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2021: A better new normal?

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Bill Gates says “there is good news coming in 2021.”  But that’s not for the whole world. Perhaps there’s optimism in America, with Donald Trump exiting and a mass vaccination program being set in motion. Mr. Gates acknowledges that the decline in infections and deaths will happen “at least in wealthy countries.”

Sadly for the Philippines, we are far from normalcy, much less from a better new normal.

Consider the following:

1. The world rejoices over the introduction of several vaccines, but the Philippines will not immediately benefit from them. According to Health Secretary Francisco Duque III, the best scenario is having the vaccination started in the second quarter of 2021. But the first best is wishful thinking. In reality, the second best is what works. (In economics, the “first best” is but an abstraction that gets supplanted by the second or third best in practice. Countries with weak institutions like the Philippines settle for the third or fourth best.)

It does not help that “someone dropped the ball.” Officialdom’s incompetency and the systemic mess that impaired the country’s response to COVID-19 presage how the administration will handle the vaccination program.

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Further, the logistical and financial requirements for mass vaccination are huge. The budget allocation for vaccination in 2021 is deficient. The health workers have to be first trained on the vaccine protocols. Storage facilities have to be set up or upgraded. Social preparation is necessary, and the people have to be informed about the safety and efficacy of the vaccine. It remains disturbing that a Social Weather Stations’ (SWS) September 2020 survey showed that a third of Filipinos are unwilling to take the COVID-19 vaccine.

And so, even with the availability of the scarce vaccine, we really have no choice but dance with the virus. The consolation we get — thanks but no thanks — is some form of aliw (entertainment) from the overexcited singing of the hyper-salivating presidential spokesperson.

2. Arguably, on the economic front, the worst is over. The economy has reached rock bottom.

The economic decline is steep — with Gross Domestic Product (GDP) falling by 16.9% in the second quarter of 2020 and 11.9% in the third quarter. For the whole year, we can expect the economy to have contracted by around 10%.

This is far worse than the recession during the twilight years of the Marcos dictatorship. The difference? Marcos had no credible scapegoat (even as some apologists blamed Imelda for the profligacy), while Duterte can point the finger at coronavirus disease 2019 (COVID-19).

But the “worst being over” should not translate into optimism. In the fourth quarter survey of SWS, only 16% of Filipinos said they were not poor, and 30% thought their quality of life would worsen in 2021 (compared to 32% who expected an improvement).

Furthermore, in the longer-term, the economic picture is not so bright. The Philippine scarring is so deep that the economy will suffer from chronic effects. The consultancy Oxford Economics (and cited by The Economist) has announced its research and modeling, showing which countries are most vulnerable to long-term economic scarring and which countries are likely to recover soonest.

To quote  (Dec. 15, 2020): “Yet the distinction between emerging and advanced economies masks large variations: the Philippines and India have especially bleak growth outlooks, whereas China and Brazil are expected to perform better. The Philippines ranked worst overall in the study largely because of its labor market, with high unemployment and skills shortages, and the economy’s dependence on tourism.”

3. By now, the economic authorities can no longer rely on the economic reforms and gains that happened before the pandemic broke out. Surely, the policy reforms, especially on taxation, are assets for recovery. They exhibit credibility and creditworthiness. But a better new normal entails a new set of challenges and a new generation of reforms.

But it seems that the momentum for reforms has recently lost steam. Proof of this is the stalling of the bill that seeks to rationalize fiscal incentives and make corporate income tax responsive to the stimulus in the short run and competitive in the long run. The bill titled CREATE (Corporate Recovery and Tax Incentives for Enterprises) has always been a priority. The Executive long ago certified its urgency.

Yet, its passage has been delayed several times. Some have even packaged the passing of CREATE as an early Christmas gift. The year is ending, and there is no word when the bicameral conference committee will meet to approve CREATE.

What is apparent is that CREATE has been held hostage by politicians and vested interests. And while Congress disrupted CREATE, the Philippine Senate had the compulsion to speed up, nay, railroad, the granting of unnecessary fiscal incentives — contrary to the spirit of CREATE — to the San Miguel Aerocity. The Executive so far has been silent on this.

Does this signal the start of a lame-duck presidency? This can make vested interests happy, but this can likewise abet investors’ uncertainty.

2021 will thus be bumpy, unpredictable, and risky. Take note that we haven’t figured into our discussion the intensifying political conflicts and human rights abuses.

I nevertheless greet everyone a safe and healthy 2021, and pray that we be caring to our people.

 

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

www.aer.ph

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