Burning the ships, the only choice?

At the rate the Palace is unleashing its massive one-two punches against Senator Manny Pacquiao, and the defensive counter punches by the People’s Champ, are we seeing now the beginning of what Senator Koko Pimentel described as implosion of PDP-Laban?

It would be an unlamentable implosion if only its party mates would suffer in the collapse. But the people’s right to good governance and competent economic stewardship could be sacrificed in the strategic attempt to prolong the centrality of Davao in national politics.

Tactically, what is so wrong with our leaders is their inability to focus on the now. The now can define their common touch, their empathy with the people, their singular commitment to put an end to pandemic devastation and deep economic recession that are the scourge of our nation today.

In our previous columns, we commended the President for literally burning our ships to the ground by declaring the lockdowns would stay unless we defeated the virus through effective protocols and prompt administration of the jabs. We thought that would have been the marching order for those involved in testing, tracing, and treating system as well as in quarantine and vaccination activities to keep their eyes on the ball. Obviously, many dropped their balls so we ended up in a prolonged quarantine with enormous economic costs. Their failure to focus on today did, and will have, a great cost to our future.

A political squabble is the last thing we need today. If this is a game of golf, we have a very high handicap.

The pandemic threat does not appear to be receding. We have been told by the Octa Research Group that we must prepare for potential variant surge early this week. Cases are expected to multiply with the arrival of new variants. The Delta variant is supposed to be the most “concerning” of all the variants so far, even surpassing the UK variant which was previously the most dreaded. It is 50%-60% more infectious and more potentially fatal. The Delta factor could upset the Government’s target of herd immunity by Christmas 2021. When this happens, our growth target might be compromised. Jobs and income are on the line.

Our credibility in public policy execution is under question. Recent media reports from the Asian Infrastructure Investment Bank (AIIB) are disturbing. One broadsheet, for instance, reported that “despite having spent all of the $750-million loan extended … last year, the Philippines failed to drastically reduce the spread of COVID-19 — one of the intended results of the Beijing-based lender’s financing.” Of course, one positive outcome was that there was prolonging of the period for the infection rates’ doubling to 30 days from last year’s three to four days.

Our authorities should address this failure to deliver on the goals of this large foreign borrowing, identify the gaps and do the appropriate rectification. Even if gradually, incrementalism of progress is more desirable than none at all. If we examine the media reports, the combined loans from AIIB and the ADB would have covered the budget requirements for the increase in testing capacity, conditional cash transfers and emergency subsidy, economic stimulus and support to highly affected and vulnerable sectors, wage subsidies and tax relief to small business. The World Bank, in fact, joined the co-financing to raise $1.2 billion for the procurement of vaccines.

For transparency’s sake, we need to clear the air and present an accounting of all the borrowed funds and how they were disposed — and whether in the process, the targets were met fully, partially, or not at all.

Our revenue base appears to be eroding. The other day, the broadsheets reported another sovereign borrowing of $3 billion, or around P146 billion, from a global bond sale. This is unequivocally for budget support. The third time the Philippines tapped the global markets after the $2.5-billion euro-denominated sale in April and the $500-million yen-denominated Samurai bonds in March, this fund-raising exercise indicated the strong bias towards the 25-year long-term offering. One way of looking at it is to believe Treasurer Lead De Leon’s take that Philippine credit remains attractive for investors despite the impact of the virus. “Investors see our economic revival is imminent, strong and long lasting.” It will be wise to avoid wasting such global confidence with political skirmishes in the highest level of leadership.

Based on the recent trend in our gross national savings, our prognosis of our external payments position is ominous. The Philippine Statistics Authority recently reported that the country’s gross savings dropped by nearly 28% in 2020 despite a similar decline in household spending following a contraction in disposable income. Given the ambitious 6-7% growth target for 2021, the Philippines could only hope to deliver through increased reliance on foreign savings. This means we might have to spend more on imports of raw materials, capital goods and intermediate products, and even consumer goods like rice, oil, and passenger cars that would translate into higher productivity and efficiency to produce more. With limited revenues on account of the recession, the only option is to borrow more.

While external debt sustainability measures remain manageable, prolonged inability to put our economic house in order could equally prolong the weakness of our public revenues and reliance on borrowed funds abroad. With increasing external debt level and modest economic recovery, the metrics over time are bound to be breached.

Exactly one year from last Wednesday, this Administration, by the Constitution and the law, will vacate the Palace and leave a legacy of its choice. So far, it has in many ways upped the ante in economic management through its growth-sustaining initiatives on fiscal reforms, universal health coverage, capital market reforms, and infrastructure program. The pandemic might end up emasculating those milestones. Already, various international financial institutions, including the IMF, World Bank, ADB, and, recently, the Singapore-based ASEAN+3 Macroeconomic Research Office, have downgraded their forecasts of Philippine output performance for this year and the next.

If these forecasts come to pass, it will be tragic for all of us.

What we would like to see is another burning of whatever ships are left to keep our eyes firmly on our fight against the pandemic and its economic consequences. The illusion of attention requires us to face all iterations of scenarios, good and bad, economic, political or otherwise. We need to be attentive both to silence and noise. Political squabbles are big and visible, but some people may not find them big and visible enough to be seen.

This is where we are today.

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.