Signs And Wonders

Last Monday, after patiently enduring five months of variously named-lockdowns, the Filipino people eagerly lent their ears to the President, desperate to hear some good news and a clear plan of action. For the daily update of COVID-19 incidence in the Philippines continues to pull down the public’s sense of safety and security.

It could have been a straightforward State of the Nation Address.

But, again, as with previous public addresses, the President deviated from his prepared speech and delivered tirades against a senior legislator, a disenfranchised radio-TV network, and the two telecom companies.

These were cracks in the SONA narrative that confused the message.

We must not be sidelined.

A greater crack exists. It is a dangerous crack that threatens to swallow up all the economic progress we have achieved thus far.

Our narrative of uninterrupted economic growth for 21 years is threatened by the crack that is 2020’s COVID-19 pandemic.

In last week’s column, we dwelt on the grim scenarios painted by international financial institutions, credit rating agencies and a multinational bank.

We face a certain economic recession. Job losses involving at least 7 million people will definitely shrink about 70% of our gross domestic product. Labor remittances from abroad will certainly wane.

While Moody’s expects the dip to be between 5% and 10%, the World Bank expects it at

20% given the global recession. If April’s cash remittances drop of 16.2% is any guide, it would be wise to be conservative.

There is an emerging consensus that the first quarter decline of 0.2% reflects the pandemic’s onset and the impending economic lockdown. As for the second quarter, government and private economists attribute the economic trough to the strict Luzon-wide lockdown. These factors considered, the argument is that the worst effects of the pandemic’s economic impact should be over with the second quarter of 2020 as our lowest point.

This was in fact, the very message of Central Bank Governor Ben Diokno who, the other day,

was quoted by the Philippine News Agency.

Governor Diokno declared that the worst is over, that the country faced the pandemic from a strong position due to improved fundamentals. He admitted though that challenges remain. With this, the Bangko Sentral ng Pilipinas (BSP) commits to deploy necessary policy measures and reforms to help recovery.

Equally optimistic, National Economic and Development Authority Secretary Karl Chua earlier pointed to three indicators of a pick-up in economic activity: 1.) slower decline in external trade; 2.) softer decline in manufacturing output; and, 3.) expansion in manufacturing capacity utilization.

Lest we be carried away by these green shoots, we must remember that traction of external trade is a great function of resumption of global trade. And this remains anemic.

Moreover, the slower drop in manufacturing output should be linked to the prospects of bank credit and business sentiment. Corporates could be hard pressed in working out their financials with weak sales given that banks prefer to be procyclical. Consider, too, that lending rates remain high, and the BSP reports tighter credit standards. According to the BSP’s survey, business expectations for the next 12 months actually declined.

Neither should we be overly confident about capacity utilization improvement. We recall that even during the Great Financial Crisis, when economic activity nearly flattened in the Philippines, capacity utilization was upwards of 81%.

Can we pin our hopes then on the Build, Build, Build (BBB) Projects?

On this, The Philippine Star’s Boo Chanco wrote: “Believe it or not, the government claims it is planning to build its way out of the coronavirus economic downturn. If that means resurrecting the BBB program, good luck.”

Boo has a strong point there because any fiscal stimulus will likely be limited to social amelioration, wage support, assistance to MSMEs, and whatever additional amount can be spared for the health sector against the pandemic.

Moreover, with only half of the year remaining, and the rains and floods coming in, only a limited value added could be forthcoming from this end. Bureaucrat capitalism is also one big problem in the execution and funding of the triple B.

Thus, whether more public spending could realistically improve our third and fourth quarter numbers to support the BSP’s fearless forecast remains bleak and challenging.  We should not underestimate this crack in the narrative.

The IMF is definitely not underestimating it. It described it as a “crisis like no other.”

Thus, it needs a response like no other.

In this, the Philippine response continues to be orthodox: spend some on health, spend big on social protection, help small business, work on economic recovery.

While monetary policy is being eased in practically all IMF member economies, easing will be of limited help in the face of paralyzed business activities and diminished demand for bank credit which remains unresponsive to policy rates. The pandemic has a unique way of flattening economic activities and jobs.

In the extreme, the BSP could bring its policy rate to zero or even negative territories. It could pump even more liquidity into the system by further reducing the required reserves. Nonetheless, there still would be very little perceptible result if banks remain stubborn in their trenches.

We need to recognize that to some extent, the space we see today is incidental. Inflation is within the 2% to 4% target partly because oil is cheap following the global recession. The peso appears strong because the demand for foreign exchange is weak due to low imports and outward foreign investments. The gross international reserves level is at an all-time high because dollar demand is low and the proceeds of foreign loans are coming in.

The point is that: this year is, and will continue to be, a crack in the narrative unless the health issue is faced strategically and head-on, and unless we abandon the stance of merely passively waiting for a Chinese vaccine to turn the corner. Unless we focus, and let go of petty distractions, and proceed from a strategic plan of action.

Paul Krugman’s analysis of why the US failed dismally on “both the epidemiological and the economic fronts” is instructive. Krugman echoes what many of us have been saying in the last five months. In the US, loss of jobs figured prominently in their calculus. The US “ignored both infection risks and the way a resurgent pandemic would undermine the economy.” Krugman blamed the Republicans and big business for prioritizing the economy over health.

Relatedly, The New York Times report on Vietnam should be sobering: “The economy reopened, travel restarted and residents began leaving their masks at home. But over the weekend, the country announced that the virus was lurking after all — and spreading. Experts do not know the source.”

Vietnam was a COVID-19 success story. Japan, China, Australia, and South Korea also did the right things. But every one of them recorded a spike last Wednesday. In the case of Vietnam, the incidence started in five Danang hospitals but quickly spread to Hanoi, Ho Chi Minh, and two provinces in the country’s center,and even the remote Central Highlands.

Discussing the US predicament, Krugman blamed the cult of selfishness. It is selfishness that prevents people from extending social benefits to the disemployed, to senior citizens, to the vulnerable. Selfishness is what drives people to go out, even if they tested positive of COVID-19. Selfishness is what makes people do away with face masks and only because they wish to exercise “their freedom as individuals.” Selfishness is what makes people treat government as their own, pushing for their own agendas, playing politics, throwing professional ethics as well as merit and integrity in public service out the window.

Krugman concludes that “rational policy in a pandemic, is about taking responsibility.” Without this, it is not the virus, but selfishness that would kill us.

If we do not rectify our stance, like the US, we too will fail the marshmallow test of “sacrificing the future because (we did not) show a little patience.” As the crack in the narrative widens, time is also running out on us. The crack threatens to swallow us and all progress whole. To address the crack in the narrative, we — private and public citizens alike — must change our personal and collective narrative of selfishness.

We must focus, focus, focus on this pandemic of a problem, defeat it, and get over it. This is the only way we can hope to resume meaningful economic activities.


Diwa C. Guinigundo is the former Deputy Governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was Alternate Executive Director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.