Why do we feel like Groundhog Day?
Vaccines are on the way, world economies have woken up, foreign stock markets are signaling a return to normalcy, world COVID numbers are trending down, U.S. long term interest rates are pointing to a V-shaped recovery, and China has economically turned the corner. The world has moved on while we are frozen in time in an endless loop of yesterday.
There is this debate whether the we need another round of stimulus to jump start the economy. The House economic team led by Rep. Stella Quimbo believes more financial adrenalin is needed. NEDA Sec. Karl Chua argues a Bayahihan 3 is unnecessary, that all it takes is for the economy to reopen and the forces of capitalism and animal instincts will take over. He is convinced the 2021 Budget has set aside enough of a “huge” provision for social protection without defining what the term means. By all assessments even by multi-laterals like the World Bank and the ADB, the Government’s relief package is insufficient in absolute terms and modest in relative terms when compared to what countries the world over have ploughed in.
We understand one of the jobs of NEDA is to talk up the economy but it helps if it is occasionally right. We were assured a year ago COVID was a tempest in a teacup and we would be out of it in a flash. Twelve months and four economic downgrades later we are still in a storm but now in a soup bowl with more to come. NEDA admits Q1 2021 numbers are again expected to fall short imperiling the full year estimate of around 7% growth. Predicting the future is obviously not one of NEDA’s core competence.
The ADB has reported that poverty will resurge to 21% of the population if struggling households and businesses do not get financial aid. NEDA reportedly contends our hunger rate has declined from 34% to 15% and unemployment from 16% to 7.7% so where is the concern? It apparently does not feel 16 million starving Filipinos and 6-10 million out of work or in crummy jobs at crummy pay is reason for worry. That is what happens when ivory tower economists get hooked on the numbers not recognizing the human dimension of the problem.
NEDA has its supporters. Sen. Sonny Angara, Chair of the Senate Finance Committee, agrees that Bayanihan 2 funds are still unspent so why go for more? It is such broad brush assertions that worry us. Of course there will be unspent money in the program since some of the funds are for long gestating infra projects. However the direct-to-the-needy budget is depleted. What the economy needs right now is a boost in consumer demand by putting money in people’s pockets asap.
Anti-stimulus proponents are seemingly unaware of the structural destruction to the economy. Certain businesses will never reopen and many unemployed are no longer employable. There is a growing exodus of workers back to their home towns as urban jobs have disappeared. Our economic leaders believe we cannot walk and chew gum at the same time, that opening the economy and injecting relief to the public are mutually exclusive when they are in fact complementary.
Our economic team talks incessantly of targeted and time bound measures without providing substance to their meaning. Essential industries and workers are not getting the support and urgency they deserve. PAL just laid off another 2,100 people. There is no appreciation that time is of the essence, that a moribund patient cannot be revived by an extended period of convalescence, he needs the cure now and in massive doses. The longer the recession the greater the structural damage and the longer it is to rebuild the economy. Without a boost in the tank the economy will not reach escape velocity, will hit stall speed and crash to the ground.
The anti-stimulus advocates believe the Philippines cannot support more deficits and debt and that excessive liquidity will stoke inflation. This outdated neo-classical economics no longer holds. Singapore, one of the most fiscally conservative nations, has gone all in. The consensus today is higher fiscal deficits are sustainable as long as the monies are put to good use like jump starting demand and investing in infrastructure and education which over time will increase productivity and competitiveness. In short, we can afford more debt so long as our growth rate is higher than our debt service which historically it has been. We just have to get back to that path. What we cannot do is wait for the economy to somehow return on its own because the long term damage and humanitarian impact on our people is unacceptable.
Filipinos are now faced with the dual problems of loss of income and rising prices. Gov. Ben Diokno is right that inflation is not demand but supply induced particularly in food. As such it requires supply side solutions. There is excess liquidity in the system but that is not fueling demand. The BSP has said that “markets are liquid but risk aversion is noticeable” which is their oblique way of saying banks are not lending and without that many businesses may not survive much less expand. One of the largest mall owner has reportedly notified its major tenants they will be allowed to close for up to a year without penalty. That is how bad things are.
The IATF, mayors and our economic managers unanimously voted to open the economy and go from GCQ to MGCQ. The President disagreed. He believes health rather than the economy should take precedence until we have a full blown vaccine.
The debate of health versus jobs is a complicated one to which there are no easy or correct answers. The President could be right in his instincts. That is not the concern. The concern is the private sector no longer understands how Government makes decisions.
Business has been brought up to believe one does not buy a dog and choose to bark oneself. The private sector is led to understand a leader chooses the best people he can find to properly study and make recommendations affecting the nation. He then follows the consensus particularly when the recommendations are unanimous. There is a process. In the case of whether or not to re-open the economy the President has chosen to ignore the process without a model that the private sector can recognize.
Businesses rely on guidance and a decision frame that is studied, clear, consistent and predictable. That basis is no longer there. Businessmen have become confused and when uncertain will cease to hire and invest.
There is a lot of other weird stuff going on. The Dept. of Labor has announced it will allow more Filipina nurses to work in Britain and Germany in exchange for vaccines (Britain has declined the offer). Are we so desperate and debased we are now offering up our heroic frontliners as hostages? Who is thinking up this non-sense?
Our leaders have become binary in thinking, limiting our policy options rather than be nuanced in the possibilities. There is no boldness, no courage to take measured risks. There is no appreciation of the economic or human value of time. The private sector does not have a clue how, when and where it is supposed to move.
So we are rudderless waiting for that all elusive vaccine that even at this stage is mired in bureaucratic delays. incompetence at iba pa. Sinovac has FDA approval for the population in general but not for health workers. Go figure. What is good for the goose is apparently not good for the gander. And we ask why 40% of Filipinos refuse to be vaccinated.
Adrift we can only hope the current will take us to safe harbor but that, unfortunately, is not what generally happens.
We are in free fall.