.

In a weird and confusing development, PEZA which oversees foreign investment in the Special Economic zones has criticized the new tax “incentives” under CREATE as has the IT and Business Process Association of the Philippines. Was there any inter-agency and private sector consultation? Will CREATE complicate rather than simplify the tax regime by allowing for greater discretion and potential tax arbitrage?

Two days ago the President acknowledged the COVID numbers were “not so bad” pala. The private sector had been saying this all along but was being drowned out by the IATF experts. Which brings us to a core problem. The IATF has tasted regulatory absolutism and is enjoying it. As they say once on your lips forever on your hips. The quarantine has been eased but only after pressure and considerable damage to the economy. The regulatory mind set remains even under GCQ. The next IATF scare tactic, the “second wave of COVID”.

Business has remained silent afraid of the repercussions from speaking up. They will vote with their wallets and their feet. We could wake up and suddenly find very few people home. This silent divide between the private sector and Government is unhealthy as we move forward.

To their credit, our economic managers have in the last weeks reached out to the business world by presenting their plans if not necessarily taking in suggestions. By rallying the private sector to its cause, Team Sonny could  strengthen its voice at the Big Table which is presently dominated by the health officials. 

Anecdotally we note the absence in the last few IATF Presidential briefings of the DOF Secretary or his representative. Is this his choice or the President’s? It would not be a good sign if it reflects the power dynamics at the IATF. For everything that is said of them our economic managers are well meaning, honest and hard working, often the only adults in the room. It would be worrisome if they were to lose their voice in this critical period of our Republic.

Here We Go Again

The May 31 2020 MECQ deadline is fast approaching so what is it going to be this time? MECQ, GCQ or some other Q?

I am going with GCQ not because the health numbers are improving – we don’t know any of that – but because it would look weird. By this time next week we shall hold the world record for number of days under the fiercest lockdown. We cannot extend that record without appearing, well, incompetent.

Filipinos have done their share in fighting COVID. We have stayed home, worn the mask, social distanced, endured the checkpoints, gone jobless, lost our businesses; all without a peep even as we undergo the most stringent and often times contradicting of social protocols. Has the Government done its part?

Early on the experts at the DOH and the IATF said we needed just four weeks, then five, then six and now eight weeks to test, contact trace and isolate; to generate the data for them to define the curve and make “evidence-based” prescriptions to flatten it. Seventy five days later the data is not only unavailable in statistically significant numbers, it is, deliberately or not, so tainted it is useless as a basis for meaningful prescription. Garbage in, garbage out. 

We were supposed to test, test and test but the only thing that has been truly tested is the intelligence and patience of the public. It appears somebodies in the DOH are so busy counting the money they made peddling test kits they forgot to actually put the kits to use assuming of course they are even usable.

The President admitted ordering the DOH Secretary to beg, borrow or steal to secure much needed protection and testing equipment. Perhaps somebody literally took him to his word.

And yet the department head is still there ensconced in the security blanket of his beloved President. This is the same person incidentally who first resisted the travel ban and who recently proudly announced we were now into our second wave of the virus; even as his department and the rest of the world screamed otherwise while tearing their hair out. The man explained “it was a casual expression of an epidemiological fact”, the medical term for baloney. Anyway, this is the person the President has appointed to save the Republic. Take it from there.

On the economic front there are debates whether our managers have done enough to alleviate the pain. The NEDA head announced the pandemic is a “temporary disruption”, a tempest in a teapot. He also disclosed the economy lost PHP 1 trillion in the first forty five days of the ECQ or PHP 22.2 billion a day. At this rate in 75 days to May 31 we shall have lost PHP 1.8 trillion or some 10% of our GDP. That is, by most definitions, more than a passing squall.

The Treasury has responded with a stimulus that is anywhere between two and eight percent of GDP depending on how you count. It has also culled monies from the 2020 Budget including Education to boost the lifeboat. Many have advocated for a bigger stimulus – ours is the smallest in the region – especially since we have the head room to do so. We have an investment grade rating, a comfortable debt and deficit to GDP ratio. Our last USD bond offering was four times over-subscribed so the money is there. One builds financial strength for rainy days and we are certainly in a rainy day.

 Sec. Dominguez is being parsimonious since tax collections are down and he is unsure how long a lifeline he will need. The President has talked about lifting the quarantine when a vaccine is universally available which at best will be some 18-24 months away. Anecdotally, there is still no vaccine for the 1918 Spanish flu nor for HIV but this is not meant to scare you.

BSP Governor Ben Diokno is responsible for monetary policy but lately has been straying from his lane. He has said our priorities should be “to save lives, save jobs and save the economy” which some have interpreted as a reflection on the Treasury’s modest stimulus. The Governor has recently called for more foreign direct investments from companies moving out of China, a call out to DTI Sec. Mon Lopez. Yet Diokno refuses to help his two colleagues by depreciating the Philippine peso. This would go a long way to boost aggregate demand, help our OFWs and bolster our price competitiveness for exports, tourism and FDIs. Our economic managers are seemingly not on the same page.

We have a President who truly feels for Filipinos at least in his heart. He has internalized the health crisis if not the economic.

We have an IATF headed by a man who is kicking the medical can down the road with no idea on where we are on the curve. He has been publicly chastized by the Senate, the Private Hospitals Asscn. of the Philippines and media; and internally by his colleagues in the Cabinet and his profession. But he is still there, an iron ball chained to the President. People ask why?

We have a Presidential spokesperson who is talking up the number of daily tests conducted – 32,000 – only to be corrected that that is an estimate of our theoretical capability not actual tests of 12,000. We have military minded enforcers with perhaps the best of intentions if to a fault.

We have the longest and most stringent of health protocols that, many analysts predict, will lead to the worst economic recession among our regional peers. We have 23 million of Filipinos who have been told they must suck it up because there is no money in the bank.

We have schools with little idea how to cope with the imperatives of social distancing in over-crowded class rooms and diminished resources. We have colleges faced with dwindling enrollments as distressed parents opt out; and rising costs from the health protocols. To worsening economic inequality we now add widening educational inequality between the haves and the have nots.

We have small businesses on their last round of ammunition. We have a Fourth and Fifth Estate that have been threatened and in one instance shut down. Big Business has remained quiet afraid of persecution and the Presidential wrath.

We live in a world of political, health and financial fear.

Our neighbors have all opened their economies even as we struggle with ours. Why can we not do better? We are not dumber nor more financially strapped than them. Our healthcare workers are the best in the world. We are following the same playbook. We had an early lockdown. Have we been so led into a sense of doom that we are frozen in the headlights? We will find out more in a few days.

Our Strong Peso Is Hurting Us

Economic managers are graded in different ways. They are wont to adopt or abandon policies that might reflect badly on them.

NEDA Secretaries are measured by the country’s economic growth even if they have little to do with it. NEDA is constitutionally mandated to run the economy but has no policy tools to work with. At best it can talk it up or present five year plans that bear a passing relation to reality. NEDA’s main role is to sign multilateral agreements and such after everybody has gone home.

The economy is largely the responsibility of the Dept. of Finance and the BSP. They have the tools to make things happen.

The DOF Secretary handles fiscal policy which is one of the three legs of the macro-economic tool kit. He is responsible for funding our economic program and general financial health. As such DOF Secretaries are measured by the budget deficit, tax collections and level of national debt; and how these relate to our country’s GDP. These metrics translate to the one grade that DOF Secretaries are obsessed with our – or should we say their – international credit rating. 

The BSP is responsible for the other two legs of economic policy namely monetary and that often forgotten tool, exchange rate policy. The former sets the equilibrium level of money supply, liquidity and interest rates. Exchange rate policy is about the appropriate level of the peso against, mainly, the US dollar.

Central Bank governors are graded by a country’s inflation, its currency strength and stability and the robustness of the banking system. 

The DOF has the strongest tools to combat our current economic crisis. It controls the monies that go into the life boat be they direct cash transfers to the private sector or Government budgetary spending. These are collectively dubbed as stimulus even if they are largely financial aid. There are raging debates on the level of fiscal “stimulus” that is appropriate for our current crisis. Today the Philippines has the lowest ratio of “stimulus” to GDP among our neighbors.

Central Banks are supposedly independent of the Executive. Still, Trump has repeatedly berated the Fed for not doing enough for the economy. In March 2019 Ben Diokno was appointed by Duterte to assume the unexpired term of BSP Governor Espenilla until 2023, renewable for another six.

The BSP’s policy arsenal is less powerful than that of the Treasury. Its medical kit is more indirect and supportive. If fiscal policy is chemo, monetary policy is the supplementary medication for nutrition, immunotherapy and pain relief. The BSP provides liquidity to banks so they will lend. In more developed systems, central banks buy corporate and municipal debt and extend loan guarantees in what is called “quantitative easing”.

Central banks have another less evident tool called exchange rate policy. Monetary heads are generally reluctant to use this pro-actively. The mantra is currencies should seek their own level i.e. they are not to be managed but instead left to the forces of supply and demand. The exchange rate can be a powerful tool especially in times of crisis. It determines our international price competitiveness which is important to induce exports, attract tourism and foreign direct investment; it can stimulate aggregate demand; and it can add financial relief to beleaguered foreign exchange earners.

The Philippine peso has remained fixed, at times appreciated, this year even as our neighbors against whom we compete for exports, tourism and FDIs; have seen their currencies depreciate. The Thai baht is down 7.4%, Indonesia 6.3%, Singapore 5.3%, Malaysia 6.6% and Vietnam 0.1%. Currency competitiveness could well be a reason investors relocating out of China are moving to Thailand, Vietnam, Indonesia and Malaysia instead of the Philippines. In one survey of 300 Japanese companies, the Philippines was not even in the list of preferred destinations.

Foreign exchange policy could arguably be as powerful as fiscal policy in reviving the economy. We have some USD 34 billion in OFW remittances a year and USD 30 billion in BPO revenues or a total of USD 64 billion. Every peso depreciation will directly add PHP 64 billion to badly needed  income and aggregate demand. At a follow up multiplier of 2.5x, this is equivalent to a second wave of stimulus of PHP 160 billion.

If the peso were to depreciate by the equivalent of our neighbors of around 6%, this would bring the peso to 53.75/USD, a weakening of three pesos per USD. The direct boost to our economy would be PHP 192 billion with a follow on of PHP 480 billion. The total of PHP 672 would be 3.8x the direct stimulus of PHP 173 billion announced by the DOF for its Progreso recovery plan. The contributing VAT and income tax collections could reach PHP 100 billion.

There are compelling economic reasons to depreciate the peso and soon. But there are also humanitarian.

Our OFWs have been the heroes of our economy for decades. Now they are in trouble. Many are returning because the work is no longer there be it from the collapse of the cruise industry or worldwide recession. They are returning to an unwelcome environment of stringent health protocols, social resistance from their communities fearful of contamination and a bleak economy. They have some, not much, dollar savings left. They desperately need every additional peso they can get from a currency depreciation. We should give it to them.

Central Bank governors equate their performance with the strength and stability of their currencies. They are philosophically loath to tinker with exchange rates especially when all is well. China and Singapore are notable exceptions: They guide their currencies and look at what a great job they have done. Maybe somebody should tell President Duterte the BSP has an economic bazooka that is 30 times more powerful than selling the Cultural Center and all it would take is a nudge to his appointee at the BSP.

BSP Governor Ben Diokno assumed office barely a year ago. We understand why he might be reluctant to interfere with the peso. But these are not normal times. We cannot watch rudderless as our Titanic heads for the iceberg. We need to be ahead of the curve and commit to a policy of weakening the peso by either providing forward guidance or actively buying dollars in the market.

Analysts predict the Philippines will be the worst performing economy among our neighbors this year because of our severe health protocols. Our crisis needs all policy hands on deck, fiscal, monetary and exchange rate. We need to leave ideological issues behind. A weaker peso will make the country more price competitive for exports, FDIs and tourism; will generate much needed demand stimulus, will fatten our tax account and will augment the hard earned savings of our OFWs out there or returning. We understand that exchange rate engagement is and should not be the norm but now is not the time for political correctness.

Mr. Governor, let it go, let it go.

A Fix We Really Need

Our economy is in shambles but you already know that. The Government admits we could lose a couple of trillion pesos. We cannot feed some 23 million families because there is no money in the bank. Our recovery will be lengthy because demand is destroyed. Our exports and tourism are shot. We are not price competitive to visitors and foreign investors. OFW remittances are slowing as overseas work dries up. Our Treasury is down to the bone.

But what if I was to tell you there was a relief ? What if I was to say there is a fix that is not bullet proof nor all-purpose but could jump start the economy ? What if I was to say the remedy:

–  Is complementary to our fiscal and monetary policies.

–  Will quickly add jobs.

– Will narrow our budget deficit.

– Is tried and tested.

– Is IMF approved but not IMF constrained.

– Is independent of ECQ, MCQ, GCQ or any other Q.

–  Is plug and play. It requires no manuals.

– Is cheap if not free. It pays for itself.

– Is immediate.

 – Is at our fingertips.

Would you ask what stuff I was smoking?

Here is a hint: This year the currencies of our major ASEAN neighbors depreciated against the US dollar. In contrast the Philippine peso is unchanged at its current rate of PHP 50.70/$.

Foreign Currency Movements Vs. USD between  Dec. 31 2019 and May 19 2020:

– Malaysian Ringgit   ( – 6.6% )

– Singapore Dollar     ( – 5.3% )

– Indonesian Rupiah ( – 6.3% )

– Thai Baht                  ( – 7.4% )

– Vietnam Dong         ( – .08% )

– Philippine Peso         (  0.00% )

The peso strength is due to net flows from reduced imports as we shut down the economy, lower oil bills, positive interest rate spread, continuing OFW remittances, strong BPO inflows and sound economic management.

But our currency strength is now a bane to the economy. As a result of the most extreme health measures, experts predict we could be the worst performing economy in the region. We need to weaken the peso.

Overseas remittances and BPO proceeds today make up 16% of our GDP. Unlike exports, these flows have insignificant import components. A weaker peso will increase the local value of the foreign exchange proceeds almost one-for-one.

Per BSP data, overseas remittances totaled USD 33.5 billion in 2019. Therefore every one peso depreciation directly increases income and consumer spending by PHP 33.5 billion. This is equivalent to social amelioration for 6.7 million households and some 27 million Filipinos.

Our BPO industry contributes another USD 30 billion to our economy, a slight second to remittances. A one peso devaluation would increase peso demand by PHP 30 billion.

The total of these two sectors of PHP 66.5 billion would generate additional  economic demand of PHP 166 billion using a multiplier of 2.5x.

The marginal contribution to the economy of PHP 230 billion (direct contribution of PHP 66.5 billion plus multiplier of PHP 166 billion ) would attract up to PHP 28 billion in VAT and more in income taxes. This would narrow our budget deficit.

A weaker peso will increase exports, tourism (when we open) and FDIs as we become more price competitive. This will create more jobs and demand; which will create more jobs and demand; and so on in an upward economic spiral. As it is we have priced ourselves out of the market especially for investors relocating from China. A report by the Japanese Chamber of Commerce said out of 300 Japanese companies leaving China, 28% would choose Thailand, 22% Vietnam and the rest Malaysia and Indonesia. Other reports confirm a similar order of preference. We need to pull out all the stops to garner our share of this pie.

How do we get the peso to weaken? 

The peso should naturally weaken as:

  • Our economy recovers and imports rise.
  • Oil prices increase as they have by 30% in the last few weeks.
  • Foreign remittances decline. Our biggest source of remittances are from the U.S., Europe, the Middle East and Hong Kong which have all plunged into recession and record unemployment.
  • Our positive interest rate differential vs the dollar narrows as the BSP lowers rates to stimulate a faltering economy.
  • Foreign investments move to cheaper locations.
  • Our weakened economy is downgraded.

The BSP could hasten the depreciation by buying dollars. This could result in foreign exchange gains that can be used to increase monetary stimulus, liquidity and support to SMEs. It would also bolster our USD reserves which would strengthen our international credit rating. 

The BSP could also issue forward guidance as to its desired currency direction, speed and target range. Overnight the market would drive down the peso to the desired level.

What are the downsides to the strategy?

One, it would increase prices of imported goods but inflation today is not our problem. In fact, a little inflation may be good to prevent us from falling into a Japan and European style deflationary trap. Gas prices would rise but still be affordable since oil is so cheap. The recent 10% increase in oil excise taxes went unnoticed by the public.

Two, it would increase debt service of Government and private sector dollar loans but this could be partially offset by our higher level of USD reserves from the BSP dollar purchases, foreign investments, exports and eventual tourism.

What is a reasonable target exchange rate?

In the last year the peso has been as strong as PHP50.17/$ (May 13, 2020) and as weak as PHP 52.64/$ (Aug. 15, 2019). We could devalue the peso by 5.5 – 6.5% from the current level of PHP 50.70/$ and still be at par with our neighbors. This would see the peso at PHP 53.50 – 54.00/$. At the higher limit, OFWs and BPOs would benefit by PHP 110 billion  and PHP 100 billion respectively. The combined figure would generate some PHP 525 billion in multiplied demand and over PHP 63 billion in taxes. It would increase our stimulus by 300%.

The peso was last at PHP 54/$ in 2003 when our growth rate was around 5%. The forecast for growth in 2020 is negative 2.0 – 3.4% so a depreciation of the peso to that level is well within reason.

A peso devaluation is non-invasive, will not require us to surrender our health protocols, will generate almost immediate demand, will triple new money for stimulus and social relief, help our budget deficit, and bolster our price competitiveness for exports, tourism  and FDIs; while raising the livelihoods of many Filipinos.

BSP Governor has said our priority must be “saving lives, saving jobs, saving the economy”. He is sitting on the button that could make this happen. All it would take are five words to this effect: “People, we are devaluing the peso.” This would panic consumers into buying goods before prices rose; which is exactly, exactly what we need to jump start the economy.

PAL: A Crisis To An Opportunity?

Airlines the world over are in an existential crisis as COVID has shut down local and international travel.

The Air Carriers Asscn. of the Philippines (ACAP) consisting of PAL, Cebu Pacific and Air Asia is seeking a rescue from the Government amounting to a reported PHP 8.6 billion/month of credit guarantees and waiver of airport charges; until air travel is eased. It is not seeking a cash bail-out even though credit guarantees are tantamount to that.

The Thai Government is extending a rescue ofUSD 495 million (PHP 25 billion) to its airlines, Singapore USD 249 million (PHP 12.5 billion) in the form of equity, guarantees and waiver of charges. The U.S. has a USD 50 billion lifeline to the industry.

Airlines play a critical role in our nation’s tourism and transport industry. The former accounts for 12.7% of GDP and directly and indirectly employs over 5.4 million people. Aviation is a necessary condition for our economic recovery.

A lifeline for our airlines is both an economic and a PR challenge. PAL and Cebu Pacific are owned by extremely rich families so selling a Government bail-out when 23 million Filipino families are waiting for theirs is hard. It could become game of chicken between Government and the airlines as the latter hold out for assistance before restarting operations. DOF Sec. Dominguez earlier announced that rescues to big corporates will have to take a back seat to assistance to the jobless. Sonny was CEO of PAL from 1993 to 1995. He needs a plan he can sell to the President and the public and not be accused of favoritism.

A bail-out looks different for PAL than for CebuPac. The latter has a liquidity problem, the former arguably a solvency one. PAL has fundamental structural issues that will not be solved by Government credit guarantees. It will be throwing good money after bad.

In FY2019, Cebu Pac made a profit after tax of PHP 9.1 billion on revenues of PHP 85 billion. In Q1 of this year, revenues dropped by 25% to PHP 15.9 billion and profits turned to a loss of PHP 1.2 billion with just 15 days of quarantine. The company has a reasonable balance sheet with capital of PHP 41.9billion and liabilities of PHP 113 billion. With near zero revenues in Q2, CebuPac simply needs a bridge loan to ride out the storm.

PAL is a different story. In 2019 PAL reported a loss of PHP 10.6  billion on over 150% of the revenue of CebuPac. Per PSE records as of Sept. 30 2019, PAL Holdings, the parent company, had liabilities of PHP 322 billion and capital of PHP 7.6 billion. Interest expense to Sept. 2019 was PHP 5.1billion. PAL is a restructuring waiting to happen.

The Lucio Tan Group has the wherewithal to recapitalize PAL. It has lucrative businesses in real estate, tobacco, beer and spirits and banking. The question is the sustainability of the airline as a going concern. In nine months in 2019, PAL Holdings just broke even at the operating level i.e. before fixed costs and interest expenses.

It is said never waste a good crisis and PAL is in a crisis. COVID could be the perfect cover to finally turn the company around. The travel industry is in shambles but oil prices, a major component of airline costs, is significantly down. Cebu Pac showed that under normal circumstances the airline industry can be profitable. PAL just has to address its balance sheet, its costs, its culture, its management and its governance.

In a PAL restructuring the burden must be shared among its owners, its creditors, its employees and Government.

PAL needs new capital of PHP 50-100 billion to get back on its feet. Part of this would come from the owners, part from debt to equity conversion by creditors, and part from new quasi-capital from Government. The latter could be low-cost, convertible, voting preferreds or debt with warrants. There would be a shareholders agreement between the owners and Government.

PAL is burdened with a legacy of underutilized and inefficient planes which is a story in itself. They are a big reason for its PHP 322 billion in liabilities and PHP 5 billion in finance charges. These have to be off-loaded, leases terminated as part of the rescue plan.

Unsecured creditors may be asked to convert part of their debt into equity and stretch out the rest on reasonable market based interest rates. The deal could be sweetened with some front-end cash and partial Government guarantees. There will be financial covenants to protect the creditors and new money. The alternative is a protracted bankruptcy filing.

Unpaid taxes and Government benefits – SSS,  Pagibig, etc – might be restructured as part of the Government entry.

Unions will have to agree to downsizing and a long term wage contract with an upside kicker if PAL is turned around.

PAL management will be totally professionalized. No family members will be allowed. There will be no travel perks for shareholders and Government officials.

The Board might be divided as follows: Owners 1/3, Government 1/3, independent directors and creditors 1/3. The latter group will be mutually agreed by Owners and Government. The audit, governance, compensation and finance committees will be chaired by an independent director. Government and the Owners will have a veto over the CEO and CFO. Mr. Lucio Tan will be retained as Chairman. It is essential he remain the titular head of the company.

All stakeholders must sign off on a viable long term business plan.

 At a time when there is not enough to go around the public and the Executive will be skeptical of any rescue that involves taxpayer money. It must be presented and sold as follows:

  1. The airline industry and PAL are imbued with national interest. They are the foundation of our tourism industry. The goal is to re-launch PAL as a world class airline.
  2. The rescue is conditional upon all the stakeholders sharing in the burden.
  3. The Government must have a clear path to recovering its investment at a profit. The Government money is not a dole-out. It must be compensated for any real or contingent credit exposures it takes.
  4. The Government’s contribution is not only financial. Its presence will lend weight to getting stakeholders to come around especially with its new powers under the Bayanihan Bill.
  5. The Government rescue is not part of the fiscal deficit and shouldn’t affect our credit standing. A Special Purpose Vehicle will be used to house the lifeboat.
  6. The Government investment will be protected by anti-dilution measures and additional voting rights and financial benefits if milestones are not met.
  7. PAL must be saved to prevent a monopoly in the industry.
  8. A bankrupt PAL will lead to bank write-offs.
  9. The rescue will directly save over 6,000 jobs and indirectly a multiple of that.

How does the Government exit its investment in PAL?

  1. Via a sale to a strategic partner – PAL could use an American partner as a gateway into the lucrative U.S.domestic market. ANA, the Japanese airline, owns 9.5% of PAL. A strategic partnership with an American company will have to wait until the dust settles worldwide. 
  2. Via a sale to private financial groups.
  3. Via repayment of its loans and guarantees. 
  4. Via a sale of its warrants which could be very valuable if PAL does indeed turn around.

What are the PAL options?

  1. The status quo- The owners would continue to throw money at the problem and postpone the inevitable.
  2. Forced  sale of the company to yet another China dummy for next to nothing – This has national security implications and would be detrimental to the Owners.
  3. Merger with CebuPac – Would not make sense to CebuPac. Face-wise not acceptable to the Owners. The Competition Commission would nix it.
  4. Bankruptcy proceedings – Messy.
  5. Government guarantees – See #1 above.

PAL is a strategically important company. It is our national carrier. Radical surgery seems the only way out but may require somebody to start pushing the idea around.

Is There Enough Gas In The Tank?

Our economic managers recently unveiled their post-Covid economic plan dubbed Philippine Program for Recovery With Equity and Solidarity or PH – Progreso. This is the second iteration. The first was done in March 2020 following the lockdown. They have asked for comments from the private sector.

 Under the Plan:

  1. GDP growth will fall from a positive 6% to negative 2.0-3.4%. 
  2. Nominal GDP will go from PHP19.5 trillion to PHP19.3 trillion.
  3. Expenditures will rise by PHP 173 billion to PHP4.2 trillion.
  4. Tax revenues will fall by PHP510 billion to PHP2.63 trillion. 
  5. Our fiscal deficit will widen by PHP900 billion from PHP664 billion (39.6 % of GDP) to PHP 1,563 billion (49.8% of GDP).
  6. Our debt will rise from 40% to 50% of GDP.

The Plan did not provide assumptions on the duration of the quarantines. Yet this is the main driver of any meaningful economic model.

 Our Government manages the economy through monetary and fiscal policies. The former, administered by the BSP, provides liquidity to banks so they can lend. The BSP also extends credit to the Treasury to fund its fiscal programs. Monetary policy has little direct impact on an economy.

Fiscal policy is under the Dept. of Finance. Fiscal measures directly stimulate an economy. By reducing taxes, they trust businesses will expand. By extending social relief and investing in say infrastructure they create demand.

Economies work through supply and demand. COVID has disrupted the supply of goods and services because businesses are constrained by social distancing. Once restrictions are eased, production can restart very quickly. 

That cannot be said of the demand side. Consumers are unlikely to immediately spend due the the financial and emotional trauma of COVID. With few customers, businesses are reluctant to rehire; leading to more demand destruction and so on. It is an economic death spiral which can only be reversed by massive and immediate front-end stimulus from Government.

The amount of Government stimulus is expressed as a percentage of an economy’s GDP. The U.S. is on route to spending 50% of its GDP on stimulus, our neighbors around 10%. What is that number for the Philippines?

For political reasons, Governments like to inflate their reported stimulus package. There is a lot of fluff in the numbers.

Again not all stimuli are of equal strength. There is Level I stimulus which is direct spending by Governments for either cash transfers to the private sector or project spending for say infrastructure; that had not been previously budgeted. This is the most effective form of stimulus. It is an extra kick to offset a fall in demand.

The Recovery Plan has negligible Level I stimulus. The Government is increasing expenditure by PHP173 billion. As a perspective, in the first two months following ECQ, the Treasury spent twice that amount in COVID related expenses. The PHP173 billion could run out by July 15 if the Bayanihan Bill is extended.

There is Level II stimulus which is Level I spending that has already been budgeted but is now reallocated for say social relief. Level II stimulus is also limited. Thirty percent of the 2020 Budget of PHP4.1 trillion or PHP1,250 billion is automatically appropriated for debt service and guaranteed commitments. About PHP2,100 is for Education, DWSD, DND, PNP, DOH, DA  and others which in this time cannot be touched. That leaves about PHP683 billion which is roughly the combined budget of DPWH and DoTr. Assuming 80% of the latter is for current expenses, the wiggle room for other endeavors is PHP137 billion.

There is Level III stimulus from the BSP for increased bank lending. It does not necessarily generate new activity, it is just a bridge for businesses to ride out the storm. These loans have to be repaid and will represent a future drag on the economy when that happens, a prospective negative stimulus if you wish. Banks are reporting increases in their lending but I suspect this is mostly existing clients accumulating cash as a buffer, not investing it.

There is Level IV stimulus which is mainly bells and whistles like tax incentives and Net Loss Carry Overs (NOLCOs). These are only valuable if companies make a profit in the future. The proposed reduction in income tax rates is welcome to profitable businesses. However the savings may be used to increase dividends and deleverage, not expand.

Level I and II stimulus could add up to some PHP 300-400 billion which is two months of COVID spending. There is little left for BBB which is the main stay of the Recovery Plan. There seems to be limited catalysts for a V-Shaped recovery.

What are my takes on the Plan?

One, the stimulus in the Plan is between 2.0 – 7.7 % of GDP depending on what is included. It also seems to double count the BSP loans to the Treasury. Whatever, it is short of what our neighbors are spending. 

Two, the NEDA now accepts we could be in for a haul.

Three, the Plan underestimates the social relief needed for the poor and newly unemployed. The President now wants another PHP184 billion/month for 23 million families affected by ECQ and GCQ. This will require additional loans.

Four, there is a growing divide in the IATF between the health and military-minded who are in charge and the economic team who are there to clean up the mess.

Five, our economic managers are increasingly unsure of their economic footing. They are torn between the humanitarian, economic and political pressures of ECQ/GCQ  and their DNA for fiscal responsibility.

Six, Team Sonny realizes the current fiscal position of rising expenses and falling taxes is unsustainable but is uncertain how to communicate this without being unsupportive of the President or being shot as purveyors of doom. It feels obliged to show a brave face and talk up a recovery while knowing  they are not in control of the agenda.

Seven, in a healthy development, our economic managers are reaching out to the private sector for answers and to give them a bigger voice at the IATF table. Business wants to help but understands the economic team is not in charge. They will vote with their wallets.

Lastly, this nation is on the clock. Tensions are increasing. Sec. Dominguez may have no choice but to loosen the fiscal spigot and may in fact be ordered to do so. The President does not want the patient to die under his watch.



A World Record We Don’t Deserve

” Garbage in, garbage out” –

At the end of May we will hold the world record for days under extreme quarantine and, presumably, economic hardship. We will have beaten Hubei province (3,212 deaths), UK (33,186), Italy (30,911) and Spain (27,104). Our deaths today: 772.

How did we get there? IATF answer: We follow the science.

The lives of one hundred seven million Filipinos are hanging on “data” and a decision model that are increasingly under question.

The Inquirer recently headlined a report from the UP COVID response team confirming this point: “The availability of accurate and relevant data is a basic requirement in managing any situation that requires urgent and targeted response. Recent data drops by DOH revealed a number of alarming patient-level inconsistencies, if not gross error. For example, on 03 May 2020, DOH reported 7 deaths and 28 recoveries which was 22 deaths and 65 recoveries lesser than the provincial government’s official count. There are other troubling anomalies. For example, 18 cases no longer have data on residence in the April 25 update. One patient who reportedly died on April 24 is no longer dead the following day. These lapses may seem small relative to the total size of data but they have significant implications on the reliability of our scientific analysis on COVID19.”

FASSSTER is a model developed by the DOH, DOST, Ateneo and UP to predict health and economic outcomes under different assumptions. In one iteration, FASSSTER concluded an ECQ would produce more deaths, greater job losses and tighter social restrictions than under no quarantine. When asked to comment, a very very senior NEDA official said the underlying data is updated daily so the outcomes and policy responses will change accordingly. Honestly? You mean we could be right one day but wrong the next, we just need to be sure we choose the right day? 

The IATF, we are told, is “highly data dependent”. Yet how good is our data?

  1. Our data is based on subjective definitions – For example, how does one define a COVID death, is it death “by COVID” or “with COVID” where the virus is just one of many ailments that could have killed the person?
  2. The data is situational – Analysts are discovering COVID deaths to be understated the world over. People die from the virus who were unable to reach the hospital for lack of public transportation. Relatives will not report a death as COVID because of the strict protocols for burials -immediate cremation, no viewing, etc.; or the social stigma or the contact tracing hassle. There are reports of neighbors throwing stones at houses with a known COVID fatality.
  3. There is pressure to produce numbers of any kind – The DOH has been severely criticized for failing to test early. It is under tremendous pressure to show test results of any form.
  4. Tests results are not uniform – They are conducted using test kits of varying quality even if FDA approved; and under different standards. PCR tests are particularly sensitive to how administered. The recurrence of Sen. Sonny Angara’s infection may be due to a false positive or negative in one of the tests.
  5. The results may be driven by an agenda – A good statistician, like a good lawyer, can build any case you want. Politically adept Government officials often use statistics to bolster their arguments.
  6. The data is time sensitive – For example reported deaths come in faster than reported infections. The former is in real time, the latter can be delayed up to a few weeks just like voting data. So a one time picture of say the ratio of deaths to infections, the so called mortality rate, will initially be biased to the upside because the numerator – the number of deaths – is aggregated before the denominator – the number of infections. It is only after all the data is complete i.e. all tests have been conducted; can one get an accurate mortality rate. That will happen in a few years.

Predictive models are very sensitive to even minute changes in assumptions and data. Small mistakes can lead to often outlandish conclusions. We need data that is not subject to bias.

 For example, in the absence of common definitions, common standards of testing, significant sample size and a neutral agenda, we may want to look at total number of deaths from either COVID or others and compare these to the historical norms; as another basis for monitoring the progression of the virus. Again we might look at anecdotal events e.g. experience in closed models like cruise ships; to guide us for herd immunity. We need a holistic approach to the crisis not one restricted to unreliable evidence.

Building a reliable and robust COVID data base as quickly as possible should be a shared effort between the Government and the private sector. The latter has launched The Thinking Machine, an initiative to consolidate data in a common platform that can be accessed by all parties. The DOH reportedly is unwilling to share its data base in this effort. The private sector is not allowed to access FASSSTER. We need the best minds to collectively build the best algorithm. It should not be territorial.

We need to test smarter. The “scientists” like to test clinically because they are doctors and this is what doctors do. But clinical tests are hard to administer and slow. They are fine for serious medical cases but not for predictions which is what we need. We must test across the health spectrum because we know COVID carriers are largely asymptomatic. We need to identify the location, concentration and behavior of the virus and this comes from random surveillance testing, not clinical. 

We could use companies with large points of contact e.g. Mercury Drug; to administer some of the tests (Sorry, Mercury, for throwing you under the bus).

We need to contact trace diligently and quickly. The authorities have suggested hiring the unemployed to do this. That is a good economic argument but not necessarily a good logistical one. Contact tracing requires training and discipline. A better option option is  to use the army. Soldiers follow orders, can be mobilized and taught quickly.

We are at the cusp in our history where the smallest thing, related or unrelated to COVID e.g. a water crisis; could tip us over the top. There is that much tension in the system. Watching how our leaders make decisions, the acquiescence, the over attention to the minutia makes one wonder how in touch they are to the suffering on the ground. There is an obsession with the protocols and the matrices, should seniors be allowed outside if alone or working or for exercise and what time? Should social distancing be three or four feet?

 Should they be asking other questions like does our death count warrant the extreme measures? Is there something flawed in our science and our data? Are we executing efficiently and intelligently? How can we improve our management information system? Do we understand we are on the clock?

Is holding the world record one we deserve?


A Temporay Setback

” When your mouth gets ahead of your brain, you  walk back your mouth.” –

Our chief economist and acting NEDA Secretary Karl Chua just called the existential crisis of our Republic a “temporary setback”.


How would you characterize the 1929 Depression and the Spanish flu because these are what this “setback” is being compared to? How would you define an economy that went from 6% growth to negative GDP in 15 days between March 17 and March 31, 2020? How would you describe a crisis so dire the President is selling the Cultural Center?

It is disappointing when an intelligent man goes from respected ex-World Bank economist to second-hand car salesman? Is this now the official party line, that millions of jobs lost, hundreds of thousands of businesses destroyed, trillion peso losses and 107 million Filipinos confined to quarters; amount to no more than a bump in the road?

The Filipino who exits the crisis will not be the same as the one who entered it. The trauma and fear are forever embedded in his psyche. The scars are not a temporary setback.

The trillions in debt we have incurred will have to be repaid by our children. That is not a temporary setback.

Businesses who have shuttered their doors or gone bankrupt are not a temporary setback.

Life savings decimated are not a temporary setback.

Seven hundred deaths by COVID are not a temporary setback.

Fatalities from hunger, mental stress, and economic dislocation from quarantine; are not a temporary setback.

Chua has assured the nation we will have a V-shaped recovery. Yet all evidence shows our recovery will either be a W or a prolonged U-shape, not V-shaped. Consumers have been traumatized emotionally and financially by the lockdown and are unlikely to go on a shopping spree. They do not feel safe. Manufacturers are brimming  with inventory which they must unload before restarting production. Companies have run out of cash. The official loan windows for micro-businesses are unavailable. Supply chains will have to be slowly restored. The social distancing rules for restaurants, factories, public transport and everything else means businesses can only operate at a fraction of their capacity. Mall owners will have to subsidize their tenants. Some one hundred thousand seamen are unlikely to return soon to a decimated cruise ship industry. The tourism and airline industries are dead. Exports are moribund in a global economy that is in its deepest recession since the Great War. Our Treasury is parsing its cash with little left for the much vaunted BBB or much else. We are on our second trillion of budget deficit and double-digit trillion of debt. Taxes will have to be raised to fund these deficits. Our stimulus is one-fifth that of our neighbors. So how exactly are we bouncing back in a V-shaped recovery?

Is Mr. Chua relying on FASSSTER, the IATF platform used to guide policy responses? That, incidentally, is the same model that in one iteration predicted our ECQ will produce more COVID mortalities, more social restrictions and more economic damage than a No Quarantine scenario.

Governments live on credibility and trust. Once lost everything after is baloney.

NEDA is the body tasked by the Constitution to lead our economy. Mr. Chua is the acting head of that institution. The public looks to him for hope but also for empathy. The poor want to know that he understands their plight, that he cares. Yet what he is telling a dying patient who is being starved until a cure is known; is that his is a temporary malaise.

I understand that Mr. Chua wants to comfort us with assurances however they fly in the face of reality. Yet there is no way to spin the COVID story for other than what it is. You cannot convince hard-nosed businessmen whose companies have just been destroyed that there is gold at the end of the rainbow if they just hang in there. You cannot sell the notion to millions of Filipinos now staring at the walls of their meager existence that salvation is around the corner when it is not. It is insulting to their intelligence.

The President has repeatedly acknowledged that COVID is an existential threat so for a recently appointed subaltern to say it is simply a hiccup is silly. Such a dismissive  scenario not only embarrasses the messenger, it also undermines the President’s credibility when he warns that we must hunker down because we are in trouble.

Mr. Chua, a seemingly nice, honest, unassuming and smart man, is coming across as a cold, monochromatic, econometric machine with a penchant to sell. Perhaps from his ivory tower he believes our crisis is just a storm in a teacup. If so he might just want to keep that information to himself.


Flattening The Economic Curve

It could be more than just “a temporary setback”.

We have been worrying about flattening the COVID curve. We should start worrying  about flattening the economic curve because right now it is in a nose dive. We have been hypnotized by COVID and its body count not realizing the patient whose existence we are trying to save is dying from the medication.

Our first quarter GDP dropped by 0.2 percent and that was with just 15 days of ECQ. We are on our way to losing PHP 2.5 trillion. Wait till you see the second quarter.  

The economy is on free fall which if not reversed soon could result in what economists call a death spiral where a fallout in demand leads to disinvestment and layoffs which further destroys demand resulting in more disinvestment and layoffs; until the whole thing crashes to the ground.

Interestingly the prescription to flatten the economic curve is in many ways similar to that for the COVID curve. It involves early detection, containment and remediation. 

The first quarter numbers show we are further down the economic curve and dropping more quickly than we had expected. We are approaching 60 days which is the milestone the Government and the private sector had set for turning things around. The Bayanihan bill’s lifeline for the poor and unemployed covers two months. Many businesses have agreed to carry their workers for this period by which time they hoped restrictions would ease. This is not happening. Bayanihan will have to be extended. The private sector will have to decide whether to throw in the towel or risk good money after bad. Many are leaning towards the former particularly if the current quarantine is further prolonged with no relief in sight.

The Government’s fiscal position of unpredictable spending and predictable loss of revenue is unsustainable. The Treasury’s budgeted burn rate is PHP 342 billion a month without COVID related expenses. Some budgeted expenses can be diverted to social relief but after deducting debt service, salaries, project guarantees, etc. the wiggle room is probably no more than 5-10% of our total budget of PHP 4.1 trillion. On the other hand tax revenues are dropping by PHP 33 billion for every 1% drop in GDP based on early Treasury projections.

The Treasury recently borrowed USD 2.3 billion from the international markets. There are reported ODAs of PHP 310 billion. The BSP may be ready to finance another PHP 500 million on top pf the PHP 300 billion earlier approved. This totals some PHP 1 trillion which might carry us in to autumn possibly a little longer if we can stretch out payments.

And now for the bad news. 

There is some PHP 80 billion in social amelioration support that has still to be paid to five  million “officially poor”.

An extended quarantine will add some PHP 150  billion a month in relief assistance. 

Thirty two business groups are asking for PHP 280 billion in stimulus. This excludes help for floundering but vital industries like the airlines and tourism.

 The House is considering a spending bill of around PHP 300 billion for rehabilitation.

Hospitals are bleeding because of the shutdown in elective procedures. They may need a lifeboat or cut back on COVID capacity at a time when a second wave arrives.

Mayors have asked for more money “to prevent social unrest”.

Philhealth is hemorrhaging and may need recapitalizing.

The DOLE unemployment fund has run out of gas.

The Philguarantee loan window has still to be opened for micro-businesses.

The numbers may be off but you get the drift. There are a lot of begging bowls out there.

Our economic managers say there is more money from where it came. Pre-COVID we had borrowed only 41% of GDP, we have been as high as 70% in recent years, that is another few trillion in borrowing capacity. And then there is the Cultural Center.

But even that headroom could disappear.

Our economic team has not addressed the elephant in the room: Is our current stimulus enough to flatten our economic curve? We currently are spending 1.9% of GDP which is significantly lower than that of our neighbors Malaysia (9% of GDP), Singapore (11%), Thailand (10%). The U.S. stimulus is approaching 50% of GDP but that is another story. Indonesia is closest to us at 2.5% of GDP but that will almost certainly rise because they are late in addressing the crisis. If we get to comparable numbers we would add another PHP1.6 trillion to our fiscal deficit. We could be looking at the bottom of our bank account.

The next 6-9 months are arguably the most critical period in our Republic. In this time we could be out of money, have immense economic suffering and social stirrings. 

There have been a number of plans with a lot of letters to rehabilitate our economy – BBB, PPP, BOT, CITRA – but while all good, they will have to wait. The patient is dying. Our total focus should be on, one, keeping the patient alive; two, guaranteeing no Filipino is left behind; and three, ensuring we have the money for the life support. 

Like COVID flattening the economic curve is time sensitive. The earlier it is done, the easier to contain the conflagration. Even if we were to open our doors today, the recovery will not be immediate or linear. There could well be health hiccups along the way. Consumers may want to save rather than spend. Businesses will want to run down their inventory before restarting. Notwithstanding the NEDA Acting Secretary’s comforting words, the recovery will be a W or a long U rather than V-shaped. But we must proceed.

The Government does not have the resources to carry the economy on its own. It needs the private sector to share the burden but the latter must be given the physical and regulatory freedom to do what it does best, to risk, move, operate and invest. It must also have a seat at the table.

Business and the consumer need from Government the four Cs of confidence, credibility, consistency and clarity. Right now, I am afraid, we could use a little more of these.

A Race To The Bottom

COVID19 is serious. There are now over 10,000 cases, some 700 deaths and a Presidential apology to the Ayalas and Pangilinan. Such is the power of the virus.

May 15 is one week away and everybody is antsy. Do we graduate from ECQ to GCQ or stay mired in the status quo? Actually it does not matter. Metaphorically a GCQ simply means going from a maximum to a minimum security cell.

GCQ would be a bone thrown at the nation to show there is progress on COVID. The GCQ will  expand the list of companies that can operate and public transportation will be eased but these are not enough. After 60 days of carrying their workers, many businesses will now permanently lay off staff. A quarantine by whatever name – enhanced, modified, generalized or localized – is still a quarantine. Maybe a name change is in order like Back To The Future: Episode 1.

A quarantine means it is still not safe to move around. The Government will still be controlling social activity and scaring us into compliance. It does not trust that we can self-police. It does not instill confidence which is essential for the consumer to spend and for businesses to re-hire and invest. The ban on travel means tourism -which accounts for a big part of the economy – is dead.

We are now in a race to the bottom between COVID and our bank account. The Government is running out of cash and quickly.

The good news is we have a good economic team. DOF Sec. Dominguez has been around the bloc, is fiscally conservative and has the ear of the President. His man Karl Chua is now the acting NEDA Secretary so they are both on the same page, Sonny’s page. Chua, the former World bank senior economist for the Philippines, is a policy wonk. I know that because he uses performance-based, time-bound and transparency in the same sentence. He has a doctorate in economics but that should not be held against him. Jesting aside, Karl looks fine, a worthy Robin to Sonny’s Batman.

Our economic managers are pinning their hopes on Build, Build, Build to save the economy. Understand that BBB has been around for a couple of years with little to show for it. Regulations, bureaucracy and corruption have hampered its roll out; to which we now add social distancing, supply chain disruption, and restrictions on workers’ movement. We could be talking about BBB for a while. BBB is also location specific so the economic benefits will be localized. Team Sonny may want to consider quicker, financially bite-sized, plug and play projects like farm roads, telco and water infrastructure that will spread the stimulus nationwide; while waiting for BBB to happen. These could be the start of an agro-industrial program that will return people to the provinces.

The bad news is our economic managers are not in charge. The President has announced the “last word” is with DOH Secretary Duque which is either a vote of confidence or a death threat. Duterte acknowledged many “vehemently, vehemently (not a typo)” oppose the Health Secretary. Many senior Cabinet Secretaries bite their tongues in silence.

Some quarters have unfairly criticized Sec. Dominguez for being miserly with the stimulus. So far we have spent about 1.9% of GDP which is the lowest among our neighbors and many countries in the world. Sonny’s role is not easy. He is dealing with a boss who believes selling the Cultural Center is a viable fiscal response and who is ready to fire sale the family heirlooms to kill the virus. The CCP could at best fetch a dozen days of aid to the poor. Despite a recent 10% excise levy on oil imports, our tax take is dwindling. Sonny is careful not to blow his wad prematurely.

We recently borrowed from international markets USD 2.3 billion at attractive terms that was four times over-subscribed; but that only covers 10 days of budgeted expenses excluding COVID related costs. There is reportedly Official Development Assistance of another P310 billion or about a month’s burn rate. By the fall we could be down to the Cultural Center. We cannot immediately return to the international bond market without worrying creditors.

The DOH “experts” tell us we should know more on our ETA when further tests are done. This I believe was the same message in April. We are now reportedly testing at 10,000 per day and ramping which in two months could take us to 700,000 tests or 0.007% of the population. That is not statistically significant. The IATF proudly announced we have gone from three test centers in February to around twenty today, to about 70 in the near future. We are also told Vietnam went from three test centers in January to some 120 today which tells us about our capabilities. It also tells us that was a bad comparison to make.

Not willing to watch the grass grow, the private sector is going to test on its own and build a national COVID data base called The Thinking Machine. The DOH, reportedly,  shamelessly refuses to share its data in this effort. The DOH also does not allow the private sector to access FASSSTER, the platform used by the IATF to guide policy. Incidentally, this is the same DOH that preaches the over-arching importance of data to combat the virus. Dude, why so territorial? Is it a power and ego thing? Is it afraid to show its numbers have been scrubbed?

On May 15 the ECQ could well move to a GCQ. Optically it looks good but in reality does little to relieve an economy that is in trouble. Q1 GDP contracted by 0.02% after only 15 days of lockdown. Wait till you see the Q2 numbers.

The IATF is dominated by doctors and doctors are by profession not risk takers. They overprescribe medication and tests. They like to operate with certainty. Unfortunately COVID does not give us that option nor the time. Absent a broader mindset a quarantine, I am afraid,  looks here to stay, probably into the fall.

The President is looking for guidance on what to do. Somebody might tell him that as of May 4 the official COVID19 website shows only 40% of ICU beds, 43% of isolation beds, 37% of ward beds and 25% of ventilators; are in use. There are thousands of protective equipment. So if he is worried our healthcare system will be overwhelmed, he should not be. As for deaths there are officially 685.

Mr. President, it is just possible there is less to COVID than you are led to believe.