The (Wannabe) SONA Part II: The Plan

COVID has made us reflect on who we are as a nation. It has exposed the fissures in our governance, in our management information system, in our infrastructure and in our core beliefs.  

We need to rebuild our economy on a new paradigm not based on programs or policies but based on principles of merit, integrity, work, inclusiveness, empathy and fairness. It is to these basic tenets that we must return as a community. These values will layer the policies, strategies and tactics we shall adopt.

We will choose quality of growth over quantity of growth. We will emphasize process rather than outcomes knowing that good outcomes come from good process. An economic ethos founded on ethics and humanity is what will make our economic recovery sustainable and permanent.

In this New Economy resources will be allocated by market forces not by rules dictated from the top nor by political influence. The role of Government is to set the table and provide the ambiance; not to determine the menu, nor the price, nor the seating nor who gets to order or be served first. The customers get to do this in a competitive environment.

COVID has shown the old economic model of trickle down economics, urban centric growth, unbalanced development, political/industrial alliances, centralized directives and worn and unengaged fiscal, monetary and foreign exchange policies; have created congested cities, urban poverty, environmental harm and income inequalities that threaten our health, our security and our socio-economic and political stability.

To revive the economy we must be warriors. We are in a battle against a virus and against fear. We will fail if we are timid. We must attain launch speed or we will stall and crash to the ground.

We will undertake a two-phase recovery plan (the Plan). The first phase is an immediate and massive stimulus to boost aggregate demand through direct transfers, fiscal spending on quick response, Keynesian plug-and-play initiatives, and active depreciation of the currency to make us competitive in world markets and boost incomes of our displaced OFWs. We must get the economy out of the ICU with intense medication before we ask it to eat healthy and exercise.

We will support vital industries like aviation and tourism impacted by COVID not through a dole-out but through a program that will socialize the rewards of the rescue. The Government will demand commercial returns commensurate with the risks of the undertaking.

Phase II of the Plan, the fitness phase, will focus on:

1. A sustainable Balik Probinsya program that will allocate resources and opportunities to the countryside.
2. Building a data base and management information system (MIS) that will allow for smarter decision making, more efficient socio-economic relief, and accountable governance.
3. Fast tracking a nationwide internet rollout.
4. A bottom up approach to development working with NGOs, businesses and LGUs.
5. A federalized economic model that motivates local governments to compete for national budgets and private sector investments based on merit.
6. Targeted support for key industries like BPOs, recreational and medical tourism, exports, value-added overseas employment and knowledge based enterprises.
7. Education and environmental sustainability.
8. Build-Build-Build recognizing this is a lengthy and cumbersome exercise.

I will form an Inter-agency/business/NGO task force to launch the Balik Probinsya program. The task force will prepare a sustainable plan that will identify and support education, housing, health and economic initiatives to ensure the migration to the country side is permanent. The migration should decongest our cities, naturally social distance, and redistribute wealth to a geography that supports two-thirds of the population. The program will include a complete review of the Comprehensive Agrarian Reform protocols.

Data is now arguably the most important commodity in the world. It is the currency that created Silicon Valley and the Amazons, Googles and Facebooks of this world. We must build a robust MIS and data base with information and knowledge as the heart of the program. COVID has exposed how little we know of anything. As a result we are unable to defeat the virus, unable to provide vital relief to the poor without the corrupt hands of Government officials, unable to efficiently collect taxes, and unable to run our economy intelligently. Building a comprehensive information and knowledge infrastructure is now the top priority of this Government while being mindful of privacy and security. I am appointing the Dept. of Science and Technology to oversee this critical undertaking with direct line to my office and commensurate funding.

To complement our MIS I am accelerating the rollout of broadband in this country. I am establishing a National Tower Corp. to rationalize, consolidate and fast track the build of cellular towers in partnership, should they desire, with the telcos. Information highways are just as as critical as physical highways in the development of a nation. Internet is the great economic, educational  and social equalizer so it must be available to every Filipino. We must inhabit the world of technology.

We have adopted a trickle down economic model that has failed. Only the intermediaries, the corrupt officials and businessmen in between, have benefited from this arrangement. The poor have not seen the fruits of taxpayer money. We are now reversing the process. We will build this economy brick by brick from the bottom up through zero-based budgeting, micro-finance initiatives, bite-sized programs in water, farm to market roads, classrooms, and re-education of workers (with pay) that will immediately impact jobs and communities. We will invite anchor businesses and their supplier eco-systems to promote jobs at the ground level.

I ask local governments to be a major partner in these new efforts in Balik Probinsya, broadband roll-outs, and bottom up economic programs. I will provide the necessary fiscal support and endorse foreign and local investors to locate in communities whose LGUs can prove good governance, strong industrial policies and security. I have asked the DOF to develop a viable municipal bond market that will allow financially responsible LGUs to access private capital on their own. This could include Government guarantees to responsible LGUs until they can stand alone on their credit. Our collateral will be a hold-out on future Budget allocations.

We will fund the New Economy with untapped sources of revenue. We will raise property taxes to reflect the large rise in urban market values. We will monetize our intangible government assets like rights of way and communication frequencies. These will no longer be available for free. We cannot charge tolls on physical highways and not charge tolls on the digital highway. Unused frequencies will be auctioned while existing allocations will be levied a royalty based on their net present value. The new paradigm is pay to play.

Recovery from our crisis requires a quantum change in our thinking. Marginal improvements and parsed support are not enough in this transition to a new world. We must when needed take the road less travelled and build our own future because there is nobody but us to do it.

I ask Business, the NGO community and the Church to partner in our mission. Government alone cannot perform the task.

I ask you, members of the Legislative branch, to join our efforts.

Lastly, I reach out to every Filipino to come together in unity and common purpose. Let us be accountable to one another. In this crisis you have done most of what I asked of you and you have borne the pain. I know that. I will make it up to you.

We have more hardship ahead of us but I will be with you all the way. I will leave no stone unturned, leave no one behind, this is my vow. The journey will be arduous and many of us will fall by the wayside but we will overcome because that is who we are as a people. We will reach the promised land together.

Thank you and Mabuhay ang Pilipinas!

The (Wannabe) SONA: Part I

This is the State of the Nation address that is unlikely to be:

My Dearest Kababayans,

This is the hardest speech I have had to deliver in my life.

After the longest and strictest of lockdowns we have a virus that continues unabated and an economy that is in shambles. The economy was flattened but not COVID. This outcome is unacceptable and as your President it is on me. I take full command responsibility for the actions or inactions of myself and those I entrusted to resolve this crisis. 

COVID 19 is a pandemic that nobody could have predicted. When word first emerged from China that a virus had developed that was novel, fierce, highly transmittable, undetectable and incurable, I took the unprecedented and very early decision to impose a quarantine on our country. It was a gut instinct not borne out of experience for there was none. It was a scary, risky and controversial moment, one that I knew would have consequences good and bad and totally unknown. We were flying blind into a world which had never existed in human history, a scenario that only the most frightening of science fiction could imagine. Somebody had to make a judgement call. As your President I made the call. Only time will tell whether it was the right one. It is a decision I will carry to my grave.

My decision to close the country on March 15 was a difficult one. There was the health concern, whether an extreme quarantine was necessary or even sufficient to shield us from the virus. There was the social issue of whether depriving Filipinos of their rights to free movement would be accepted on the basis of simply my say so, my uneducated assurance that that was what was needed to keep us alive. There was the danger of political unrest, the accusations that this was just another attempt to restrict expression. There was the likelihood of serious damage to jobs and businesses particularly among the small and medium enterprises that make up the majority of livelihoods. Government finances would be wrecked as tax collections dwindled and expenses for social relief mounted. Even our wildest estimates did not prepare us for the shock that was to ensue.

Today thousands of lives, probably more than being reported because of social shame and inaccurate data, have succumbed to COVID; and that figure is rising even as I speak. Our health facilities are overflowing dangerously. The deaths would be worse if not for the heroic work and dedication of our frontliners. I salute you, men and women, for your courage and your care. This nation owes you a debt which we will never be able to repay in the manner and scale you deserve.

As of June 30 our economy contracted by the largest drop in the history of our Republic. Millions of jobs have been lost and will continue to be lost. The unemployed are increasingly unemployable. Hundreds of thousands of OFWs have returned from foreign shores to an unwelcome environment. Thousands of businesses have shuttered their doors. Millions of savings carefully nursed over a lifetime of hard work have disappeared. 

Over five million students will not attend school this year. Many will move from private to public education. This will be a permanent scar on the future of this nation.

Could we have done better? Yes we could. We made mistakes and we must acknowledge them because only then can we move forward with better footing. 

There is positive news – or rather good news for positive these days is a bad adjective – from the early lockdown. The WHO reported our early measures probably saved hundreds of thousand of lives. Despite the growing cases our mortality rates are among the lowest in the world. Our financial credit rating remains strong if not improved even as our debt and fiscal deficit grows with the stimulus we have unleashed to minimize the economic dislocation.

But I prefer to talk about where we, I, failed.

There is much blame to go around. As a people perhaps Filipinos did not do more to stay home, to wash their hands, to social distance, to mask themselves. But again, how could you living as many do in cramped quarters? There was the imperative to feed yourselves and your families for which you needed to travel. It is easy to point at the irresponsibility, the “pasaways”, for the continuing epidemic but Government must be accountable as well. As your President I take full responsibility for the losses of lives and livelihoods. My Administration could have done better.

I failed in not understanding what was needed to identify, test, trace, treat and foresee the path of the virus. 

I failed in imposing a militaristic lockdown without analyzing the impact on vital economic activities.

I failed in depriving workers the public transportation needed to earn a living.

I failed in not immediately providing enough protection to our frontliners.

I failed in not ensuring the efficient and comprehensive distribution of relief funds. 

I failed in not identifying and prosecuting corrupt LGU officials who pocketed much of the money meant for the poor and unemployed; and DOH officials who sourced over-priced and deficient medical supplies.

I failed in the confusing and unintelligent messaging that my spokespeople put out to manage expectations. My people can sometimes be over zealous in their desire to please me.

I failed in not appreciating the scale of the economic crisis.

I failed in not being involved in the critical economic decisions, be it in the budgets needed, the allocations thereof and in the fiscal, monetary and exchange rate policies.

I failed in trusting persons who I was warned were unequipped and dishonest.

I failed in not listening to well intended advice.

I failed in not knowing better, not doing better. But all this will change, this I promise you.

I will start with the corrupt local Government officials who pocketed social relief funds. This has become personal to me. I will hunt and shoot down these hyenas who have feasted on the carcasses of the weak and the poor. I know or will know who you are and where you and your families live. You have challenged me and this nation and I will take you down, this I promise you.

Effective immediately, I am revamping the management of the IATF. Those in charge have worked hard and did the best of their abilities but now is the time for renewed energy, fresh ideas, and smart execution. There will be a new team for the second half.

I am appointing an economic czar to oversee the recovery of the nation. I have asked ex-President GMA to be NEDA Sec. General and my personal economic adviser. NEDA is the body mandated by the Constitution to run the economy so it will just be reverting to its true place. Mrs. Arroyo has the education, intelligence, experience from the 2008 crisis, inclination, time, work ethic, and political capital for the task. She will co-ordinate very closely with DOF Sec. Sonny Dominguez who has been tireless in keeping our finances strong but who needs all the help he can get.

I will ask my economic team to be bold, to work arduously and, most important, to work smart with technology and best people it can find. We must take risks and move fast lest we hit stall speed and crash to the ground. We cannot and must not be frozen and held hostage from helping the poor by the sins of a few corrupt government officials. This is a humanitarian as it is an economic crisis. We have worked hard to build a strong economic house, let us use this strength in this time of need.

COVID has presented us the unique opportunity to wipe the slate clean and define an economic vision for generations to come.

(To be continued: In Part II I will lay out the Plan. It will be CREATE, ARISE, AYUDA, FIST, GUIDE, TUPAD, etc; on steroids in what I call simply The Return Of The Jedi.)

The Perfect Storm

We are facing, I am afraid, the perfect storm.

A confluence of factors puts us at the nexus of what is the crisis of our lifetime. We have a President seemingly absent from the economy, a floundering health agency with a militarized bent, a raging virus, rising unemployment, a divided economic plan, a cautious Treasury, a second-hand monetary and non-existent exchange rate policy, a failed education system, a cowered media, growing tensions between the police and the army; and a financially, socially and politically frightened populace. (I omitted the Chinese invasion of our Spratleys, the insurgency in Mindanao and climate change so as not to add to our despondency.)

Despite pleas for his attention, the President continues to seemingly be uninterested in the economy. It is just not his thing. He is fascinated by narratives and cold economic numbers do not present a story he can engage with. As a former prosecutor and mayor, his priority then and now is peace and order. In his absence he should appoint a trusted economic adviser with the vision, focus, energy and, most important, power to get us out of our hole.

As head of the economic cluster, Sonny Dominguez is the closest thing to an economic czar. He is competent, well respected and could do the job but he handles finance, a full time task, and CFOs are not supposed to run the business. The roles dictate the mindset. CEOs, and Sonny has been a CEO, are bold and expansive, CFOs are expected to be prudent and keep the enterprise grounded. In a crisis we need more of the former.

The IATF has a record unblemished by success. The two joint chairmen are so far out of the loop it is tragic. Be it in communication, timing, policy and enforcement the duo apparently see their role as managing the spin. Gov. Chiz Escudero, always one to call a spade a spade, has rightfully called them out to do their work, not to fool us or themselves.

After the longest and strictest of lockdowns, the virus numbers continue to rise with hospital capacities now threatened. DOH Sec. Duque recently announced with pride we “flattened “ (subsequently corrected to “bent”) the curve since April while telling us then things were “too early to tell”. He also reported in May we were on the second wave of the pandemic. Whatever.

 IATF enforcers are seemingly out of ideas. Despite their militarized efforts cases continue to rise. The latest thought is to haul persons under investigation (PUIs) from their homes on the strength of as little as a neighbor’s suspicion however ignorant or disgruntled that neighbor may be. From returning OFWs we know how jumpy local communities are so raids on private homes could be a common occurrence. People see parallels with Orwell’s 1984, Mao’s Cultural Revolution and Hitler’s Holocaust, everybody ratting on each other. Scary stuff coupled as it is with the Anti-Terrorism bill, the Cyber law and the seeming repression of the press. 

I understand the thinking behind the IATF Task Force but violation of the sanctity of an abode should not be it. Is the next step a bounty on infected persons? A better way, suggested by Romy Bernardo of Global Source Partners, is to induce PUIs with a peso stipend to volunteer themselves for quarantine.

The economy is in a free fall but do not take my word for it. Listen to the World Bank, the analysts and the Q2 numbers when they are released.

Our economic experts are divided on what stimulus is needed to reverse the fall. The NEDA and the Treasury believe less than one percent of GDP should do the trick. Congress says ten times that is the better number. The Palace has no official comment on the matter.

DOF Sec. Dominguez has reasons to be conservative. He believes the only beneficiaries of a massive injection would be the local government officials distributing (did I say pocketing?) the funds. Sonny also does not really sit at the IATF head table so he is uncertain of the size of the mess he is supposed to clean up.

NEDA suggests we need not do more than what our neighbors are doing, presumably to protect our credit rating.

The BSP is living in an alternative economic world. Unlike the Fed and the ECB, the Governor apparently believes he has no obligation in a crisis to promote employment, boost aggregate demand, OFW remittances, exports and foreign investments by actively managing the peso down even as China and Singapore successfully do so as a primary policy tool. The BSP has loosened reserve requirements, lowered interest rates and expanded the eligibility of reserve assets; but the impact of this vintage recipe seems muted. The fourfold oversubscription on recent Treasury auctions suggests banks are recycling the liquidity back into government securities rather than into higher yielding but riskier loans to SMEs. Meanwhile foreign investors have spoken: The PEZA disclosed that locators are down 41% and 16% in 2018 and 2019 respectively. Foreign chambers report that the Philippines is not among the favored destination for suppliers moving out of China (Thailand, Vietnam and Indonesia are).

On education we are last or next to last among 79 countries in science, math and comprehension. The DepEd reports so far this year 15% of students in public schools and 85% in private have dropped out. The numbers for higher education could be equally bad.

The media has been bent if not flattened. Spokesperson Roque, a former human rights lawyer, said the closure of ABS-CBN is not a lid on news just on entertainment. Anecdotally, he is the same person who was caught frolicking with endangered dolphins in some provincial resort. He has since apologized, admitting it was just, well, entertainment.

The  shooting of an unarmed retired sergeant (the victim was buried with full military honors) and the death of four army intelligence soldiers by police members in Jolo has raised tensions between two armed services important to the Administration. The President felt it critical enough to fly south to cool hot heads (He is, by the way, very good at that). Any more incidents could devolve into a conflagration.

The sum of it all is a population that is frightened. In a survey, 42% of Filipinos say they are scared for their future. They are worried about the virus. They are afraid of the 8 million jobs the DOLE predicts will be lost. They are concerned for their children, hardly educated, now facing a future even harsher than theirs. With the war on drugs fresh on their minds the poor are frightened of the knock on the door in the dead of night be it from any form of authority. Could COVID replace drugs as the next killing field?

The country is tense from fear of infection, economic hardship, confused messaging and suppressed behavior and expression. Something at some point needs to give.

The Culling Of The Middle Class

They make up the vast majority of registered enterprises and employ most of the workforce. They are the foundation of the economy, hard working, entrepreneurial, law-abiding men and women who have toiled for years building from savings enterprises with annual sales in the eight to mid-nine figures and employing between a dozen to a few hundred workers.

They represent the values of work, persistence, risk taking and honesty, the ethos we need in our society. Many own their businesses but others are professionals – doctors, accountants, architects, creative artists, middle executives. They are the future of this country, the socio-economic class that nations aspire to become. They are socially and politically conservative. They are never at the forefront of change but historically are always at the tipping point of quantum transformation be it the French Revolution, the 1919 Bolshevik upheaval, the Arab Spring or the Philippines’ People Power. Political change does not start with them but rarely happens without them.

They do not have the numbers to be a political force even as they constitute a vital sector of the economy. They therefore do not have a voice that resonates with politicians. The millions of poor are heard because they represent votes while the big companies garner the news. Cebu Pacific laying off 800 workers hits the headlines but hundreds of SMEs furloughing thousands of employees never make it to the national consciousness.

I am referring to the middle class of this country, the “bourgeoisie” as termed by Marx. They are the SMEs of this economy, the sector that policy makers give lip service to but not more. They are, economically, the silent majority. They are getting financially crushed.

Here is how one such businessperson describes their plight: “We’re on our own. It’s like the Government just threw us in the middle of the ocean without flotation devices. We’ve had to pay for our staff to get tested, provide housing and shuttle service. With majority of businesses shut down for 4 months meant no sales and now all these additional expenses and no financial assistance. It’s Darwinian at best.”

“Banks in general are fair weather friends. Government banks seem supportive but most SMEs don’t have accounts with them so they still need to go through cumbersome KYC (Know Your Customer) procedures. Plus they will not loan if you are showing a previous year loss. Private commercial banks”pretend” to be supportive but internally have policies not to lend to certain distressed industries (like transportation, tourism, real estate, restaurants, retail, logistics, food catering). “

The BSP has announced measures to encourage bank lending to SMEs. Loans to this sector are now eligible as bank reserve requirements but this does not help companies in distress. 

The Government has relaunched the Philippine Guaranty Program. Phillguarantee will assume fifty percent of the credit risk of financial institutions. I asked a top ten bank whether it was availing of the facility. Its reply: “We are not active. Main reason is customers do not want to pay the guarantee fees. Their credits are acceptable naman so we did not insist.” A top 5 bank: “ The real test is when we call on the guaranty claims. We have yet to sign a Memorandum of Agreement with Philguarantee”.

Participating banks are concerned about the counterparty risk i.e. will Philguarantee honor its commitments when credits start to sour in mass and the institution goes under as it almost did in the past? Second, banks are unsure of the quality of the Philguaranty back stop. Is it a guarantee or a surety? The former means the bank will have to exhaust all legal remedies before Philguaranty coughs up. The latter means the banks can claim on the surety once the loan becomes non-performing which is roughly after 3 months default. Philguaranty claims some PHP38 billion in credits have been approved but whether these are actual drawdowns is unclear.

Philguarantee looks better in paper than it does in practice. Banks are flush with cash so they will continue to support viable businesses without need for the program. On the other hand they will not lend to a COVID impacted borrower even with a 50% guarantee. The only way for Philguarantee to really work is for Government to assume 80-90% of the credit exposure as is being done elsewhere. This is a riskier proposition but the price Government will have to pay for the program to succeed.

Where does this leave the SMEs? The runway for most of them is getting shorter as time goes by and the health crisis is unsolved. The first milestone was May 15 when most of the country went to a modified ECQ. Businesses reopened tentatively. After 60 days the verdict is mixed. Some have are doing better than expected as pent up demand from 3 months of ECQ was served. However the upsurge is abating. The lack of public transport for staff and customers, the inconsistent application of health protocols and fear from the virus remain overriding concerns.

The next milestone is Sept. 1 by which time many of the rent accommodations especially in the malls end and social relief programs expire. Businesses will decide then whether to catch the Christmas season. If there is a resurgence in COVID many will not see the New Year. Banks predict credit losses will continue to mount till 2021. 

The rich will survive COVID financially and emotionally. The poor will continue to suffer. That, unfortunately, will not change. Some will return to the province.

 The middle class face a more existential crisis. They are coming to terms with a reality to which they are unaccustomed. Families are tightening their belts. This is manifested in school enrollments in second and third tier private institutions which are predicted to drop by 20-40%. The first tier schools and colleges will be fine as their enrollees can afford and they can dip into their waiting list to replace the drop offs.

The middle class have possibilities and hope. They have a comfortable if not lavish lifestyle, the occasional vacations, home ownership, cars, reasonable healthcare and private education. Some of these are funded by credit card debt, bank loans, mortgages, and auto financing. But as professional practices diminish, small businesses fold and with aging middle managers vulnerable to corporate redundancies; many will see the end of life as they know it. They will have to dip into savings earmarked for retirement, a nest egg for their kids and a rainy day. It will be too late for most to reinvent their businesses or to retool their skills. It will be emotionally traumatic, desperate for some as their dreams and aspirations for them and their dependents disappear.

We are witnessing a culling of the middle class in this country and it will come in silence because unlike the poor with their vote and the rich with their wealth, the middle class do not have a voice for their plight.

We Cannot Be Frozen Into Inaction

After the longest and strictest of lockdowns, we managed the seemingly unmanageable, to flatten the economy without flattening the COVID curve.

The Q2 numbers have still to come in but they are not going to be pretty. In the meantime virus cases continue to mount with Cebu reverting to ECQ and NCR COVID hospital utilization at near capacity. We now have the second highest number of cases in the region.

Even the Palace has apparently given up. After months of dismissing the economic conversation, Spokesperson Roque admitted tthe economy has to reopen if the nation is to survive. Unfortunately the problem now goes beyond simply unlocking the doors. So much damage has and continues to be done to the economy that unless there is emergency surgery to promote aggregate demand and strengthen supply, the patient may not make it out of the ICU.

Efforts to turn around the health and economic crisis have come to a seeming standstill. Under the Co-Chairmanship of DOH Sec. Duque and Cabinet Secretary Karlo Nograles, the IATF is at a loss for the rising numbers. Enough has been said about the failures of the IATF leadership from all quarters that I will not add to their or our misery. The President, to his credit, has accepted command responsibility for their deficiencies. He says they work really hard which might be good enough for beasts of burden but arguably not for those tasked with saving the health of this nation. It looks like we are riding this thing all the way to the ground.

On the economic front, Sec. Dominguez is being second guessed for the modesty of his stimulus – less than 1% of GDP. The economic whizzes in Congress led by Reps. Salceda, Quimbo and Garin have proposed an ARISE package that is ten times the Treasury’s proposal but Sonny has deflected it for being unconstitutional. In truth Sec. Dominguez believes ARISE is literally fraught with potential holes.

At the outset of COVID Sonny vowed to do “all it takes” to rescue the country but despite our financial capacity, he is now less enthusiastic to go all in. He suspects with reason that much of the over P350 billion that so far has been dispensed for social relief never reached the poor because of massive leakages at the local government level. This is confirmed on the ground  by intended recipients many of whom acknowledge they received food packages (of varying quality ) but little of the P5,000 – P8,000 allotted per family. The word on the street is there was unusual buying of dollars through the forex corporations when social amelioration funds (SAFs) were being released in April and May; even at premiums of P0.30/USD by persons rushing to remit out large sums of monies. This explains the weakening of the peso during this stretch. The BSP should be able to trace the sources of dollar buying. Some 200 LGU officials have been accused of stealing SAFs but nobody has been prosecuted nor is anybody talking. The system is just rotten to the core.

So, at this critical juncture when we should be on the path to recovery, we are halted at the health level by an IATF that is out of its depth and at the Treasury by Team Sonny who is concerned about misappropriations. The latter’s 2021 Budget presented to Congress for approval is only some 5% higher than last year’s in nominal terms and 2-3% in real terms. That does not seem enough given the predictions of 3-7% negative growth for this year.

I expect there to be a temporary surge in economic activity in early Q3 as manufacturing and support services – self-employed professionals, repairs shops, etc – work through their backlog but once done we should see a reversal to the mean as owners realize their businesses are not sustainable under the health protocols particularly in public transportation where DoTr Art Tugade’s “limited, gradual and calculated” plan remains just that.

Similarly, we could see a short term uptick in aggregate demand with consumers celebrating freedom from three months of quarantine. However this should taper off especially if the health and economic issues remain unaddressed, safety nets expire and anxiety returns. Bong Consing, President of BPI and the BAP, sees credit losses rising all the way to 2021.

 Tourism is dead and with it the hospitality, entertainment and aviation industries and some 6 million jobs. Cebu Pacific will go from a P10 billion profit last year to possibly a P10 billion loss this year, a P20 billion swing. PAL will be hard pressed to survive the second half of 2020 without some radical support from its shareholders and/or the Government.

Sec. Dominguez has put financial bailouts for aviation and others at the back of his priorities. He believes they are owned by big boys with the wherewithal to solve their own problems.

I understand why people should be against saving wealthy businessmen when so many are in need. However we cannot hold hostage the unemployed for the problems of a few. Millions of Filipinos depend on tourism and tourism is nothing without air transport. The latter, like it or not, is a public utility. Almost all countries have extended massive support to airlines recognizing that COVID is an exogenous shock that needs an exogenous solution. 

However Government should not socialize risks without socializing rewards. That is to say, if Government is to extend support it must reap an economic return that is commensurate with the risks it is assuming; and that number is not the 4-6% p.a. in interest that Big Business says it is prepared to pay for Government loans. In the 2008 financial crisis, the US Government bailed out Chrysler, AIG and the big banks in exchange for double digit returns; and got it. 

Similarly any major Philippine business that wants a rescue must be pay for it on commercial terms. In addition, Government should insist all stakeholders – the banks, the unions, suppliers, shareholders – take a haircut and share in the financial burden.

A Government lifeboat to strategic industries is not an expenditure. It is an investment that should yield private equity-like returns. It can be structured through Special Purpose Vehicles to avoid being included in our budget deficits and jeopardizing our credit rating. It will initially be part of our National Debt but once repaid will restore our country’s balance sheet.

Which leaves us with the intractable problem of how to solve the corruption in the distribution of social relief. We need to minimize the money that goes through LGUs. One way is to channel funds to companies conditional upon their retaining their employees. A second is to use accredited financial institutions, remittance centers and GFIs as the distribution channels for a fee. A third is to utilize established NGOs like the Red Cross, the Church and Gawad Kalinga to dispense if not oversee fund disbursements. Lastly use auditable institutions like DOLE rather than unaccountable Governors, mayors and Barangay captains; to distribute funds. In the meantime time COA or DSWD should conduct random checks to ensure that recipients get their intended relief. 

What Government cannot do is refuse to support the poor and unemployed simply because too much of it will be devoured by the system. There will be leakages but if they can be kept to below say 2%, just like supermarkets Government must accept the pilferage as a cost of doing business.

COVID is a health and economic crisis that has morphed into a humanitarian epidemic. In extending relief be it to vital industries or to the poor, Government should seek a return, a dividend, but that return need not always be in financial terms. Saving lives and livelihoods is in itself a dividend albeit a social dividend, one that has to go into the risk-benefit equation.

At The Halfway Mark

We are at the half way mark. It is a good time to reflect on what has happened or not happened in the last six months. 

It has been an extraordinary period. Looking at pictures of January this year of milling crowds, sports events and celebrations it is hard to believe that was only five months ago. We now know these times may never return, vestiges of the past, faded memories of what was once.

What have we learnt in this period of crisis?

One, 42% of Filipinos are now afraid of their future. The unemployed are becoming unemployable, illiquid businesses are increasingly insolvent businesses. The lay offs that started at the SME level have now rolled to big corporations.

Two, time is not on our side. The longer the pandemic exists, the longer social relief and economic medication are delayed, the longer it will take – if ever – to reverse the decline. Every hour people go hungry yet our decision makers seem unmindful of the clock. There is no sense of urgency.

Three, the crisis has accelerated trends and highlighted problems that were present but had been masked in the preoccupation with our daily lives: The unsustainable urban congestion, the growing inequality in our country, the fragmentation in our governance, the inefficacies of our executive institutions, the failure of education, the frailty of our democracy, the lack of a unified and unifying vision; and how each of these reinforce the underlying weakness of the rest.

COVID has shown the health consequences of population densities.

Covid has exposed how marginal are the lives of 99% of Filipinos .

COVID has displayed the divide in our Government in the debate over health versus economic livelihoods and the amount of stimulus needed to bridge the gap. This is not a Government as one.

COVID has revealed the inadequacies of the executive branch in quickly and efficiently delivering health, social and economic services in a crisis.

COVID has unmasked the failure of our educational infrastructure. The DepEd predicts some 20% or about 5 million public schools students will not attend basic education this year either because of ignorance or inability to do so. In private schools only 700,000 out of 4 million are expected to enroll for financial reasons.

COVID has presented the opportunity for political power to be consolidated and expressions to be silenced.

COVID has highlighted the lack of a political, social and economic vision, a Northstar to guide us when lost and rudderless.

These deficiencies are evident in the two areas that are of most immediate concern in the short term, the health and economic sectors; and long term in education.

Much has been reported about the failure of our health authorities in defining the extent of COVID and in bringing it to heel. The solution of choice is to enforce economically unsustainable social behavior until a vaccine is available, to scare rather than to care in the words of a Senator. A vaccine is not only a long time away, it is also going to be prohibitively expensive. Gilead, a pharma company that is at the forefront of a cure, recently announced its Remdesivir vaccine will cost $2,340 per remedy. For 100 million Filipinos that is almost PHP 12 trillion or 60% of our GDP. We will be competing with 7.8 billion people worldwide for access.

The economic picture is more nuanced. There are presently two and a half schools of thought on how to revive the economy. One, espoused by our economic managers, is to parse out less than 1% of GDP in stimulus almost as a parent would an allowance; while offering BBB and tax incentives as a promise and a motivation. They have submitted a PHP4.3 trillion 2021 Budget for approval by Congress. This represents a 5% increase in spending over the 2020 Budget. Assuming a 2.0% inflation rate, the new Budget is an increase in real terms of only about 3%, somewhat modest by regional standards. Team Sonny probably believes anything more would jeopardize our credit rating. It is afraid any massive spending would be devoured by corruption and ineffective distribution. It wants to preserve its fiscal ammunition given the uncertainty of this and a second wave and possibly another pandemic, the H1N1 swine flu that is now in the horizon. Our economic team has been told to assume a secondary role to the health experts so it is not in control of the policy agenda. Sec. Dominguez recently argued for the NCR and Calabarzon – these account for 70% of our economic output – to graduate from GCQ to a modified GCQ on July 1; but was rebuffed by the Palace at the instance presumably of the IATF.

The second school of thought championed by a band of congresspeople led by Reps. Salceda, Quimbo and Garin and counseled by ex-President GMA; is to pull out all the stops with a PHP1.3 trillion ARISE package. Team Sonny believes ARISE as a supplemental initiative is not constitutionally fundable but that argument should disappear if ARISE is embedded in the 2021 Budget. 

The half school of thought – expounded by our monetary authorities – is the theory of benign neglect. It consists of having an opinion without doing much about it. The BSP Governor has called out to “save lives, save jobs” yet he refuses to proactively help by, for example, weakening the peso to promote aggregate demand, exports, foreign investments and OFW and BPO remittances. Gov. Diokno probably believes in the now debunked notion that currency depreciation on its own stokes inflation even if the latter is in our crisis a non-event. Unlike the U.S. Fed or the ECB, he does not feel the BSP has a mandate to promote employment.

Malacanang has not weighed in on the economic debate because of uninterest or disinterest in the matter. The President is uncomfortable in the space. Cold economic numbers, however dire, do not capture his imagination. He only wants to know if there is enough money in the bank. He does not have a National Economic Adviser as he does a National Security Adviser, a non-executive person to present him with an independent opinion on the menu of options. Larry Kudlow in the U.S. plays this role. The result is a vacuum in leadership even as the economy, not health, is arguably the existential crisis of this nation. (The one vision that has been presented is the admittedly broad brush Balik Probinsya of Sen. Bong Go but he does not have the economic tools nor the power nor the administrative skills to make it happen.) Ironically, ex-President GMA could well end up being that presidential adviser. Although some may question her independence, she has the inclination, the time, the political savvy and capital, the legacy, the education, the experience of the 2008 crisis and the ear of the President to be our economic czar.

Ultimately there is only one voice that matters and that is the President’s. However he is absent from the conversation even as we need his political will to stave the most serious economic crisis of this Republic. If he could apply the same passion, energy and vision to the economy that he has to the war on drugs, the suppression of terrorism, the lockdowns or to the pivot to China, he could save millions of Filipinos.

But for this the President must show up.