Signs and Wonders

The broadsheets described the third quarter real GDP growth at -11.5% as indicative of an “economy on the mend.” The recession was deep, but not as deep as the second quarter’s deep dive at 16.9%.

And yes, it is correct to ascribe it to the brief reimposition of strict lockdown during the quarter. Whether dancing with the virus may be two steps forward and one step backward is already immaterial. There is no other option to restart business activities except to allow the targeted reopening of key economic sectors, congregational activities and public transport within the ambit of the health protocols. Since these protocols remind us of God’s tablets of stone, the lesson of the pandemic should truly be inscribed in stone, never to be forgotten especially by our health authorities.

For the trade-off between life and jobs was in the beginning dubious. There is no contest between the two. Our health infrastructure was weak and we had very little to boast about testing, tracing, quarantining and treating capability. A strict lockdown was absolutely needed. We attempted to buy time with the lockdown.

But we wasted a good crisis. There continues to be a large deficit in our public health institutions, then and now. Risks and challenges are mostly predictable; they move with the season. The sad reality in many cities and provinces stares us in the face when people lose their lives while in transit to Manila for emergency treatment while hundreds of billions in the annual budget could have put up general hospitals with tertiary treatment capability. It is beyond us to think that testing, tracing, quarantining, and treatment that did not cost as much as other forms of public spending, failed to merit as much as the required allocation. We could have atoned for the sins of the past by overhauling our health infrastructure and preparing it for future health crises.

What is apparent from the output data from the Philippine Statistics Authority is that the pandemic was first a supply shock with demand-type spillover effects. The whole economy was shut down for a couple of months. Productivity plummeted to zero and negative territory, and this is how economic scars are formed. They will haunt us for many more months and perhaps years to come. Uncertain health prospects paralyze us into inactivity and sap our drive for work. Fear of the virus kept us away from our offices and workplaces. Production stands still. Even the seniors among us who serve in key positions in both government and the private sectors were prohibited from even going out.

It is not surprising therefore that the industries that retarded even a modest recovery, less decline to some, were those that required physical presence of labor such as construction, real estate and ownership of dwellings and manufacturing. They contributed negatively to the third quarter performance at 39.8%, 22.5%, and 9.7%, all minuses. These are the same industries that rely more on labor and for some sub-sectors, less skilled and of sub-professional capability.

Services also failed to do its job, shrinking by nearly 11%, a few percentage points better than the second quarter’s 17% decline. Aside from real estate, accommodation and food services exhibited a huge drop of more than 52% while wholesale and retail trade, transport and storage and the rest of the services arm of the economy failed to hurdle even zero growth.

On the other hand, the positive contributors to moderate the drop are the financial and insurance activities, public administration and defense, compulsory social activities, and agriculture. Information and communication also managed to crawl up for obvious reasons, the only means of keeping one’s sanity during the lockdown to fight off the alienation brought about by social distancing. Relevant skill sets are IT familiarity, banking and insurance expertise. Workers can do remote work.

The lockdown must also be behind the decline in both private consumption (9.3%) and gross investments (41.6%). Net exports were also down while government consumption expenditure managed to grow by nearly 6% perhaps on account of its social support due to the health damage of the virus. Income flows from the rest of the world further pulled down growth in terms of the gross national income which showed a bigger contraction of 13% compared to the 11.5% decrease in gross domestic product.

It was correct for the IMF and the World Bank to have highlighted the challenges and prospects of the global economy in the face of the pandemic. It is the single wild card in the calculus of growth and survival. The pandemic brought to the fore the urgency of allocating more of the budget to health and education, the need to support vulnerable countries and people, the social desirability of debt condonation or relief. We will not mind seeing more of burden sharing, or the law of Christ in the Scripture, as one economic scar that may be permitted to persist now and forever.

Who can ever forget Hyman Minsky who was described as a maverick economist for good reason? While he believed in Keynes’ view that the market is a good referee for resolving important decisions on resource allocation, he maintained that it is not reliable when it comes to the issue of equity, efficiency and stability. He concluded his book Stabilizing an Unstable Economy (1986), in fact, with “capitalism is flawed mainly because it handles capital poorly.”

Based on the third quarter output report of the PSA therefore, it looks like capital accumulation in the productive sectors of the economy, particularly manufacturing, continues to be outpaced by financial capital. Were it not for the coronavirus, perhaps the gap could have been more pronounced.

Mohammad El-Erian was therefore spot on when he observed the need to shift the excessive reliance of central banks on unconventional monetary policy “to a more balanced mix anchored by responsive fiscal policy and pro-growth structural reforms.” Monetary policy that pushes policy rate to near zero or negative territory may be preparing the ground for future problems like deflation cum financial stability. Excessive expansion in liquidity and credit may be avoided by circumspection and careful assessment of the economic milieu and market dynamics. It is easier to create a liquidity trap than getting out of it.

We support the whole-of-society approach of the Government in marshalling public resources against the virus and laying the groundwork for restarting business activities. A number of key legislative measures are pending in Congress; there is so much our legislators can do to avoid further delay. By all means, let us eliminate all “plunderable” lump sum allocations in the 2021 national budget. A more decisive policy is also needed to deal with bad governance among our frontline agencies.

Joel in chapter 2 verses 28 and 29 wrote about the Lord pouring out His Spirit upon all flesh that would allow sons and daughters to prophesy, old men to dream dreams, young men to see visions. It is not too much of a dream or a vision for us, all flesh, to prophesy the day when the hard work of our people amounts to something solid and long-lasting, when every fruit of their labor is not lost but is properly accounted for in the national income accounts of our statistics authority. That would be the day.


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.