Signs And Wonders

Rapid tests for the coronavirus cannot accurately distinguish between the influenza and the COVID-19 virus. Reliability is said to be at only 34-80%. This is not much better than flipping a coin. Rapid tests detect antibodies — not necessarily against COVID-19 per se  — produced several days to a couple of weeks after a viral infection. Rapid tests are prone to produce “false positive” results.

Swab tests, based on RT-PCR (Reverse-Transcription Polymerase Chain Reaction) are the gold standard, but still not 100% reliable in detecting COVID-19. The test can be a miss in patients who have just recovered from COVID-19. The swab can also miss given uneven viral distribution in a patient’s respiratory tract. A patient can also be swabbed on Day 1, and become infected on Day 2. This is how we get “false negative” results. From this, a false sense of security develops and one does not know that he or she is infectious — with resulting actions that spread the disease even more.

Swab tests could also produce “false positives.”  Recovered patients who are no longer sick, or who are no longer carriers, could still test positive. They could still imbibe weak remnants of the virus. For this reason, medical practitioners have abandoned the double swab protocol, instead prescribing a strict quarantine period. False positive results add to confusion and needless anxiety.

These shortcomings challenge vaccine development. Moreover, recent data indicate there has been a mutation of the virus into one that is more infectious, but is, hopefully, less potent.

At any rate, economic recovery premised on the launch and mainstreaming of a hurried vaccine based on outdated genetics and incomplete research will be shaky.

Is it possible to have false positives and false negatives in our macroeconomic narrative?

We have stressed that there are true economic positives in the Philippines.

Before COVID-19, our economy demonstrated resilience for 21 uninterrupted years. Domestic inflation was managed and trended downwards with firmer policy discipline under the Bangko Sentral’s inflation targeting framework adopted in 2002. Greater market competition brought about better supply conditions and stable prices. Public finance has turned around. Higher revenues have enabled higher spending on both infrastructure and social services. In the external front, we have seen many years of strong and stable current account and overall balance of payments positions. The peso, on an independent float for many years, has exhibited significant gains in real external price competitiveness. The country’s foreign exchange reserves reflect increased confidence in trade and investment in terms of sustained accumulation of tourist and BPO revenues, foreign direct and portfolio investments. All these gains were built-up through decades of policy and structural reforms for sustainable, self-sustaining and inclusive economic growth.

But our economy is not without true negatives. Distribution of wealth and income is highly  unequal. Labor share to total output has diminished over the years. Big businesses continue to bloat. Publicly listed shares remain relatively limited compared to those owned by family groups. Agrarian reform has been a failure. Electoral exercises continue to be driven by political dynasties with financial support from the moneyed class. Governance has been problematic as public and private interests compete resulting in public policies with little or unfelt net positive externalities.

Why we continue to lag behind other countries like Malaysia, Thailand and Singapore is always conveniently attributed to the Filipinos’ propensity to complain, violate public laws, and sell their votes or favor popular but unqualified candidates every three years. There is very little reflection and true action against corruption in public service. There is no clamor for accountability.  Neither is there genuine command responsibility, as sadly and clearly exemplified in our current PhilHealth controversy — whiffs or raging and billowing flames of wrongdoing, ignored by the leadership. There is frustration and fatigue in demanding for integrity in the delivery of social and economic services including quality education, health services, peace and order, and public infrastructure.

Recently, we noticed too, the sirens’ song of distraction. There seems to be an effort to generate confidence or at the very least, calm markets into a false sense of security. We refer to false positives in the economic narration.

These are aberrations in our economic narrative. Economic false positives arise when every single indicator that shows a transitory blip is used to proclaim that the worst of the pandemic-induced economic recession is behind us. Like erroneous results from rapid or swab diagnostic tests, these are dangerous and are likely to cause possible errors in judgment that seriously affect the long term.

To establish a firm trend, preliminary data in manufacturing activities and capacity utilization should be interpreted with a sufficient number of observations over time. Equally important, in making solid and credible pronouncements, we need to combine backward-looking economic data with forward-looking information based on expectations surveys. The use of purely backward-looking data renders forecasts fully dependent on the rear-view mirror.

In making pronouncements, therefore, it is always useful to consult the results of the Bangko Sentral’s latest consumer and business expectations surveys. These pose forward-looking questions to respondents and provide a good view of likely things to come.

Looking into these survey results could be a more meaningful exercise given the reliable correlation between the variables covered in the surveys with future values of GDP, inflation, the exchange rate, interest rate, employment and capacity utilization. In turn, these can be validated by other indicators of economic activities.

High frequency economic data (i.e. to measure people’s mobility) can be extracted from Waze and even Google. Financial market data to show movements in the stock market, FX, debt and credit default swaps as well as volatility indices would also be many times useful. Daily data on the pandemic can tell us a hundred narratives on the dynamics of the virus and the likelihood of economic recovery. So far, the data does not exactly show that “the worst is over.”

False positives in the economic narrative also arise when we fail to read between the lines of trends in economic data such as the exchange rate and foreign exchange reserves. What these statistics show is very important. However, what they do not show is even more important.

Similar to ascertaining the genetic materials of a virus —  which could be very similar to those of other viruses — one must make judgments on the peso’s trend taking many events into consideration.

Today, the peso appears strong. This is not because the Philippine economy is strong or is even one of the strongest ones in the region. We are in fact in the deepest recession we have experienced in the last 30 years. Unlike other financial crises, our current crisis affects not just sophisticated financial markets — but every Juan and Maria, from the most humble barbeque vendor to the biggest universal bank.

The peso appears strong because the current demand for dollars is very weak as compared to pre-COVID-19 months. Imports are down and outward investments by residents are also low. Dollars are also in big supply because of huge borrowings both by the National Government and the private sector. Global interest rates are extremely low due to extremely accommodative monetary policies in key capital markets abroad. This fact also derives from enormous increases in the FX reserves. With the climb in the value of gold, revaluation gains of our gold holdings in the FX reserves would yield a few billion dollars more. This climb is not because of higher investments or trade. Clearly, this pandemic has made that virtually impossible.

Our currency appears strongest in the region because, among our neighbors, we had relatively the highest pre-COVID-19 demand for dollars and capital imports. We remind of the focus on infra through the Build, Build, Build program which now cannot proceed with the same zeal and aggressiveness as before the pandemic.

There is also a potential risk of generating a false positive from fiscal expenditures. It is not always correct to say that “higher public spending leads to higher output growth.” Especially  when, in the first place, public spending is not financeable as in the current crisis where even the President has admitted, “Wala ng pera” (There is no more money).

“Moreover, leakages lost to malfeasance at various levels of government simply perpetuate bad governance without a corresponding increase in national output. Efficiency in public spending is as critical as the level itself. What public infrastructure had been shown in public health when COVID-19 struck in the beginning of 2020?”

While we are all in need of good news, issuing false positives could do more harm than good. As Pearl Zhu, author of the Digital Master book series observed: “We are moving slowly into an era where big data is the starting point, not the end.” Information is vital and transforming it into insight is one of the tasks of those in public service. This is how to communicate with civil society, this is how to properly guide the nation — individuals, households, firms and markets  — in how to conduct  themselves during this unique pandemic.


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.