‘Bubble’ economy in a bubble lockdown?

Now we have a bubble lockdown. In the science of lockdowns, this is isolated lockdown, selective and time-bound. The National Capital Region (NCR), Bulacan, Cavite, Laguna, and Rizal were placed under GCQ or General Community Quarantine from March 23 to April 4.

This new variant of community quarantine is most interesting.

In the last few weeks, the broadsheets reported on the economic managers’ push for reopening the economy “in order to drive recovery and restore jobs.” With mass vaccination still far in the horizon, the President rejected the proposal. Serendipity upheld that Palace decision because daily infection rates peaked like never before, hitting more than 8,000.

The World Health Organization’s (WHO) Rabindra Abeyasinghe explained away this upsurge by describing it as a “complex scenario.” He blamed vaccine optimism and the more contagious variants of coronavirus.

For Health Secretary Francisco Duque, the viral surge was also due to the detection of new variants and increased mobility following the partial reopening of the economy. He also claimed Filipinos were not fully complying with health protocols.

But former Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF) advisor Antonio Leachon disagreed and traced this upsurge to “poor decision-making on the part of the government, as well as an emphasis on reopening the economy.” His argument makes much sense.

This is also consistent with the point of Yubal Noah Harari, noted author of 21 Lessons for the 21^st Century in the Financial Times last month. Harari explained that while “science has turned (epidemics) into a manageable challenge,” we saw so much death and suffering “because of bad political decisions.”

Putting an end to this pandemic is therefore a public good. We should benefit from new opportunities for the economy to resurrect with more jobs and more business.

What can we expect from a bubble lockdown?

Residents can move freely, with no checkpoints within the travel bubble. But all religious and mass gatherings are banned. While restaurants are allowed to operate, they are limited to outdoor seating, take-out and delivery. Persons 17 years old and younger, and 65 years old and older are locked down in their homes. Curfew hours are enforced between 10 p.m. and 5 a.m. While industries continue, fewer workers are allowed.

Apparently, a bubble lockdown would hardly suffice.

With the virus on a rampage, the Metro Manila Council resolved to suspend the operations of gyms, spas, and internet cafes. The Philippine Hospital Association requested the government for staff reinforcements to help provide medical care to COVID patients. The Government finally decided to allow the private sector to procure and administer vaccines; it could not do it alone.

Limited mobility and business operations as well as faster rollout of the vaccines are expected to tame the virus and prevent its transmission.

If the bubble lockdown falls short, the Palace announced “drastic actions” could not be ruled out. This may confirm what the UP OCTA Research Group advised that a two-week curfew might not be enough to curve the rapid spread of the virus.

Whether the Philippines could do 500,000 to one million weekly jabs, as announced by Secretary Carlito Galvez, Jr., remains iffy. It is dependent on the timely arrival of the 160 million doses to the Philippines from different sources. With two jabs each, that volume could indeed cover around 70 million Filipinos to achieve herd immunity. But global supply continues to tighten. The WHO warned that this situation could lead to moral failure.

Playing catch-up, the Philippines cannot afford to lose more time securing enough vaccines and rolling them out fast. There are logistics problems with some of these vaccines which require extremely cold storage facilities.

It now reduces to both a race between the virus and the vaccines, and a race among countries for the vaccines. Some wealthy countries have been reported to be securing vaccines to inoculate the whole of their populations.

How are we doing with what we have — mostly donated, the rest procured?

To pursue Secretary Galvez optimistic scenario, we need 70 weeks to cover 70 million Filipinos, or around the end of September 2022. Conservative estimate puts it at twice longer or 140 weeks, or around the end of 2023, exactly The Economist’s estimate of the completion of the vaccine rollout.

Another approach is former Health Secretary Esperanza Cabral’s. She had a different estimate. She explained that if we go by the progress of the inoculation as we are doing today, that would take 12 years. That is two presidencies away.

We don’t know therefore what signal the Palace was sending when the President announced that “the government cannot simply close down the economy again because it would be a disaster for the Philippines” after declaring the bubble lockdown.

The response of the National Economic and Development Authority (NEDA) to the bubble lockdown was quite hopeful. Secretary Karl Chua observed that the lockdown “increases the risk to timely recovery, but still early in the year so we can still manage.” NEDA continues to stick to its target of attaining a 6.5% to 7.5% real GDP growth.

Or will we see a “bubble” economy under a bubble lockdown?

Hardly, if we refer to an economy marked with a rapid escalation of market value particularly in terms of asset prices. Asset prices are inflated by an exuberant market sentiment. We do not have this today. It’s down in both the real sector and the financial markets.

A “bubble” economy in the Philippine context is a fragile economy today. It doesn’t have to get inflated. UK-based Pantheon Macroeconomics last Wednesday was reported to have predicted a double-dip recession — a recession that is followed by a short-lived recovery and then another recession, with prolonged joblessness and weak output growth. The Philippine economy could not be more fragile than a double dip.

This assessment does not seem to be just a voice in the wilderness. ING Bank did not dismiss such a possibility. One thing was clear to ING Bank: “… the health crisis and the economic struggles of the Philippines are intertwined with the recovery likely never happening until COVID-19 is completely and successfully quelled.”

The Foundation for Economic Freedom also indicated the possibility of a double dip if the restrictions fail to tame the virus and are prolonged.

Union Bank was more forgiving by qualifying its assessment with the ability of the bubble lockdown to curb the infection and the vaccine to be massively rolled out. NEDA’s explanation that “the economy is functional and quarantines are localized. We are on track for growth” was most reassuring even if essentially aspirational.

Which makes the recent pronouncements of some segments of the business community rather short-sighted.

The Employers Association of the Philippines “slammed the government’s move to restore strict quarantine measures and suspension of some economic activities for two weeks stating this will cost billions of pesos and reverse the growth momentum that just started early this year.” With the same message, the Filipino-Chinese Chambers of Commerce and Industry, sounded more enlightened because their view correctly attributed the economic costs to the viral upsurge which necessitated the quarantine restrictions.

In the science of lockdowns, succession between a few days of work and longer days for timeout is meant to suppress the virus while allowing people to work and make money. We are not exactly in a time of peace; we are in a time of war. We are fighting the war against the virus and COVID-19. During timeout, our health authorities should have strengthened our testing, tracing, isolating and treating facilities. This was hardly done. Throughout our one-year engagement with the virus, we could have stocked up on the vaccines by early signing of agreement with various pharmaceutical companies. Our health authorities dropped the ball and now we might have the cash, thanks to Secretary Sonny Dominguez, but most of the vaccines have been procured by the early birds.

Yes, science has actually made this pandemic rather manageable in other countries.

But we made bad political decisions, after bad political decisions.

Our failure in health mitigation compromised our remaining fiscal and monetary space. We may have the budget but Build, Build, Build may not be executed as planned because of the new restrictions. We are going through this period of bubble lockdown without ayuda (assistance) to the most impoverished of our people or the small business.

While the US was able to administer 125 million doses in about three months, we have barely started. Treasury Secretary Janet Yellen is now looking at the post-pandemic US economy because of quick mass vaccination and the unprecedented fiscal injection of President Joe Biden. Some other countries with huge health challenges one year ago bounced back with a solid combination of public spending and health mitigation. After their own version of bubble lockdowns, they are now looking at some robust economic performance.

The Philippines should prove we tolerate no drugs and economic recovery is no pipe dream.

 

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.