”May my words be tender and sweet because I may have to eat them “ – Late U.S. Sen. John McCain.
After months of whistling in the dark, NEDA is finally coming clean on the economy. NEDA now projects we could be down by 6% this year. While still on the sunny side – the IMF foresees up to an 8% contraction with one of the slowest prospects of recovery – the new NEDA assessment is closer to what businesses and the people are experiencing, a painful and grinding slow down.
In May 2020 NEDA chief Karl Chua predicted: “COVID is just a temporary setback. However, our situation is better than others and we are more prepared to recover quickly. We have enough funds for social amelioration and COVID”. DBCC chair Wendel Avisado in chorus: “We project 0.8 -1.0% GDP contraction at worst”. So much for economic modeling.
To be fair, our economic team was never in charge of the IATF quarantine prescriptions which were dominated by our “health experts”. Sec. Dominguez was occasionally brought out at the weekly televised briefings but in truth the President was uninterested in the economics of the crisis.
Meantime our neighbors moved on with a measured balance of health protocols and economic stimulus.
Comparative Table (World Bank)
The table shows:
- The Philippines spent the least for stimulus in absolute terms, as a percent of GDP and per capita; among our neighbors. We can afford to do more based on our healthy deficit-to-GDP and debt-to-GDP ratios but choose not to. This explains why we are projected to be the slowest to recover together with India, Brazil and Argentina.
2. Vietnam with a 25% smaller economy spent 23% more on stimulus than we did in absolute terms and 38% more per capita.
3. Thailand and the Philippines have the same credit rating yet the former outspent us by 38%. If we were to match Thailand’s stimulus as a ratio to GDP, we would spend Php 2 trillion more than we did. This figure is 12 times the PHP 165 billion approved under Bayanihan 2.
4. A higher stimulus would not have affected our credit rating thanks to our prudent fiscal management. Understand that credit ratings are a relative guide, not an absolute one. They measure the financial standing of a country compared to others, they are not a stand-alone metric. Our neighbors’ ratings have not been downgraded despite their more aggressive spending. The message is it is fine to borrow as long as the maturities are spaced (10-30 years is not uncommon) and the money is well and honestly spent. Japan’s debt is 2.5x its GDP yet it has a credit rating of A+ largely because its debt is largely financed by local savings.
After months of silence, our economic team is now pushing back against the IATF health protocols. The military members in the task force led by DND Sec. Lorenzana are finally listening if not Duque & Co. As a result social distancing measures are now being eased for public transportation, tourism and restaurants. Even the President who has been absent on the economy is now appreciating the gravity of the situation and its impact on peace and order which remains his primary concern. We still have a ways to go as other countries experience the second wave of the virus and a safe, affordable, and universal vaccine is delayed, now at least a year away. Two major clinical trials had to be suspended when symptoms emerged but have since restarted. We are not ready for the logistics and sub-zero storage needed for the over 20 million vaccines the President wants . Duterte is still keen on a Russian or Chinese vaccine which if unsafe could kill and maim more Filipinos than COVID.
The combination of a conservative economic stimulus and a failed health program to combat COVID has gotten us to where we are but they are not the only obstacles. There is a bigger problem that starts with a C and it is not COVID. It is called Corruption.
This Government is not only being stolen from under us. Filipinos are being held hostage by the criminals in authority which is preventing the release of critical funding for health, education, social relief and infrastructure. The Philippine Red Cross stopped testing because it had an unpaid bill of some P1 billion from Philhealth. Next could be private hospitals denying treatment because of massive unsettled Philhealth bills; or Filipinos refusing to pay their Philhealth contributions because of denial of service; or, worse, Filipinos not paying taxes because of other undelivered functions. We are talking fiscal anarchy.
The President has admitted to being overwhelmed by the corruption so it is now open season. The biggest challenge to perpetrators is not incarceration but outlasting the news cycle as the highjacking in Bayanihan 1 was overran by the overpricing in the DOH which morphed into the Philhealth scandal which was replaced by the padding in the DPWH which moved to the “pastillas” scam in Immigration. Next could be the DepEd and other agencies with large pools of cash and few controls. There are reports of massive pork in the hastily passed 2021 Budget disguised as “Flood Control” projects and such. As the President said: “Customs and BIR, wala yan”. In the meantime drug addicts with half an ounce of “shabu” are shot in the back of the head in the dead of night.
The corruption will get worse as we approach the May 2022 elections. There is an urgency to raise election money. The Bayanihan bills loosened the fiscal accountability of Government officials making it easier to by-pass procurement procedures. Government officials are anxious to enrich themselves before their windows close. In the stock market we see suspicious activity in small cap companies as their prices are reportedly manipulated for money laundering and political funding.
The road to a post-COVID recovery is also hampered by lack of a strategic vision. Vietnam is expected to grow by 3% this year while keeping COVID under control. This is the result of a multi-year strategy of building its exports and filling the supply chain left by China. Vietnamese exports grew by 16% p.a. in the last decade while the Philippines stagnated. In Jan-July 2020, Vietnam’s FDIs increased by $9 billion while ours fell by 33%. Vietnam has spent 8% of GDP on infra versus our 5%. Vietnam has been calibrating its currency to encourage exports and foreign investments such that it has been accused by the U.S. as a “currency manipulator”. That is the ultimate badge of honor. In the meantime our peso has been allowed to strengthen to our detriment. Vietnam has a credit rating of BB or four notches below ours but in a few years could well overtake us in the race for upper middle-income status. And that is with few Vietnamese speaking English. Just wait till that happens.
We are falling behind the rest of the world in innovation, education, manufacturing, agriculture, strategic thinking and governance; and are doing little about it. We can blame COVID but maybe we should start blaming ourselves. The virus was not the beginning of our problems nor will it be the end. It simply exposed the failings that were already there.