When will it end?
That is the existential question as we reach six months into COVID. The IATF assures us we are making progress but people have stopped listening. The President said the vaccine is forth coming and we can expect a virus-free Christmas.
There are three phases to the end of the pandemic. Phase I is the approval by health authorities of an effective, safe, universal and hopefully affordable vaccine.
Phase II is the production and distribution of the vaccine but only to the highest risk population like the elderly and health workers. This will allow for an easing of restrictions and a gradual return of consumer confidence and the economy.
Phase III is the end of COVID defined by Mckinsey, the international consulting company, as “the epidemiological end point when herd immunity is achieved as proportions of society immune to COVID19 are sufficient to prevent widespread ongoing transmission”. Herd immunity is when some 60-80% of the population – in our case 60-80 million people – are no longer infectable as a result of natural immunization or a vaccine. Like with measles, revaccinations may still be needed but no longer require public health interventions.
Assuming a Phase I vaccine is available by end of this year, Mckinsey predicts Phase II should happen around Q1 2021 for most developed countries and Phase III around Q3 2021. The timing will vary by geography depending on the availability and affordability of the vaccine and the capability to inoculate the population. In short even in the best scenario the Philippines has at least another six months before things start to move and one year before we return to “normal”. The virus-free Christmas our President has promised could happen but a year later. I wonder whether our economy will be around by then.
Businesses are running out of cash quickly. Many are just waiting for the Christmas surge, if there is one, before finally shuttering their doors. Bank loan portfolios are deteriorating with NPLs peaking according to BPI head Bong Consing, by first quarter next year. Social relief under Bayanihan 2 will be exhausted. The 2021 Budget which could have been a stimulus is only 7-8% higher than last year in real terms, 25% of it in long gestating infra spending and few sources of immediate aggregate demand.
The peso is appreciating which is a sign of economic weakness not of strength. There are 300,000 returning OFWs with no jobs to swell an unemployment of 7.7 million workers, higher if you consider the barely employed. The budget for agriculture which could be a source of an early rebound has been cut even as the military and police budgets have been increased. Tourism which accounts for 10-15% of the economy is dead. Local tourism is being promoted yet a day trip to Tagaytay now requires a special pass and do not even think about travel requiring an airplane. POGOS are leaving which is good but bad for the sinking office market. Workers can still not get to work because of public transportation. Malls are empty because consumers fear for their health. Philhealth is going bankrupt because of corruption. Hospitals are financially bleeding because of loss of elective procedures and unpaid collectibles from Philhealth. Over three million will not attend school and the rest might as well not do so. Tax collections are down from reduced economic activity. In the meantime the IATF continues to find ways to regulate movement of people, goods and services. Did I miss anything?
The one saving grace is our BPO sector but it is now largely working from home which bodes ill for office rentals and restaurants.
So what happens from here?
Only Government has the resources to save the economy. We need to stimulate aggregate demand through outright cash transfers but the DOF is reluctant to do so because of the leakages. The Treasury said it will use the SSS to identify the needy but that does not really help. It does not identify the poor and those working for SMEs who never registered workers for SSS benefits and who are now in the streets. The Government should be working with the telcos and mobile technology, the banking and remittance system, the Church, responsible NGOs and firms who have laid off workers; as conduits for aid.
Another thing. Despite the economic hardships, Bayanihan 2 was not classified as urgent which meant it stayed in the legislature two months longer than it needed to. The Anti-Terror bill was certified as priority and signed into law July 3. Bayanihan 2 was only legislated in late August and then languished in Malacanang before being signed Sept. 11. Why the delay? Does anybody care?
A source of potential stimulus is agriculture which accounts for two thirds of the economy. There have been calls to condone Agrarian Reform loans to help some 3 million subsistence farmers and to allow consolidation of farms for more efficient production; but this is being opposed by decision makers. Agra loans total around around P50 billion of which only some 25-50% are paying with the balance essentially uncollectible. By contrast corporations are being handed a tax cut which will cost the Treasury P 250 billion over 2 1/2 years. Where is the parity? Condoning farmers’ loans would not only be humanitarian, it could jump start rural areas and lead to private investment in a strategically important sector.
The Government could use the time afforded by the pandemic to seriously transform our economy. The Government’s goal is to become an “upper middle income nation” defined by the World Bank as countries like Thailand, Indonesia and China with GNP per capita of PPP dollars 12,500 – 20,000. We are still not there (PPP $ 10,700) but it does not matter. It is just a statistic that does not reflect the reality on the ground. When Bill Gates walks into a room everybody, on average, becomes a billionaire. So with us: We pride ourselves at having grown by 6% per annum but that just means the 10% who own over 70% of the economy got richer while the real wage of workers declined. The income inequality in this country has widened despite our growth. It is a disgrace.
The President is uninterested in economics except when it affects peace and order. In his recent address to the United Nations he called for statesman-like measures to combat climate change, COVID 19, geo-political tension, terrorism, migration, drugs, and to “uphold justice, international law and human rights” (I kid you not)). He did not reference economics or the need to narrow income differentials. So in the worst crisis of our history, we have a vacuum in economic leadership.
The economy has historically been led by the secretaries of finance which is the equivalent of asking your treasurer to run your company. There is a reason that does not happen. A Treasurer’s job is to make sure there is money in the bank. A CEO’s job is to define and execute a vision. That is what we need.
The NEDA is the constitutional body tasked to run the economy. It has the legal mandate and scope to think strategically. NEDA chiefs are selected from the academe for their doctorates and not from any experience in actually running a business.
An economic czar emerges usually by the force of his personality. Bobby Ongpin was the de facto economic head under Marcos while Secretary of Trade. Sonny Dominguez could be that person but he needs to relinquish his finance role. Without the shadow of a credit rating, Sonny could think deeper, wider and wiser.
Government is seemingly unmindful of the humanitarian damage in this country. It is content the official COVID death toll has been kept to 3,000 while ignoring the multiples thereof from starvation, home violence and mental depression. The weekly, nationally televised IATF meetings are an exercise in repetition. There is no urge to do more fiscally. There is no compulsion to review our priorities, transform our vision, correct our processes and build our information systems. We shall have gone through a crisis and not come out better for it.
We have if anything become more small minded. Our national debate is not over agro-industrial policy or the decongestion of cities or the economy we need in the “new normal”; but whether social distancing should be four feet or six feet, whether to a mask we should add a shield, whether motorcyclists need a barrier between riders, whether there are enough control forms. We have become obsessed with the body count of new, old, positive, negative, doubtful, active cases several days out of date. We count our pesos as millions go out the door in corruption. Our biggest challenge is whether Manila Bay needs white sand or not.
Surely we can do better than that.