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Yields on gov’t debt fall amid safe-haven demand

By Lourdes O. Pilar
Researcher

YIELDS ON government securities (GS) traded in the secondary market went down last week amid strong demand as investors continue to look for safer investments.

Bond yields — which move opposite to prices — fell by an average of 10.6 basis points (bps) week on week, according to the PHP Bloomberg Valuation Service Reference Rates as of May 22 published on the Philippine Dealing System’s website.

“[Last] week, we saw more steepening for the GS curve as demand on the short end to belly securities continued to be strong, while the long-end moved sideways to slightly higher. This continues to be because banks continue to stay nimble by staying short,” Carlyn Therese X. Dulay, first vice-president and head of Wholesale Treasury Sales at Security Bank Corp., said in an e-mail interview.

“On the other hand, holders of long duration [papers] continue to derisk as we are still in a risk-off environment due to the COVID 19 (coronavirus disease 2019) pandemic, and the feared negative effects of it in the economy,” she added.

“The current elevated liquidity in the financial system had investors on the lookout for safer and higher-yielding investments across the GS curve. Implications of the auction results in the primary market continue to suggest that bond bulls are still out in the wild,” Kevin S. Palma, peso sovereign debt trader of Robinsons Bank Corp., said in a Viber message.

Last Monday, the Bureau of the Treasury borrowed P24 billion via Treasury bills (T-bills) from total bids of P103.8 billion, five times higher than the initial P20-billion offer.

It also opened its tap facility for P5 billion worth of one-year notes to accommodate the strong investor demand.

Supportive policy actions from the Bangko Sentral ng Pilipinas kept yields on a downward trend, according to National Treasurer Rosalia V. de Leon.

The central bank’s Monetary Board trimmed benchmark rates by a total of 125 bps since the start of the year, the latest of which was the 50-bp off-cycle cut last April.

For this month, the government plans to borrow P170 billion from the local market in weekly T-bill offerings worth P110 billion and P60-billion Treasury bonds (T-bond) to be auctioned off every two weeks.

Yields on all tenors fell across- the-board at the end of trading last Friday. The 91-, 182-, and 364-day T-bills dropped 27.7 bps, 20.1 bps, and 10.6 bps to yield 2.128%, 2.253%, and 2.627%, respectively.

At the belly, the two-, three-, four-, five-, and seven-year T-bonds saw their rates decline by 11 bps (2.736%), 8.4 bps (2.825%), 8.3 bps (2.880%), 8.8 bps (2.931%) and 7.5 bps (3.073%), respectively.

On the other hand, rates of the 10-, 20-, and 25-year debt declined by 2.5 bps, 3.9 bps, and 7.4 bps, respectively, to fetch 3.274%, 4.187%, and 4.288%.

Analysts see the downward trend continuing this week.

“Local bond yields may continue to trend lower but this may already be tempered as we may see a resurgence of profit takers and take advantage of the bullish sentiment by lightening up on their holdings,” Mr. Palma said.

“For this week, expect to see stable demand for the four-year and shorter as cash continues to be allocated in these securities. Demand on the five-year may be limited as market participants wait for the results of the auction on Tuesday,” Ms. Dulay said.

On Tuesday, the Treasury will offer P20-billion T-bills. The following day, it will auction off reissued five-year bonds with a remaining life of four years and four months worth P30 billion.

Local financial markets are closed today in observance of Eid’l Fitr.

China to draft food security plan amid global coronavirus epidemic

BEIJING — China will draft and carry out in 2020 a response plan for ensuring food security amid the global coronavirus pandemic, the country’s state planner said on Friday.

Beijing will also draw up a new national medium-to-long-term plan in the new year to secure food supplies, China’s National Development and Reform Commission (NDRC) said in an annual report to parliament.

The move came as the pandemic has roiled agriculture supply chains worldwide, and threatened to trigger a potential food crisis.

Chinese authorities have urged state and private firms to boost inventories of major agricultural products like soybeans and corn to prepare for any further disruptions from the outbreak.

“It is imperative, and it is well within our ability, to ensure the food supply for 1.4 billion Chinese people through our own efforts,” China’s Premier Li Keqiang said to parliament.

China will keep total crop acreage and grain output stable in 2020, give more rewards to major grain producing countries, and raise the minimum purchase price of rice, Li said.

Chinese farmers plan to plant 70 million mu (4.6 million hectares or 11.4 million acres) of early rice this year, up by more than 3 million mu from a year ago, according to Premier Li. A mu is a traditional unit used for land area.

While improving the management of grain reserves, China will take active measures to expand the capacity of grain silos for summer harvests, the state planner said.

China will continue to promote pig production recovery, and strengthen the inspection and prevention of major animal diseases like African swine fever, according to the report.

The highly contagious disease, which has decimated China’s massive pig herd, remains a threat to hog production, but the country will not see a big increase in pork prices, Agriculture Minister Han Changfu said.

China will also diversify imports of major agricultural products, and guarantee the stable supply of produce including grain, edible oil, meat, eggs, fruits, and vegetables, the NDRC said in its report.

The world’s top agriculture market relies on overseas markets for soybeans and has been seeking ways to increase imports of meats to plug a domestic supply gap after African swine fever slashed pork output.

China will also ensure the supply of seed, fertilizer, pesticide and farming machinery, Premier Li said. — Reuters

BoI keen on Korean COVID-19 test kits

THE Board of Investments (BoI) is in talks with South Korean companies to attract investments to locally manufacture coronavirus disease 2019 (COVID 19) tests in the Philippines.

BoI Managing Head Ceferino S. Rodolfo on Wednesday said the board is in talks with the Korean government to set up a meeting with two Korean companies for the possible Philippine-based production of antibody rapid test kits. The tests would be targeted for both domestic and export markets.

He said BoI is inviting companies that produce both the rapid test kits that confirm the presence of antibodies and the PCR or polymerase chain reaction test, which checks for the presence of the virus in individuals.

“Pareho tayong nag-iinvite. Except na mas madali kasi ‘yung rapid test…Pero pareho nating gusto. (We are inviting companies from both types. Except that it’s easier to do the rapid tests… But we want both.)”

Mr. Rodolfo said the rapid test kits in Korea are three times more expensive than those from China, adding that manufacturing in the Philippines may help the Korean companies lower their prices.

He explained that PCR tests require laboratories, in addition to the kits.

“May kakausapin din tayong mga PCR-based na laboratories saka ‘yung PCR test kit maker. (We will also speak with PCR-based laboratories and PCR test kit makers.)”

The Philippines currently imports test kits, including those used by the Health department and private sector groups.

Dozens of countries had banned exporting COVID-19-related products such as face masks, but the Philippines had instead opted to have agreements with manufacturers to reserve a bulk of the products for the domestic market.

“Ang naging approach natin is to incentivize (production)… kapag inipit mo sila (from exporting), mangyayari niyan, hindi nila dadalhin dito ‘yung kanilang raw materials,” he said, explaining that companies also have production facilities in other countries like China, Japan, and Cambodia.

(Our approach has been to incentivise production…. if you stop them from exporting, they will not bring their raw materials here).

Talks for a free trade agreement (FTA) between the Philippines and Korea are still ongoing.

“Sa tingin ko ‘yung FTA naman with them is really (about) improving the business environment (for Korean investors) dahil mababa naman talaga lahat ng tariff except for automotive.”

(In my view, the FTA with them is really about improving the business environment for Korean investors because the tariffs are already low except for automotive). — Jenina P. Ibañez

Mitsubishi Motors sustains medical frontline relief for Santa Rosa City

MITSUBISHI Motors Philippines Corporation (MMPC) continues to work with the local government of Santa Rosa City in the fight against the COVID-19 pandemic by providing various needs to its frontliners and other essential personnel. Santa Rosa Mayor Arlene Arcillas (center) receives on behalf of the city over 200 water dispensers and 50 resting benches from MMPC. Additionally, MMPC employees also produced 400 face shields from the company’s own existing inventory and donated these as well. Said MMPC President and CEO Mutsuhiro Oshikiri, “Mitsubishi Motors Philippines is one with the city government of Santa Rosa in the fight against this virus. We hope that the additional equipment will further boost the city’s capabilities. We are deeply thankful and grateful for all the sacrifice being done by our frontliners to keep this wonderful city safe. MMPC will remain your partner in these trying times.”

Stocks to decline due to rising US-China tensions

THE MAIN INDEX is seen to close lower this week as investors continue reacting to the increasing tensions between the United States and China.

The bellwether Philippine Stock Exchange index (PSEi) ended Friday’s session down 65.30 points or 1.17% at 5,539.19.

While it closed with gains in three out of five trading days, the PSEi was lower 0.05% on a weekly basis.

AAA Southeast Equities, Inc. Research Head Christopher John Mangun attributed the weekly decline to “extremely low trading volumes,” as he said in a market note that most investors spent the week on the sidelines.

Value turnover last week went down 13% to an average of P4.01 billion. Foreign investors were still sellers, but net outflows were nearly halved to an average of P346.86 million.

“[M]ost investors are on the sidelines, not confident in holding riskier assets because of the current environment… (Turnover value) shattered the previous week’s record having the lowest trading value for a full week of trading,” Mr. Mangun said.

For online brokerage 2TradeAsia.com, market sentiment rode on the supposed development of a coronavirus disease 2019 vaccine by a US-based company and the friction between the US and China.

In the week ahead, Equity Trader Aniceto K. Pangan of Diversified Securities, Inc. said the market will likely fall further.

“Market will continue to go on consolidation from 5,400-5,700 depending on how the sentiment of investors develop on the prevailing issues such as the reopening of the economies around the world or the rising tension between US-China relations,” he said in a text message. “The investors’ sentiment will be swayed on which issues will be stronger.”

AAA Southeast Equities’ Mr. Mangun has the same forecast: “We go into (this) week expecting it to trade sideways as it has in the last four weeks, except now with a negative bias as investors have walked away from the market.”

The local market is closed Monday in observance of Eid al-Fitr.

Mr. Mangun noted the PSEi has been resilient, staying above the 5,350 support level since April. But now, most of that momentum is gone and investors are likely to sell due to the instability of the current environment.

For 2TradeAsia.com, the local bourse has been buoyed by onshore investors who look at the management of individual companies.

“One could easily gauge a tug-of-war between risk-averse mindset against those who truly believe in bargain-hunting for the long-term. Thus far, strong support is coming from the locals, especially those who truly believe in the management and advocacy of firms listed in the exchange,” it said.

2TradeAsia.com is putting immediate support within 5,400-5,500 and resistance within 5,600-5,700.

Mr. Mangun of AAA Southeast Equities is putting support within 5,350-5,500 and resistance within 5,850-6,000. — Denise A. Valdez

How PSEi member stocks performed — May 22, 2020

Here’s a quick glance at how PSEi stocks fared on Friday, May 22, 2020.

Can CITIRA help revive the economy in the middle of this COVID-19 crisis?

It is disquieting to read a news report about Senate President Tito Sotto promising to fast track the passage of CITIRA (Corporate Income Tax and Incentive Reform Act) by the Senate, justifying it as an urgent measure needed to stimulate the economy. All agree that the economy needs to recover as fast as it can. It was already reported in the first quarter of this year that on a year-to-year basis, the GDP contracted by 0.2%.

In the middle of this crisis, it is likely that CITIRA can drive away existing investors and reduce the country’s exports, without the offsetting gain of higher tax revenues and new investments.

CITIRA has two parts. One is lowering the corporate income tax from 30% to 20% in 10 years, the other to rationalize the country’s investment incentives to make them “

Since the 1990s, we have had two reductions of the corporate tax, in 1997 and 2009. Both reforms were taken to stimulate the economy. In 1997, the region was hit by the Asian financial crisis and its economies contracted or their growth slowed. The corporate tax was reduced from 35% to 32% over a three-year period, part of the comprehensive tax reform program (CTRP) of 1997. The second cut happened in 2009, and followed the global financial and economic crisis in 2008. Our Congress cut the rate from 32% to 30% then.

The CTRP was like the current tax reform program of the current government. The reforms covered income taxes including personal income tax, and the excise tax on alcohol and cigarettes. It failed in preventing the rise of the marginal tax rates on personal income tax brackets by not including inflation adjustments to personal income tax brackets. While it was touted to minimize revenue leakages, it did not succeed so in excise taxes on cigarettes, with specific tax rates and multi-tier rates that allowed producers to legally avoid their tax dues, resulting in the decline of excise tax revenues.

CITIRA forms an important phase of this government’s tax reform program. It is designed to increase investments and promote economic growth, which Senate President Sotto stressed as urgently needed to reverse the decline of the economy due to the national government’s COVID-related quarantine regulations.

That CITIRA can help in the middle of the pandemic is doubtful. Figure 1 charts the increase in levels and growth rates of corporate tax revenues. The Figure is only up to 2016, but it suffices for this discussion. First, in both episodes of rate cuts, tax revenues fell. The rate cuts gave instantaneous relief to taxpayers, and that is all there is it to it in so far as revenues are concerned. To a government in need of higher tax income as it has to spend for social protection of the poor and to revive the economy, the corporate tax rate cut of CITIRA would appear not to be a help.

Revenues bounced back following the rate cuts, but they did so because the economy recovered. The regional and global economic crises in 1997 and 2008 were short in duration of one or two years, with sharp plunges and recovery.

Lower tax reduces the user cost of capital and increases investment demand. The tax reform in 1997 and 2009 might have contributed to the economic recovery. But will it deliver the same in 2020?

Unlikely. There are other factors which need to be considered. The effect on investments of a lower corporate tax will be outweighed by the uncertainty spawned by COVID-19. The health emergency has to end for good with the availability of vaccine and medicine which competent authorities have shown to be efficacious and safe. Absent that, we will still live as if we hide from our unseen enemy, the virus. That is not good for business. The last thing a new investor would want to be told is to close his new business to flatten some future wave of COVID-19 infections.

Access to effective and easy to use tests for COVID-19 can mitigate the uncertainty. But businessmen all over the world have to be persuaded that this pandemic is behind us.

Until the world has those medical antidotes, the prevailing risk to business can dampen, if not wipe out, the expected new investments that a lower corporate tax is expected to offer the economy. Without the expected rise in revenues due to lingering economic recession with COVID-19 still unchecked, reduced corporate tax will not help mitigate the fiscal deficit.

There is another factor to consider. Unlike its Asian or global counterpart, this global economic crisis is pandemic as well. There is not a single country ready to become the engine of the world economy. All major countries and regions — China, US, and the EU — are reeling from COVID-19 and the economic fallout that it induces. Although increasingly they are starting to open up their economies, all are trying to restart growth behind a backdrop that at any time authorities can order their constituents to go back into isolation to stop a possible future wave of infections.

EXPORTS AND INCENTIVES REFORM
CITIRA is designed to remove the privilege of the special 5% income tax privilege in lieu of national and local taxes in at least PEZA-administered economic zones. The exporters locating in these zones will be told to pay their national and local taxes the way all other taxpayers do. New projects of locators may still get a package of incentives, which proponents say are flexible and inclusive of non-tax measures to suit the requirements of companies which plan to invest in the country.

New projects of PEZA locators are eligible under the Strategic Investment Priority Plan (SIPP) with the Fiscal Incentives Review Board (FIRB) for incentives. Project owners would still have to show the FIRB that their projects bring in positive net benefits to the country. Some of these incentives include an income tax holiday (ITH) for two to six years; reduced corporate income tax rates after its ITH, or availment of special incentives such as tax deductions for expenses on training, research and development, and infrastructure facilities.

This planned reform of our investment incentives carries a great risk of us losing export competitiveness. The businesses in PEZA zones are all exporters, or most of them as some are indirect exporters. The businesses in PEZA zones make up our country’s capacity to export.

Exports from PEZA zones account for at least half of the country’s merchandise exports. In 2015, these businesses brought in about 59% of total merchandise exports, 65% in 2016, and 64% in 2017. Exports make up 29.2 % at 2018 prices of the country’s gross domestic product in 2019. This share has grown consistently since 2015, when it was only 25.3%.

Export growth is an important determinant of overall economic growth, as shown in Figure 2. In the global economic crisis in 2008 and 2009, GDP growth plunged from 4.3% in 2008 to 1.4%. The export contraction in those two years appeared to pull economic growth down. In the first half of the Arroyo government in 2000 to 2005, annual export growth averaged 6.8%, and that pulled up GDP growth, except that we had political crises in those years which dampened economic growth. Absent that, high export growth pulled up GDP growth in the Aquino 2 and the current government. When export growth jumped from 2% in 2013 to 12.1% in 2014 and stayed in the two-digit rate range, economic growth was at least 6%.

Export growth slowed down in 2018 and 2019, and with COVID-19 and the ECQ in 2020, export growth is likely to be in the red once again. The trend is likely going to pull down GDP growth. It was still up in 2018 and 2019 because of the government’s infrastructure program. But the economy is likely to contract this year, as the first quarter GDP growth of -0.2% indicated.

PEZA businesses, the country’s export engine, are already adversely affected by the COVID-related ECQ. Some reports indicate that only half of the workforce were actually employed in the first half of 2020 because of ECQ and lack of imported materials. Profitability had declined as the ECQ-related spending required additional expense to export products or import materials. In 2019, a total of P22.9 billion were invested by PEZA locators, and if not for CITIRA and COVID-19, more investments would have been realized in 2020. In February this year, investments declined by 28% on a year-on- year basis.

CITIRA, if passed by the Senate in the middle of the crisis, may just compel locators to re-assess their location decisions. Some important businesses, like electronics which take up about half of the country’s merchandise exports, are portable. If the tax perks under this new reform are not those that would give the best return, they may just move somewhere else. Rather than help stimulate economic recovery, which is unlikely while COVID-19 is still around, the proposed law could cut down our export capacity in years to come, and dampens economic growth.

But there is still the opportunity to improve our proposed incentives reform law such that the country can sustain our export capacities and save jobs.

 

Ramon L. Clarete is a professor at the University of the Philippines School of Economics.

Trust and credibility to win the war against COVID-19

Imposing and extending the lockdown or the enhanced community quarantine (ECQ) is a difficult choice to make. The biggest casualty is the economy. That the Philippine economy (and for the rest of the world) shrunk in the first quarter of 2020 was expected. Only upon the containment of the pandemic — and we do not know when this will happen — can the economic slump be turned around.

The plunge in economic growth is the price to pay to protect the health of our people and save lives. We thus have to make the ECQ work.

The ECQ likewise makes economic sense. The country’s social and economic fiber is strengthened by saving scores of thousands of lives and preventing more people from getting severely sick. This enables a smoother and quicker recovery.

The choice of trading the economy for the people’s health by adopting the ECQ is deliberate. This is unlike previous recessions or downturns that were a result of bad or misguided choices.

Arguably, rejecting a lockdown would have still yielded the same negative economic outcome. This is because the pandemic, with or without lockdown, deadens the spirits of consumers and investors. The fear of the deadly virus whose spread is exponential makes people panic. Markets, both domestic and foreign, are disrupted and become incomplete.

To illustrate, even Sweden, which models itself as a country that has not resorted to a full lockdown, is suffering economically. The title of a CNBC news report (April 20) needs no further explanation “Sweden had no lockdown but its economy is expected to suffer just as badly as its European neighbors.” Sweden’s central bank paints two scenarios, both grim: the better scenario of Gross Domestic Product (GDP) contracting by 6.9% in 2020 and the worse scenario of output falling by 9.7%.

The health outcome of Sweden’s controversial strategy is dreadful. To quote a note (May 2020) from the Peruvian economist Oscar Urgateche: “Sweden, which also chose not to implement containment measures, has more deaths per million inhabitants than the US, with the former having 319 and the latter 238.”

In the Philippines, the ECQ has prevented a much higher number of people from dying and from getting infected by COVID-19. At the national level, the reproduction number is less than one, which means we have been able to slow down the spread of the virus. Still, densely populated, highly urbanized areas remain at high risk. In this context, the ECQ is gradually being relaxed.

Admittedly, we could have done better. Lack of initial resources is understandable but surmountable. Success stories in Vietnam or in the Indian state of Kerala demonstrate that a “low-cost” strategy is feasible in fighting the pandemic.

But inexcusable factors undermine the Philippine strategy. These include the following: policy inconsistency (e.g., conflicting pronouncements on the use of antibody tests, despite the caution of the medical community that antibody tests are highly unreliable for diagnostics); non-compliance with social distancing (e.g., high-level officials who violate rules being condoned); political distractions (e.g., the closure of the ABS-CBN media conglomerate and a campaign to postpone the 2022 elections); corruption (e.g., the hold up of medical supplies at the Bureau of Customs and essential goods at barangay checkpoints; bureaucratic inefficiencies (e.g., slow distribution of social amelioration benefits).

These factors have led to public dissatisfaction with the Philippine leadership. Public dissatisfaction, nonetheless, exists in other countries as well.

A recent global survey done by the Singapore-based Blackbox (blackbox.com.sg) on the performance of the political leadership in addressing the pandemic shows an average score of 40% approval. The survey covers 23 advanced economies and emerging economies. The score for the Philippine political leadership is 45%, slightly above the average but still low. Surprisingly, for political leadership, the Philippines is ranked number 8, even ahead of countries with good institutions like Singapore (41%), Australia (41%), Germany (35%), South Korea (21%) and Japan (5%). It goes without saying though that we should not compare ourselves with other countries because many other variables are not controlled.

Also revealing is that across the board, the scores for business leadership (28%) and community leadership (37%) are worse than that for political leadership. Only media leadership has performed creditably (76%). For the Philippines, business leadership, community leadership, and media leadership have scores of 37%, 36%, and 78%, respectively.

COVID-19 will not go away soon. The Philippines is on its way to flattening to the curve, even as more compelling actions have to be taken. But we cannot discount the possibility of resurgence. Hence, quarantine, social distancing, and related stern measures will still be used in varying forms.

Compliance through collective action is absolutely necessary to winning the war against COVID-19. But what will thoroughly enable compliance and collective action is having a leadership that is trusted and credible.

 

Filomeno S. Sta. Ana III coordinates the Action for Economic Reforms.

www.aer.ph

Parallel contagion

“Up to 10 million Filipinos could lose jobs in the Philippines due to COVID-19,” Department of Labor and Employment (DoLE) Secretary Silvestre Bello III said during a Senate hearing on coronavirus pandemic updates on May 20. He said 2.6 million workers have already been laid off due to temporary closure of business establishments (GMA News, May 20).

These are chilling statistics, correlated to those of the despairing statistics on the status of COVID-19 infections in the country. As of May 20, the confirmed cases of the novel coronavirus infection were 13,221, of whom 842 persons died — a 6.36% mortality rate. Will Bello’s estimate of the parallel contagion in the labor force (the lay-offs, cut-jobs) increase the latest reported 5.3% unemployment rate (3.868 million unemployed as of January) to 19% (13.868 million) unemployed because of COVID-19’s economic impact?

“I hate to say it, but it’s possible,” Bello said at the Senate hearing.

Call it sinister and macabre, but COVID-19 has killed more families than the acknowledged 6.36% of confirmed cases — and will kill more in terms of jobs and businesses lost in the quarantine restrictions and in the shifted paradigms in micro- and macro-economics. More than four million Philippine families (one in every five) went hungry over the past three months, doubling from December amid lockdowns to stem the coronavirus outbreak, according to a Social Weather Stations survey in early May, in a report carried by Bloomberg on May 23.

A focus analysis in the BusinessWorld (May 14) cited that “more than 99% of the roughly one million business establishments in the country in 2018 were micro, small and medium enterprises (MSMEs), according to the Department of Trade (DoT). The smallest of them accounted for 88% of the total, or a little more than 887,000 establishments. These have raised the quality of life of their families and workers, having created 5.7 million jobs or 63.19% of the country’s new jobs in 2018, data showed. About 436,000 of the country’s 1.6 million small businesses were forced to halt operations amid the lockdown, with one million of them operating with a skeleton workforce, according to the Department of Finance (DoF).

The vulnerability of jobs in time of the coronavirus (which weaknesses will most probably prevail long after quarantines are lifted) is reflected in a tabulation of “Businesses allowed to open under quarantine” in the BusinessWorld of May 13. Businesses were grouped by the government Inter-Agency Task Force (IATF) in four categories, evidently based on customer-contact needs that company personnel will have to serve within the constraints of social distancing to avoid contamination of and by others. The option of “work-from-home” elevated the lower categories upwards in the Expanded Community Quarantine (ECQ), Modified ECQ, and General Community Quarantine (GCQ, or the most-relaxed ECQ) listings.

It is indicated that Category IV businesses, which have the most customer-contact (like travel, tourism, group recreation, personal services and the like, will give less opportunities for jobs in this time of the coronavirus. Malls (for non-leisure stores and retail services for essential needs) are in Category III, which can have controlled customer contact and reduced staff (because of physical space allocation for again, social distancing). Note that the initial testing of malls re-opening has reportedly been graded “unsuccessful” because of the hordes of over-eager shoppers that were said to have violated social-distancing when malls were allowed to partially open (50% staff, on rotation) on the weekend of May 15.

Category II concerns financial, commercial, and manufacturing businesses that can do administrative functions by work-from-home (tech-based), previously barred under ECQ, but to be allowed full operations in GCQ. Category I can do all things they do under ECQ, Modified ECQ and GCQ: hospitals and health care manufacture, manufacture of essential goods, all agriculture and food production, delivery services, telecoms and media among other essential goods and services.

The Categories can be used as a template for gauging which businesses and economic activities will survive, which will have to downsize or adjust, and how much employment these surviving, new or re-engineered businesses will generate as their contribution to the livelihood and well-being of the Filipino labor force, and of course, towards the businesses’ own profitability — else why be in business?

Bello, in his own words said the jobs to be lost will mostly be from the service sector: “Karamihan po ’yan sa service sector. Malaki po ang tourism, ’yung allied businesses like restaurants, then transportation.” Services comprise 58.6% of the total employed in January 2020, according to DoLE statistics. And we must talk of the fate of our Overseas Filipino Workers (OFW), and our Business Process Outsourcing (BPO) workers, both from the service sector, which are vulnerable in this global pandemic, basically because of the downturn in the economies to which we export these services.

A BusinessWorld infographic on May 15-16 showed “Which economies stand to lose the most if remittances run dry?” Estimates of the Global Knowledge Partnership on Migration and Development (KNOMAD) showed that the Philippines received remittances of $35.17 billion in 2019, from some 2.8 million OFWs, contributing about 10% to GDP. The Philippines has the largest share of OFW remittance in the world, where Egypt comes a far second with $26.791 billion (8.9% of GDP), and Ukraine, third, with $15.814 billion (10.5% of GDP).

In April, Carlito Galvez, chief implementer of the national policy against COVID-19 said that around 100,000 OFWs were to be expatriated by their host countries, as international airports were partially reopening to allow foreigners to go home to their countries. (GMA News, April 14). It is not far fetched that more OFWs will be coming home to the Philippines, because of the changes in the economic status of their employers, who may have assessed their needs versus fear of close personal contact in this time of the pandemic, and in anticipation of future similar situations. It is reported that importing countries for personal services are now organizing indigenous services and facilities like retirement and nursing homes, day-care facilities, and housemaid services to avoid OFWs.

The volatility and sharp decline in fuel prices in this pandemic (and after) also affect the incomes and tenure of millions of OFWs in the Middle East. What to do with, say a million or so displaced returning OFWs globally who (except for the technical service workers) do not have other expertise? Someone said, train them to be BPOs. (Hmmm, perhaps a few.)

Way before the pandemic, BPO was bruited about as the perfect replacement for the declining OFW remittances (BusinessWorld May 01, 2015). The Philippines was already second overall among the world’s offshoring destinations, next only to India’s pioneering BPO industry, but first in the call center sub-sector, because young Filipino agents spoke better English. The real estate sector responded wildly with commercial buildings to house call center hubs in ready-made communities to serve the 1.2 million or so BPO agents. The BPO industry generated $23 billion in revenues in 2017.

The BPOs have been exempted from the quarantine. But the BPO Industry Employees Network (BIEN) revealed that because of the low volume of work and calls, BPO companies have been forced to dismiss workers, especially those on a project basis. Workers are placed in floating status because of account closures. There are also companies that have already issued notices of retrenchment because of the impact of COVID-19 on the businesses and economies that BPOs in the Philippines service abroad, BIEN said.

So there is the rough tally of the “about 10 million jobs” that DoLE Secretary Bello declared to be endangered and possibly lost because of COVID-19, and its merciless upheaval of human life and livelihood. He is appreciated for his honesty and candor in seeing the big picture beyond the palliatives of wage and income subsidies. But he should really get to work with the DoT, the government managers and socio-economic planners, and all other agencies relevant to the COVID-19 disruptions to plan and execute a strategy for the most basic need of the people: physical and economic survival.

Let’s see the plan for those 10 million threatened jobs.

 

Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.

ahcylagan@yahoo.com

A republic made stronger by crisis

The prognosis for the economy is becoming progressively worse. Last month, our economic managers were hopeful that 2020’s gross domestic product (GDP) would expand by 2.5% on the premise that we are able to catch up on the second semester. Two weeks ago, the National Economic and Development Authority (NEDA) adjusted its forecast, saying that the economy could no longer post positive growth and that we are now looking at a contraction of 2% to 3.4%.

Last week, New York based think tank Global Partners Inc. published a study saying that the Philippines was on its way to a contraction of 5% to 7%. This contraction is nearly as deep as what we experienced in 1985, our worst economic reversal since World War 2. It took us 25 years to recover from the economic devastation of 1984 and 1985.

A recession is now inevitable. The challenge is to recover as quickly as possible.

Acting NEDA Secretary Kendrick Chua recently submitted a plan to realize a V-shaped recovery. With a package of reforms, he hopes to induce the economy to rebound by 7.1% to 8.1% next year. The plan comes in two phases, the “Recovery Stage,” which will take effect from June to December, followed by the “Resiliency Stage,” which shall take place from 2021 onwards. Government has prepared a P1.49-trillion stimulus package to support the plan.

The Recovery Stage aims to minimize the impact of the pandemic on the economy. It calls for the enactment of three laws. The first is the Bayanihan Act 2 which is meant to prevent more job layoffs, save companies from insolvency, and stimulate consumer demand. The law calls for the appropriation of funds to strengthen healthcare, support agriculture and food manufacturing. It also provides loans and credit guarantees for local enterprises to save them from bankruptcies. The second is the enactment of a new law called CREATE (Corporate Recovery and Tax Incentives for Enterprises Act) which seeks to generate jobs, help local enterprises become profitable again and attract foreign investments. It proposes to reduce corporate income tax from 30% to 25%, a one-time 5% reduction; permit companies to carry-over losses for five years; offer tailor-made incentives to strategic foreign investors; maintain the same incentives for existing investors (to prevent them from leaving); and, provide tax incentives for government’s “Balik Probinsiya Program.” The third is the General Appropriations Act (GAA) of 2021. This law will be formulated in a way that it pump-primes the economy through massive spending on infrastructure, agriculture, healthcare and the food supply chain.

The Resiliency Stage, on the other hand, aims to strengthen the basic institutions of the country whilst setting the economy on a path of high growth. It involves a package of reforms that affect 11 aspects of economic and social development. On the economic side, it involves reforms to improve the country’s investment climate; business conditions; labor-related programs; agricultural productivity and logistics. On the social side, it involves reforms to bolster healthcare, education, digitization of government services, disaster response, social protection (SSS and Pag IBIG), and public transport

NEDA has brought forward a sensible plan which, no doubt, will put us in a better position to bounce back faster. However, we should not let this crisis go to waste. Now is the best time to enact controversial but necessary reforms we could not do in normal circumstances. I offer six reforms for the consideration of our economic managers:

Economic policy towards industrialization. I wrote about this two weeks ago. Fact is, the economy has already been growing above its potential growth (or capacity to grow) from 2013 to 2016 such that growth has been on a path of steady deceleration since 2016. The only way to reverse the trend is to restructure the economy. This can be done through rapid industrialization. To keep the economy in its current structure will only result in lower growth and a further widening of our current account deficit.

Industrialization involves migrating the millions of low income workers in subsistence agriculture, hospitality and retail sectors to more sophisticated jobs in manufacturing and technical services; the second is a natural off-shoot of the first, which is to shift from being an economy driven by consumption and government spending to one that is lead by production. Third, to transform the economy from one that is a specialist in only two industries (electronics and BPOs) to one that specializes in a range of high value-added products including pharmaceutical manufacturing, industrial machineries, and the like. We must establish our industrial backbone in chemicals, iron and steel, artificial resins and plastic materials. The fourth is to climb the value chain where Philippine-made products become more technologically complex, unique, and renowned for quality.

Economic charter change. The restrictive provisions of the constitution have held back the country’s development for more than 30 years.

Embedded in the 1987 constitutions is a list of industries in which foreign investors are precluded from participation. These industries include agriculture, public utilities, education and media, among others. The absence of foreign investors in these sectors have starved us of capital, technology and competition to push local companies to be more efficient.

The protectionist flavor of the 1987 constitution clearly favored the interest of select Filipino families who are/were involved in media and broadcasting, power generation, and telecommunications. The constitution further limits foreigners from owning more than 40% equity share in corporations. This has led investors to either invest their money elsewhere or use several levels of dummy companies to evade the law. The latter breeds a domino effect of illegal acts.

We have lost billions worth of investments to our neighbors because of our constitution. It is high time to amend it. In the meantime, Congress should expedite the passage of the Foreign Investment Act, Public Service Act, and Retail Trade Act.

Grab our fair share of investments leaving China. FDIs bring capital formation, technology transfer, recurring income through taxes, exports revenues, and jobs. With half a million returning OFWs and nearly 3 million displaced workers, we need FDIs more than ever.

Fortunately, manufacturing companies from Japan, the US, and the European Union are leaving China. NEDA and the Board of Investment have adopted a strategy whereby they individually approach potential investors who serve a strategic purpose to us and offer them fiscal incentives tailor-made for them.

Nothing wrong with this strategy, but the problem is that the government has been so preoccupied with the COVID-19 crisis that it is not given this matter the attention it deserves. Our campaign to attract manufacturing firms leaving China must be quick and massive. We are in stiff competition with Vietnam, Indonesia, and Thailand and unless we act now, we will lose out on this investment bonanza like we did in 2008 and 2015.

Go back to Public Private Partnerships (PPP). With the urgent two-pronged need to pump-prime the economy and modernize infrastructure, the government must re-visit and aggressively pursue PPP financing, including unsolicited proposals. It should no longer delay (and finally green light) projects that have been under protracted negotiations for years. I am referring to the Bulacan Airport and NAIA Rehabilitation. The scale of these projects will be a boon to job generation.

Investments in Food Security. The disruption of the logistics chain after the enactment of the Enhanced Community Quarantine (ECQ) would have resulted in a food shortage had the government not played its diplomatic card to persuade Vietnam to continue exporting rice to us. Sadly, local production of rice, vegetables, and meats is insufficient to feed our ever-growing population. We are dependent on imports for the lion’s share of our food requirements.

What we need is a green revolution to achieve self sufficiency in food production. It is imperative that we make the shift from traditional farming to technology-assisted farming. Unfortunately, agricultural development is stymied by the Comprehensive Agrarian Reform Law (CARL). The five hectare limitation on land ownership relegates farmers to subsistence farming and low productivity. Economies of scale cannot be achieved with such a small amount of land. The need to amend CARL cannot be overstated. We also need to amend the Agri-Agra Credit Law and Warehouse Receipts Law to make agricultural industries flourish.

Prepare for a Digital Economy. The post-COVID-19 world will be one where we live and work in the digital sphere. Work from home will become the new norm, gig employment (freelancers and outsourced services) will become increasingly common, and goods and services will be bought and sold through the internet. Bills will be paid online, interactions with government agencies will be done through the net, the same with banking.

All these necessitate fast and reliable internet service. Although broadband service has improved in the last year, it is still slow against world standards. Reforms must be put in place to induce healthy competition in the industry. Government must lower the barrier to entry of new players to encourage more investments in digital infrastructure. It must also call Dito Telecoms (formerly Mislatel) to task to expedite its much-delayed 5G roll-out. In addition, internet service providers (ISPs) and value-added service providers must be able to connect directly to satellites for broadband connectivity and be allowed to share in cellular tower infrastructure.

The Open Access in Data Transmission Act must be passed and the Public Service Policy Act must be amended.

We have a window of opportunity to fix the laws that impede national development. Let’s hope the government uses this opportunity to fix all that is wrong with our system and create a stronger republic.

 

Andrew J. Masigan is an economist.

Pag-IBIG expands home construction funding

PAG-IBIG Fund, the government’s low-cost mortgage agency, said it expanded its home construction fund to P10 billion from P2 billion to support the housing market and help revive the economy.

In a statement Saturday, Human Settlements and Urban Development Secretary and head of the Pag-IBIG Fund board Eduardo D. del Rosario said its House Construction Financing Line (HCFL) has been given a P10-billion budget, well above the P2 billion originally allocated for the scheme.

The additional P8 billion was approved by the Pag-IBIG board on May 20.

“This is a win-win situation for everyone involved because home construction has a high multiplier effect. Not only will this be able to construct more houses to address our members’ housing needs, this would also benefit our fellow Filipinos with the jobs that the construction would generate,” Mr. Del Rosario said.

Meanwhile, Pag-IBIG Fund Chief Executive Officer Acmad Rizaldy P. Moti said home loan releases in the first four months of 2020 declined after the lockdown hampered construction projects and the completion of housing units financed by the agency’s home loans.

Mr. Moti said home loan releases in April fell to P882 million, down from P3.8 billion in March, P6.5 billion in February, and P5.5 billion in January.

“The drop in home loan releases during this period is only temporary and we expect to recover as we gradually transition to the new normal,” Mr. Moti said.

Mr. Moti said that Pag-IBIG has disbursed financing for 16,585 homes of which 16,170 or 97.5% are considered socialized housing and low-cost units.

In 2019, the agency’s home loan releases in the first quarter hit P17.2 billion.

In 2019, housing loan takeouts — eligible mortgages originated by other institutions and taken over by the fund — hit P86.74 billion, up 15%. — Luz Wendy T. Noble

DoTr planning more online registration, cashless fares

THE Department of Transportation (DoTr) said its post-pandemic transport modernization plan will seek to take greater advantage of automation, including online vehicle registration and digital fare collection systems.

“The road sector of the DoTr is preparing itself… to modernize the transportation systems as part of the new normal to ensure the survival of our people,” Transportation Assistant Secretary Goddes Hope O. Libiran said in an unpublished article shared with BusinessWorld last week.

She added: “These will involve technology-driven, integrated, and sustainable initiatives that will not only address disease transmission but will also revolutionize road transport to become efficient, reliable, environment-friendly and safe.”

The post-pandemic plans call for more online payments ad online renewals of driver’s licenses, to minimize human contact, Ms. Libiran said.

“Part of the process for motor vehicle registration will also be done online. OTC’s (Office of Transportation Cooperatives) required seminars for coops can also be done as teleconferences or webinars,” she added.

The department has also started using fleet monitoring systems in the free buses for medical frontliners, which are equipped with GPS devices to allow passengers to track them and monitor expected arrivals at their locations.

“This will make commute more hassle-free. To the operator and government regulator, it will enable us to track driver behavior and trips made and kilometer run of the buses, monitor how many are running, and minimize waste of resources such as engine idling,” Ms. Libiran said.

The department has been pushing for the use of automatic fare collection systems (AFCS) in public transport to limit the transmission of the coronavirus and speed up revenue accounting.

Ms. Libiran said data collected through the AFCS can also help operators and policy makers improve the efficiency of public transport services.

The department is also looking at online seat booking to reduce passenger congestion at terminals.

“This will not only cut down on exposure risk, but can also help trace possible contacts and quickly disseminate information if a passenger is diagnosed with any infectious disease,” the official said.

She noted that many motorists are now embracing the electronic toll collection system. “People have seen its vast benefits of faster queuing time at toll booths, rather than cash transactions.”

The department is likewise looking at the consolidation of operators and the rationalization of routes.

“Operators need to consolidate for economies of scale. Drivers need to be employed into the formal society so that employment benefits will be provided. Routes should be optimized for operators to gain more load factor per trip,” Ms. Libiran said.

Other measures are dedicated lanes for buses, shuttle services for employees, school buses for students, and greater use of non-motorized transport such as bicycles.

“Integration of the non-motorized transport to the road space and development of necessary infrastructures will be prioritized,” Ms. Libiran said. — Arjay L. Balinbin

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