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Regional Updates (07/12/20)

Baguio to launch cashless payment system for public transport

BAGUIO CITY is launching on Monday, July 13, a cashless payment system for public transportation, including jeepneys, taxis, and UV Express, through a partnership with SquidPay Technology Inc. In a statement Sunday, Mayor Benjamin B. Magalong said the city “is on the right track in pursuing cashless fare payment systems considering the alarming increase in the number of transport workers infected by the coronavirus disease 2019 (COVID-19).” He added, “Although most of those affected are in the railway business, the public utility vehicle sector remains at risk for using direct payment scheme that does not inhibit physical interaction,” referring to the MRT-3 in Metro Manila where over 200 of its personnel recently tested positive for COVID-19. SquidPay has already conducted seminars with members of transport groups in preparation for the cashless system that was first presented on June 24. The city government said the system does not charge a fee per transaction, but vehicle owners need to shell out a refundable deposit for the payment machine. Commuters will have to pay an initial P100 for the card, which includes a P45 fare value. The company will set up booths in terminals, barangay centers, and other strategic areas for card reloading. Mr. Magalong said aside from being “aligned with the new normal measures now being implemented in view of the continuing COVID threat,” adopting the contactless system is part of the city’s “Smart City and digital transformation programs being pursued even before the health crisis.”

Davao City modifies national motorcycle back-riding policy; rules relationship insignificant with health protocols

DAVAO CITY has modified the national policy on motorcycle back-riding, allowing a passenger to ride pillion regardless of relationship to the driver as long as health safety requirements are observed. In an order released Friday, Mayor Sara Duterte-Carpio directed the local police and traffic management enforcers to observe “maximum tolerance” on the riders’ relationship saying “the relationship between the driver and the passenger is inconsequential given that these will be the same requirements that will be required for other individuals unrelated to each other.” The requirements include both riders wearing a face mask and crash helmet, and the use of a barrier “that covers the neck and does not extend beyond the top of the head of the driver.” The memo includes a photo of a sample wearable barrier that “is similar to a backpack.” Before the release of the memorandum order, Ms. Carpio, a known motorcycle enthusiast, already noted that the barrier required by the national government would make driving difficult. “We have seen that the sample barrier they presented makes it difficult for the driver,” she said over the local government-run radio. The mayor said the backpack-type barrier “is a better option” and with approval from health authorities.

MMDA trumpets faster travel time within Metro Manila

THE METROPOLITAN Manila Development Authority (MMDA) said travel time within the nation’s capital has become faster compared to before the lockdown period, citing that the limited buses allowed to resume operations are more compliant with road rules. MMDA General Manager Jose Arturo S. Garcia, in a radio interview over DZBB on Sunday, said the new transportation protocols being implemented in the current eased quarantine period has minimized traffic congestion. “Kung babyahe ko (If I were to travel) from Monumento to Cubao, it will take three hours or more, ngayon isang oras na eh. Ang travel time ng commuters natin, malaki ang improvement at magtutuloy tuloy pa yan (now, it’s just one hour. The travel time for commuters has improved greatly and that will continue),” he said. Monumento to Cubao via EDSA is about 13 kilometers. Aside from limiting the number of city buses given license to provide service, those operating are strictly monitored to stick to designated lanes and stop only at designated drop-off and pick-up points, he said. Mr. Garcia also noted that traffic flows better despite the continued suspension of the number coding scheme, which prohibits vehicles from being on the road once a week based on the last number of the plate. — Gillian M. Cortez

Nationwide round-up

Justice chief tells law enforcement agencies to beef up cybercrime units

THE GOVERNMENT should improve strategies in combating cybercrime, especially with the continuing quarantine restrictions due to the coronavirus outbreak, Justice Secretary Menardo I. Guevarra said. “It is expected that during these pandemic times, where direct personal interactions are reduced, more crimes will be committed in cyberspace,” he told reporters via Viber, “It is therefore imperative that law enforcement agencies beef up their cybercrime units, upgrade their technologies, and enhance their investigative capabilities.” Mr. Guevarra said the cybercrime focus should be on frauds, financial crimes, online exploitation of women and children, and human trafficking, among others. The Department of Justice (DoJ), in a statement Sunday, said the top three most prevalent crimes in the Philippines from March to June 2020 were phishing, online selling scam, and “proliferation of misinformation that tends to cause panic among the public.” In May, the DoJ also reported that cases of online sexual exploitation of children from March to May 2020, when strict lockdown was implemented, reached 279,166, more than triple the 76,561 cases reported last year. Justice Undersecretary Markk L. Perete said cases of phishing, online scams and fake news were more than the cases of sexual exploitation of children. — Vann Marlo M. Villegas

Comelec resumes case proceedings

THE COMMISSION on Elections (Comelec) will reopen this week for physical submission of pleadings and other court submissions under a skeletal workforce, and allow video conferencing for hearings. During the strict quarantine period, election-related complaints were only accepted through electronic filing. In Resolution No. 10673 promulgated on June 25, the Comelec approved the resumption of the following processes: filing of pleadings, comments, motions, briefs, or memoranda; setting of raffle of cases, hearings, preliminary conferences, and marking of exhibits; scheduling of inventory and recount of election contests; promulgation of resolutions; and payment of administrative fines. Hearings/investigations/inquiries, including preliminary conferences and marking of exhibits can be done through video conference except for cases on election offense. — Gillian M. Cortez

Lack of financial literacy hindering people in dealing with pandemic, Diokno says

MANY FILIPINOS are suffering from “apparent financial insecurity” stemming from the lack of financial literacy, which is hampering their ability to cope during a “once-in-a-lifetime pandemic,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

“Aside from lack of budget, lack of awareness and perceived high costs are often cited by respondents as key reasons for not opening an account, not saving, not using e-payments and not getting insurance,” Mr. Diokno said in an online speech delivered at the Financial Literacy Summit organized by The Global Financial Investors Saturday.

Mr. Diokno cited survey data which show Filipinos have little understanding of compound interest, the effect of inflation on buying power, and investment risk.

He also noted that research showed Filipinos scored low in daily money management and long-term financial planning despite having forward-looking attitudes.

“This limitation is highlighted in unexpected situations such as the pandemic, where, more than ever, preparedness for the proverbial rainy day is brought to the fore,” Mr. Diokno said.

World Bank data in 2017 indicate that only 34.6% of adult Filipinos have an account with a formal banking institution while the rest of the population rely on non-banks to obtain financial services.

The BSP hopes to bring this up to 70% by 2023.

Mr. Diokno said more than a third of Filipino adults struggle to meet their regular spending needs and resort to loans when emergencies arise.

“The most vulnerable sectors have no bank accounts where social assistance can be quickly channeled,” Mr. Diokno said.

Mr. Diokno also said only 18% have insurance while 3% have invested in financial instruments.

“Nearly half of adults (48%) have savings, but 68% of them keep savings at home,” he added.

During the pandemic, more Filipinos used digital payments. Mr. Diokno has said the volume of transactions on InstaPay and PesoNet surged 57% and 325%, respectively in April and May.

In 2018, volume and value of digital payments totaled 10% and 20% respectively, of all transactions, according to a report from Better-Than-Cash Alliance. This compares with 1% and 8% by volume and value in 2013.

The central bank hopes to have 50% of all payments by volume and value coursed through electronic means by 2023. Mr. Diokno has said the pandemic surge in such payments could help it hit the target earlier.

“As we shift to the new economy, fostering financial education within the family — from grandparents, parents and children — is essential for the well-being of citizens especially in times of crisis,” Mr. Diokno said. — Luz Wendy T. Noble

Senate bill seeking COVID-19 funding from privatization of gov’t assets

A MEASURE expediting the privatization of government assets to raise funds for the coronavirus crisis has been filed in the Senate.

Senate Bill No. 1519, the “COVID-19 Economic Lifeline Act,” calls for the sale and disposition of non-performing properties and assets owned by the government to augment public funds.

“There is a need for the National Government to find new ways to augment public funds in order to continue effectively fighting the COVID-19 pandemic and help countless Filipinos and businesses,” Senator Francis N. Tolentino said in the explanatory note of the bill.

The Department of Budget and Management has said that as of June 9, government spending to contain COVID-19 (coronavirus disease 2019) amounted to P355 billion, a large part of which consisted of the emergency cash subsidy for low-income households.

The government has also raised $7.63 billion in grants and loans from various international agencies as of July 1.

The Department of Finance (DoF) is also pushing for a P180-billion recovery plan for the proposed Bayanihan 2, which has standby funding of P140 billion, and a proposal to cut corporate income tax to 25% this year from 30%.

Mr. Tolentino’s bill creates the COVID-19 privatization commission, which will be led by the DoF, to oversee the sale of state-owned assets drawn from a priority list prepared by a separate office, the COVID-19 Privatization Commission Management Office.

Government properties under consideration also include those owned by government-owned or controlled corporations which are deemed unnecessary or inefficient.

The measure provides that proceeds from the sale be directly used to fund programs mitigating the impact of COVID-19. The Commission, meanwhile, will be allowed to retain up to 5% of the proceeds for its operations. — Charmaine A. Tadalan

Rural utilities told to review compliance with billing rules

RURAL POWER utilities were ordered to review their compliance with regulations governing billing during the lockdown, the industry association said.

In a statement Sunday, the Philippine Rural Electric Cooperatives Association (Philreca) said it is willing to assist the Energy Regulatory Commission (ERC) in resolving consumer complaints against some utilities over alleged billing irregularities.

“The soonest that we were made aware that there were complaints filed with the commission, we have prompted our member-electric cooperatives to make a reassessment of their compliance with advisories and other issuances from regulatory offices as well as to check if there are pending consumer concerns that remain unacted upon,” Philreca Executive Director Janeene D. Colingan said.

During a recent Senate energy hearing, ERC Chairperson Agnes VST Devanadera revealed that the agency has received more than 47,000 consumer complaints on billing issues.

Philreca said it asked the commission to provide details of the complaints to help it in “calling the attention of the concerned ECs (electric cooperatives) for clarification or action.”

The ERC released an advisory on July 7 ordering the refund of some bill components collected by power utilities during those months that their collections were suspended.

It specifically ordered the refund of the feed-in-tariff allowance (FiT-All), the collection of which was suspended in March and April, as well as collected universal charge-environmental charges in May.

Philreca said electric cooperatives had already printed and issued their bills when the order suspending FiT-All collection was released on April 15.

It said that the rural utilities were able to comply with the May suspension notice for the collection of the environmental charge starting in the June billing month.

“The timing of the release of the advisories makes it impossible to implement the order on the billing period being asked for by the commission. This only adds to the confusion of our member-consumer-owners,” Philreca claimed.

The association told the ERC that it is monitoring all 121 cooperatives for their observance of its advisories since the quarantine was imposed in mid-March. — Adam J. Ang

ILO upgrades estimate of jobs lost during 2nd qtr

THE International Labor Organization (ILO) said it revised upwards its estimate of work hours lost during the second quarter due to the pandemic to the equivalent of 400 million jobs lost from 305 million, adding that recovery prospects for the second half are clouded.

In its “ILO Monitor: COVID-19 and the world of work: 5th Edition,” the ILO said the lost work hours are expressed in job-loss terms on the basis of an eight-hour workday. It now estimates the lost hours at 14% of the total, up from 10.7% previously.

“The latest estimates presented in this edition of the ILO Monitor reveal a decline in global working hours of 14% in the second quarter of 2020 (up from the previous estimate of 10.7%), which is equivalent to 400 million full-time jobs,” the ILO said in the June 30 report.

In Asia and the Pacific, the decline in work hours for the second quarter is now 13.5% or 235 million jobs, against the previous estimate of a 10.0% decline.

The ILO said its work-hours losses include a worst-case scenario of 11.9% or 340 million full-time jobs in the event of a second wave. The optimistic scenario, which assumes industries immediately bounce back, projects the loss of 1.2% of work hours equivalent to 34 million full-time jobs.

The ILO’s base-case scenario is losses of 4.9% of all work hours, equivalent to 140 million full-time jobs. — Gillian M. Cortez

COVID-19 and its accounting implications

(First of two parts)

The COVID-19 pandemic has resulted in challenges and difficulties previously unknown to economies and businesses worldwide. Travel bans, quarantines and lockdowns have become standard measures implemented by governments. Most businesses, regardless of industry, are losing revenue, experiencing disrupted supply chains and even possibly facing permanent closure. Economies are severely impacted with recession looming large on the horizon.

The Philippines has not been immune to the havoc caused by the pandemic, with substantial parts of the country placed under varying levels of community quarantine for extended periods. Even as quarantine conditions ease in most parts of the country, we are all looking at a “new normal” in going about our lives, with no guarantee when we can return to the way things were before COVID-19.

As the situation evolves, entities may find themselves hard-pressed to assess the full impact of the pandemic not only on their business operations but also on their financials. Consequently, entities may face certain challenges in the process of closing the books and their preparation of interim and annual Philippine Financial Reporting Standards (PFRSs) financial statements.

LEASES
One of the key items for consideration is lessor and lessee accounting under PFRS 16, the standard on leases. With the lease concessions and temporary closures experienced during the past three months, both lessor and lessee need to take a step back and assess how such events will impact their lease accounting moving forward. Our two-part publication, “Consensus in lease concessions due to COVID-19,” which was issued on June 8 and 15, provides a more detailed discussion on Leases.

GOING CONCERN
One such challenge is the assessment of whether an entity will continue to be a going concern (i.e., will continue to operate). The management, regardless of the entity’s size or business, is required by PFRSs (particularly, Philippine Accounting Standards or PAS 1, Presentation of Financial Statements) to assess the appropriateness of the going concern assumption when they prepare financial statements. Disclosures must be made if such an assumption is no longer valid or if there is significant doubt that the entity will continue as a going concern in the future.

However, if management assesses that such an assumption is no longer valid, the disclosures are not the only ones affected; the financial statements (as a whole) should no longer be prepared on a going-concern basis and the basis for measuring assets and recognizing liabilities will change. The assets will have to be written down to their recoverable amounts. For liabilities, provisions should be measured and recognized only when there is a present obligation, in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets. The assessment should be performed until the financial statements are approved for issuance, and all facts and circumstances should be considered.

Although the pandemic has affected all entities, the extent and manner are not the same. Thus, the degree of consideration and the conclusions reached will differ from entity to entity. Given the uncertainties involved and the evolving implications of COVID-19, management must exercise significant judgment and continuously update its assessment until the date of the issuance of the financial statements.

FINANCIAL INSTRUMENTS
The accounting for financial instruments is another area greatly challenged by our current situation. Entities that have identified increasing concentrations of risk in areas and industries affected by the pandemic should consider whether they need to make any disclosure on such risk concentrations, including the amount of the exposure. The entities’ liquidity risk will also need to be assessed if such is increasing under the current environment. If this is the case, PFRS 9, Financial Instruments, requires these entities to make the necessary disclosures not readily evident from existing risk disclosures.

Another aspect to consider is if there are any liquidity issues faced by the entities’ customers, as well as any potential deterioration in the credit quality of the trade receivables of these entities. These issues will have an impact on the expected credit loss (ECL or bad debts) of the entity as a supplier or lender. Entities will need to consider all available information regarding not only the current conditions or events brought about by COVID-19, but also forecasts of future economic conditions when they apply judgment and estimation on the ECL calculation. Entities also need to consider additional disclosures on the financial statements on the judgments and estimates applied to incorporate the effects of the pandemic in measuring the ECL.

IMPAIRMENT
PAS 36, Impairment of Assets, requires entities to assess if there are any indicators of impairment on non-financial assets every reporting period. If there are, it requires them to perform impairment testing. The assessment of any indicators of impairment entails looking at both external and internal sources of information. With recent developments, current information such as the volatility of financial markets, declining market interest rates, shutdowns or even closures of businesses and declining demand and supply may indicate that an asset is impaired.

Although these indicators do not necessarily mean that entities will recognize impairment losses, entities need to exercise care and significant judgment to ensure that the assumptions (such as discount rate, future cash flows, terminal values, etc.) made in performing impairment testing are reasonable and valid under conditions existing as of the reporting date. As most of these assumptions are subject to significant uncertainties, entities will also need to consider providing more detailed disclosures in the financial statements on these assumptions and the sensitivities involved.

REVENUE RECOGNITION
The situation can affect the estimation process in existing customer contracts that are within the scope of PFRS 15, Revenue from Contracts with Customers. If ongoing customer contracts have variable considerations (e.g., discounts, rebates, price concessions, bonuses and penalties), entities will need to estimate the variable considerations and their effect on the transaction price (i.e., amount of revenue to be recognized) and to assess whether to constrain these variable considerations. Entities are required to update such estimations throughout the life of the contract.

These requirements may prove to be a challenge to certain entities as they will need to consider the impact of the pandemic and the uncertainties involved in their estimation process. The pandemic may also result in entities modifying their contracts with customers by amending the scope and/or the price of the contract. Entities will have to assess the impact of such modifications in their revenue accounting and the related disclosures.

In the second part of this article, we will briefly discuss additional challenges in estimating the pandemic’s business impact on the preparation of financial statements, namely inventory costing and valuation, the recognition of compensation or penalties from potentially onerous contracts, and the assessment of adjusting or non-adjusting events after the reporting period.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.

 

Ma. Emilita L. Villanueva is a Partner from the Assurance Service Line of SGV & Co.

Why not a debt condonation for CARP beneficiaries as stimulus?

We first situate the proposal.

The Department of Finance (DoF), the National Economic and Development Authority (NEDA), and Congress are contesting how best to reverse the economic free-fall wrought by the COVID-19 pandemic lockdown. The DoF and NEDA contend that the best way is to grant private corporations breathing space via a corporate income tax reduction, the centerpiece of its CREATE (Corporate Recovery and Tax Incentives for Enterprises) program. Congress contends that the better recovery program is demand-oriented by saving jobs and income, especially among the SMEs, the focus of its ARISE (Accelerated Recovery and Investments Stimulus for the Economy) bill; and to create jobs by ramping up state infrastructure spending, the focus of its CURES (COVID-19 Unemployment Reduction Economic Stimulus) bill. The total bill for ARISE and CURES together could reach P2 trillion or about 10% of GDP. How about CREATE, the DoF/NEDA brainchild? It is a supply-side stimulus program. It seeks to reduce corporate income tax on firms from 30% to 25% and to extend the NOLCO (net operating loss carry-over) privilege to five years. It will also take from Philippine Economic Zone Authority (PEZA) locators to partly pay for the hole created by the CIT (corporate income tax) reduction. Will private firms convert the tax savings into new meaningful investment, create jobs, and put money in the hands of starving millions?

In 1936, at the height of the Great Depression, JM Keynes in his celebrated volume The General Theory of Employment, Income and Money, proposed the idea that supply-side initiatives such as lower interest rates for loans or lower income tax for firms in bad times are like “pushing on a string.” Nothing happens. Firms batten down their hatches, boost their balance sheet, buy back shares or they pay down debts rather than make meaningful investment while effective demand is nowhere. Dr. Stella Quimbo, now Congressperson, and her team showed as much in their 2015 paper. It’s not that firms are greedy; they are just prudent.

Realistically, it is only demand-pulling stimulus mounted by a welfare-oriented, rather than profit-oriented, government that could arrest the negative feedback loop of a free fall. Classical economists were horrified by Keynes’ heretical position: “What? Pay people to dig holes in the ground only to refill them?” asked detractors. President F.D. Roosevelt initiated the New Deal along Keynes’ lines: hired idled workers to replant America’s forests, build dams and roadways, and this pushed back the crisis.

With the best of intentions, the Bangko Sentral ng Pilipinas (BSP) has weighed in by lowering the RRR for banks and the base interest rate in the hope that banks will lend to firms who will convert the cheaper loans and reserves into investments. Instead, banks and private firms are flocking to the BSP and government auctions for riskless placements. Lending to private corporations and SMEs remains deathly anemic because borrowers and lenders alike know that the returns to investment today do not cover the risk heightened by the slowdown. Both CREATE and the BSP liquidity efforts to stimulate will “push on a string.”

But the BSP, buying national government treasuries to enhance national government’s expanded infrastructure spending, is at least thinking out of the box. Such purchases would have been anathema pre-COVID-19. The BSP purchases, through up-scaled government infrastructure spending, would indeed pull rather than push on the recovery string.

ARISE and CURES are more in keeping with demand-pulling but the DoF/NEDA is balking. “Not fundable!” they say. “No money!” beyond P140 billion or a ninth of the price tag of either CURES or ARISE. But their own CREATE proposes to condone forward the P625 billion in tax liability of firms in five years. When Thailand’s and Malaysia’s anti-COVID budget is 13% and 17% of GDP, respectively, we shouldn’t scruple over 10%? The first task of government is to keep the economy alive by every means rather than dead by penny pinching. Asks an old adage and appropriately, “Aanhin pa ang damo kung patay na ang kabayo? (Why harvest the grass when the horses already dead?)” In the ICU, you “beg, steal or borrow,” as the song goes, to save a life. Outpatient clinic wisdoms may kill the patient.

The best stimulus policy sports both a quick energy boost but also a lingering boost for sustainable growth. These twin requirements are best met by the scaled-up infrastructure spending as, say, for a new dam. While it creates jobs and incomes now, it also ensures added bulk water and electricity supply for the future. There are others.

One stimulus spending idea that clearly meets these criteria is the debt condonation for agrarian reform beneficiaries. Land reform beneficiaries have, by Section 26 of CARP (the Comprehensive Agrarian Reform Program which expired in 2014!), to amortize the debt they incurred for awarded land to repay the government for acquiring the land. The proceeds are a very small part of government revenues (0.008% of GDP). A hefty 82% of awardees with Land Distribution and Information Schedule (LADIS) are in default. But can one blame them for being in default?

No! For this repayment scheme is a raw deal: the government buys a 100-hectare farm at market price; subdivides it into effectively 50 two-hectare plots, and awards these on condition that the awardees amortize the government for the 85% of the purchase price of the 100 hectares. But 50 two-hectare plots are way less productive than the single 100-hectare farm because of scale economies, mechanization and innovation possibilities, and access to formal sector banking. If the productivity of land in large farms is higher than that in small plots by 15% or more, each separate plot is amortizing a debt much higher than its capacity to pay. That is a recipe for bankruptcy.

A good demand stimulus would be for the government to exonerate wrongly indentured farmer beneficiaries by writing off the agrarian reform debt of beneficiaries. Apart from the short-run boost, condonation has a long-run boost to farm productivity: with full ownership, beneficiaries can now sell or lease their lands to consolidators who will either cultivate large farms themselves or attract large private capital to go into industrial scale farming. The beneficiaries become rentiers on top of having more stable employment in large farms. This is now being done in China and Taiwan (Fabella, “Luizhuan: Small Steps to Farm Efficiency,” BusinessWorld, Introspective, Dec. 16, 2014). Farm fragmentation is a terrible blight to farm productivity: Adamopoulos and Restucia (2019) show that CARP has reduced the average farm size in the Philippines by 37% which reduced average farm productivity by 17% (note >15%). The cost to government is pittance (P800 million) compared to the proposed forward condonation of CIT payments (P625 billion in five years) for large corporations by CREATE; more importantly, it will justly restitute the farmer beneficiaries for wrongful indenture due to three decades of a wayward land law.

 

Raul V. Fabella is a retired professor of the UP School of Economics, a member of the National Academy of Science and Technology and an honorary professor of the Asian Institute of Management. He gets his dopamine fix from bicycling around the subdivision and tending to flowers, especially bougainvillea and golden shrimp, with wife, Teena.

COVID-19 too shall pass (118 Days of lockdown)

The COVID-19 Action Network (CAN) is a network of organizations and individuals working to stop the spread of COVID-19 in the Philippines. It was organized in the first quarter of this year to harmonize primarily the efforts of the civil society and the private sector in responding to the coronavirus pandemic and provide the Philippine Government and local government units (LGUs) with evidence-based and sound recommendations.

Consistent with its commitment, the CAN offered seven recommendations, all of which have been considered by the Philippine Government. Translation to policies and implementation of these policies, however, usually vary depending on the perspectives of the leaders in charge and the realities on the ground. This makes a periodic review necessary.

With the recent developments, we therefore ask: Are we beating the coronavirus disease 2019 (COVID-19)?

After four months or 118 days of lockdown, what have we accomplished so far? And, what should still be done?

CAN’S RECOMMENDATIONS AND UPDATES
One of CAN’s recommendations was not to lift the lockdown until cases go down and the health system is prepared. Listening to this call, the government has extended the lockdown three times. Modifications, however, were done from enhanced community quarantine to general community quarantine.

Despite the lockdown, the number of COVID-19 cases increased from 140 on March 15 to 51,754 cases on July 9. In the past week, the average daily number of cases was 1,861 with the highest registered on July 8 at 2,539.

Whether or not the lockdown helped curtail the pandemic needs to be seriously reviewed. In a recently concluded survey, 60% of the CAN members find the situation uncertain as more studies need to be conducted and indicators of success need to be set first. The remaining 40% are divided, as 19% answered positively while 21% responded otherwise. Those who answered “yes” claimed that if the lockdown had not been not implemented, the number of cases and deaths from COVID-19 could be higher. This could be true based on the projections of statisticians and analysts and based on the situation in the United States as well as Sweden. Those who opposed, however, claim that the government failed to fully implement the lockdown and had some policy misgivings that cases later skyrocketed. Infection also spread from Metro Manila to the provinces thus creating new COVID-19 hotspots that include Cebu City and the provinces of Cebu, Samar, and Southern Leyte.

The government has relaxed quarantine policies. But this, however, was done to balance the negative effects of COVID-19 on the economy. Because of the lockdown, businesses closed, including companies shutting down totally. Both the temporary and permanent closures of business establishments led the economy to contract to -2% to -3%, with some economists projecting it at -7%.

The Philippine Statistics Authority notes that the closure of establishments has affected 7.3 million workers, thus increasing unemployment to 17.7%. The Bangsamoro Autonomous Region of Muslim Mindanao is badly hit, with its unemployment rate climbing to 29.8%. With this increase in unemployment, the poverty rate is also expected to increase by around 3.3% from 16.7% according to the World Bank.

The second recommendation of CAN is for the conduct of tests, tests, and tests. Though still insufficient, the government has improved a lot in this aspect with the help of the private sector. The number of testing centers increased from one to 78 accredited and licensed reverse transcription polymerase chain reaction (RT-PCR) testing laboratories. This significantly increased the number of RT-PCR tests conducted from 300 per day to 10,000 to 12,000 per day. On July 6, 22,672 samples were tested covering 21,654 individuals. The numbers though are still below the maximum capacity of 30,000 to 40,000 tests a day. Test backlogs are still high, and antibody tests are indiscriminately used and commercialized.

The third recommendation is to treat the sick. If the recoveries are an indicator, the Philippines was able to slow down the deaths due to COVID-19 to less than 10 cases a day starting June 15. This figure is lower compared to the 70 deaths daily due to tuberculosis. The majority of COVID-19 cases recover and the mortality rate is less than 1%.

The fourth recommendation is to protect the health workers. As of July 5, the Department of Health (DoH) recorded 3,513 health workers affected by COVID-19, 34 of whom died. And while there is a dynamic within the health department with regard to the benefits of the affected health workers, those who are not yet affected are still struggling on how to go to their places of work due to the limited transportation. We need more information regarding the adequacy of personal protective equipment (PPEs), and whether the used PPEs are recycled or dumped as hospital waste. Some government agencies have to be credited for issuing policies against discrimination of health workers. Further, reports of harassment or violence against the health workers have substantially decreased.

The fifth recommendation is to develop community management. Fortunately, we have good local government leaders on the ground. Our partners in CAN were able to document local government units and leaders that implement innovative responses against COVID-19 addressing not only the health aspect of the pandemic but also the socio-economic dimensions. The sad point is, there are only a few of them. In most cases, though, particularly in urban areas, adaptive responses are necessary rather than technical measures. These include addressing the issues such as how to implement social distancing in urban poor communities and how to promote hand-washing in areas with no or limited water supply.

CAN’s sixth recommendation is for the poor and the vulnerable to be protected and not be sidelined. But while the government implemented programs such as the Social Amelioration Program (SAP), questions continue to linger. Was SAP distributed to all targeted beneficiaries? Were the poorest of the poor (4Ps) given ample support? What about the persons with disabilities? Are other people sick of TB, renal disease, cancer, and the like being treated as well? Are mental health problems and domestic violence being addressed? What about the returning overseas Filipinos? Note that 2,720 of the 114,394 returning overseas Filipinos are COVID-19 positive (as of July 6).

Lastly, CAN recommends that transparency and accountability be alway exercised. Unfortunately, not only are the government’s budget and expenditures figures not readily available but some government agencies have not provided detailed data and information on COVID-19. Because of issues relating to governance, including political issues that affect the response to the pandemic, some CSOs are having second thoughts when it comes to extending hands to the government in the battle against COVID-19.

WHAT WE KNOW
It is difficult to fight a battle knowing nothing. For this, CAN has conducted research whenever possible and talked with experts whoever is available. The following is a summary of the data and information about COVID-19:

• COVID-19 is now more contagious but overall mortality is less than 1%.

• It can be transmitted through droplets and aerosol. Recently, some scientists have claimed that COVID-19 is airborne.

• Within two to 14 days after exposure, victims may experience fever or chills, cough, shortness of breath or difficulty breathing, fatigue, muscle or body aches, headache, new loss of taste or smell, sore throat, congestion or runny nose, nausea or vomiting and diarrhea. The typical incubation period is about five days. About 97% of the people who get infected and develop symptoms will do so within 11 to 12 days, and about 99% will within 14 days.

• Transmission, however, may be decreased by 85% through the use of face masks, 80% by physical distancing by at least three feet, and 78% by using a face shield.

• COVID-19 has no cure yet but there are drugs that show a positive effect on patients. Dexamethasone, for instance, decreases risks of dying by 1/3 in COVID-19 patients on ventilators and by 1/5 in COVID-19 patients needing oxygen, while remdesivir decreases duration of hospitalization in those with severe cases of COVID-19.

• Previous pandemics lasted 12 to 36 months. Without a vaccine and cure, COVID-19 will be with us for some time.

COVID-19 also affects our social behavior. To minimize risks, we need to adapt to new norms like physical distancing, frequent hand-washing, wearing masks and avoiding large crowds, among others.

On the economy, expect poverty and joblessness to rise, and a delay in the Philippines becoming an upper middle-income country. The negative economic impact affects the whole. The World Bank forecasts that the world economy will contract by 5.5% this year and we will be experiencing the worst recession in 80 years. Around 70 million to 100 million people will also fall to extreme poverty due to the loss of jobs and closure of businesses.

There are a lot of things that we still do not know. When will a vaccine and treatment regimens be available? When and where outbreaks will occur? When will we be able to develop immunity? And, when will COVID-19 pass?

LESSONS LEARNED AND MOVING FORWARD
Government and experts cannot and will not be able to contain COVID-19 alone. The government and the people need a “massively distributed responsibility” to learn and adapt. In doing so, we need to face a two-fold challenge: How to contain COVID-19 and improve the health system; and, how to recover socio-economically towards a more equitable society.

To contain COVID-19, everybody should be responsible and be empowered to protect himself, his family and others — by wearing masks, physical distancing, maintaining personal hygiene, observing a healthy lifestyle and boosting our immune system. Likewise, everybody should continue helping others in any capacity — sharing facts not fake news, providing assistance to the needy (food, shelter, jobs, etc.).

The national government should provide the necessary conditions and incentives to encourage, not intimidate, the communities to cooperate and collaborate in the fight against COVID-19. It has to listen more (to the local governments, the private sector, and communities), be more honest and transparent, and communicate clearly. It has to improve its governance and public service delivery, including providing safe public transport and fast tracking the rollout of broadband and Internet connections.

The Department of Health can do more to share information and ensure data transparency. It should continue PCR testing as well as regulate the antibody tests, fine-tune the contract tracing strategy, and continue the universal health care implementation.

On socio-economic recovery, we should use the pandemic as an opportunity to expedite the implementation of programs that will build a more equitable society, anchored on the respect for human rights. The programs include providing fiscal and monetary stimulus that will benefit the micro-, small- and medium-enterprises, the farmers and workers, and the poor. This should be reinforced with appropriate and free education for all, sufficient infrastructure and road networks, and access to the digital highway.

CONCLUSION
Despite the increasing numbers of COVID-19 cases, we found out that there are gains in our fight against COVID-19. The war, however, is not yet over, and worse, it is even spreading. The government cannot fight it alone and everybody should help and step up to fight. All sectors need to be mobilized to contribute in a way that is democratic and empowering. The simultaneous task is to contain COVID-19 by improving the health system and enable socio-economic recovery towards a better and more equitable society.

Like any other pandemic, COVID-19 too shall pass. How and when will depend on our collective action now and in the coming months.

 

Eddie Dorotan, MD, MPA is the convenor of the COVID-19 Action Network, the executive director of Galing Pook Foundation, and a fellow of Action for Economic Reforms

Is the Philippines getting its share of FDIs from China?

In the early days of the ECQ, the Department of Finance (DoF) announced that the economy could still eke out growth of .08%. A month later, it adjusted its forecast and predicted a contraction of -3.4. Last week, Moody’s Analytics said that the economy will likely contract more acutely at -4.5%. Meanwhile, 7.6 million Filipinos are now unemployed, five million more than in the beginning of the year. All these are happening amid the backdrop of a budget deficit which could reach 8.5% of GDP.

As the economic blowback of the pandemic unravels, we are realizing that it is worse than we expected.

With the economy deteriorating, our need for foreign direct investments (FDIs) is now more urgent than ever. FDIs help bridge the unemployment gap and lessen the budget deficit. They also offer long term benefits such as technology transfer, recurring income through taxes and exports earnings.

Lucky for us, manufacturing companies from East Asia, the US, and the EU are leaving China in droves. Many are looking to geographically disperse their factories to reduce their dependence on the communist republic. Some are leaving due to the effects of the US- China trade war. It is imperative that the Philippines get its fair share of FDIs.

The governments of Vietnam and Indonesia recently announced that they had already secured several multi-billion dollar investments from China. Alarmed, I sent a message to Department of Trade and Industry Secretary Mon Lopez, urging him to give due attention to our campaign to attract our fair share of FDIs. I was worried that we might miss out on this investment bonanza again like we did in 2010 and 2015.

Mr. Lopez, who also chairs the Board of Investments, messaged back and said the Philippines is not sleeping and is aggressively pursuing investment leads. In fact, several investment commitments have already been secured. Despite the three month-long quarantine, the Board of Investments (BoI) bagged P645 billion ($12.6 billion) worth of investment commitments, a 112% improvement from the same period last year. The lion’s share of these commitments is going towards the energy, transport, and infrastructure sector. A portion is going to the agriculture and manufacturing sector. Also in the pipeline are two megaprojects — a steel manufacturing plant and a petrochemical plant, both valued at $5 billion.

Past experience indicates that 80% of all investment commitments come to fruition.

Earlier this year, the telecommunications industry got an investment windfall with 60 kilometers of fiber optic wires laid across the country. This was accompanied by the installation of new satellite-based connectivity systems meant to support the entry of the third telecommunications player.

Notwithstanding the favorable developments at the BoI in the first semester, no one can deny that the Philippines gets only a fraction of Vietnam’s intake of FDIs. The BoI attributes this to Vietnam’s geographic advantage, being closer to China (which translates to lower logistics costs), its superior investment incentives and better conditions to support manufacturing industries, including better supply chain networks.

Working against the Philippines is our uncertain tax and incentive regime (because the new tax law, CREATE, is still pending in congress), a shortage of sites in PEZA zones, limited supply chain networks and higher logistics costs.

How is the Philippines addressing these issues?

The Corporate Recovery and Tax Incentives for Enterprises Act, or the CREATE Law, is the silver bullet that can solve many of Philippine’s weaknesses. It has four features that will make us more competitive in attracting FDIs.

First, CREATE will cut corporate income tax from 30% to 25% as soon as it is enacted. The one-time 5% reduction will be followed by an annual cut of 1% from 2023 to 2027, to settle at 20%. This will put the Philippines in step with the corporate income tax rates of our regional neighbors. For context, corporate income tax is 24% in Indonesia, 20% in Vietnam and Thailand, and 17% in Singapore.

Second, to prevent existing investors from leaving, CREATE allows them to enjoy the same incentives that are in place today for a period of four to nine years.

Third, CREATE allows investors access to the domestic market, even if they are located inside PEZA zones.

Fourth and most importantly, CREATE allows our investment promotions agencies the flexibility to tailor-fit incentives to the needs of the investors. This gives us a greater probability of bagging the investors we deem “desirable.” It is certainly better than the one-policy-fits-all approach that is in effect today.

What constitutes a desirable investor? The BoI favors investors whose projects modernize the nation. These include projects relating to technology-based agriculture, cutting-edge manufacturing, food processing, health care-related projects, infrastructure and upstream industries, logistics, IT and digital industries, renewable energy, and industries that strengthen supply chain linkages. Those that offer employment opportunities en masse and those that offer substantial export revenues are sought after too.

Unfortunately, Congress failed to pass the CREATE bill before it went on recess earlier this month. To our great disappointment, it prioritized the passage of the anti-terrorist bill before this important law meant to hasten our economic recovery. But Congress’ penchant for patronizing the President is another story. What’s important is that it passes the CREATE bill when it convenes in two weeks.

As for the lack of PEZA zone sites, President Duterte recently greenlit 11 new PEZA zones. These consist of two horizontal manufacturing zones and nine vertical towers for IT-BPO purposes.

The BoI’s thrust is to attract Korean, Japanese, Taiwanese, European, and American companies who are leaving China. The Philippine advantage includes plentiful skilled workers, stable wages, industrial peace, and no export restrictions. Investors can also take advantage of the numerous free trade agreements we have with counterpart countries. The incentives offered by CREATE are the proverbial icing on the cake.

The BoI is positioning the Philippines as a complimentary host country to existing factories based in China, not as a principal place for manufacturing. I suppose this works for now — but by no means should it be our long term positioning.

At some point very soon, the Philippines must make the transition to become a manufacturing hub. We must make the shift from being a consumer-lead economy to one that is production lead. We must expand our range of competence in high-value manufacturing like aerospace parts, electric vehicles, and pharmaceutical products. Only then can growth be sustainable without widening the budget deficit. Only then will national income rise to upper income levels.

The economic blowback of the Wuhan virus will be minimized if we are able to attract enough FDIs to provide jobs, capital formation and long term earnings for the country. FDIs can make the new normal a “better normal.”

Let’s hope CREATE is enacted into law and the BoI sustains its strong FDI campaign.

 

Andrew J. Masigan is an economist

A pandemic in numbers

A global recession has been brought by the COVID-19 pandemic. In its latest Global Economic Prospects Report, the World Bank (WB) said in June that the global economy will shrink by 5.2% in 2020, representing “the deepest recession since World War Two.” Developed countries’ economic growth will decline 7%, and that of emerging markets and developing countries by 2.5% — their first contraction as a group in at least 60 years. Per capita incomes will fall by 3.6%, pulling some 60 million people down into extreme poverty, the report said.

Just two months before, in April, the World Bank-International Monetary Fund (IMF) said the global economy would lose $9 trillion, a contraction of 3%, in 2020. How virulent COVID-19 has been for the world economy that the IMF’s projected GDP growth estimates almost doubled in the decline in two months! “A partial recovery is projected for 2021,” the IMF said. “But the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound.” Advanced economies will not get back to their pre-virus peak until at least 2022.

The World Economic Outlook released by the IMF in January showed a revised estimate of “2019 global GDP growth which slowed down to 2.9% to 3.3% in 2020 and 3.4% for 2021 — compared to the October WEO.” The trending decline of GDP growth in the major economies in 2019 was already symptomatic of the world recession, which burst like the coronavirus and bloated with it in the sepsis of physical lockdowns and the resultant economic standstill.

Facing the wanton fury of the COVID-19 pandemic, economics is merely a cowering spectator, waiting to clean up after the tempest. With apologies to the IMF for all its efforts, there are no numbers that can be called out for GDP growth, or other econometrics and indicators, as we face this combined economic and health threat. As any researcher indulging in plain curiosity or for academic study would know, the numbers culled from assumptions will depend on the probabilities of those assumptions using pessimistic, status quo, or optimistic scenarios. This coronavirus pandemic will stay on until a vaccine will have been found, probably in two years according to scientists, so the unstable economic numbers will persist as well.

By April 5, there were 1,201,591 total confirmed COVID-19 cases in the world, with 64,703 deaths (a mortality rate of 5.38%) and 246,198 total recoveries. As of July 11, there were 12,674,947 cases of the coronavirus in the world, with 563,920 deaths (a mortality rate of 4.45%), and 7,402,652 recoveries. Cases have multiplied tenfold in the intervening three or so months, while mortality decreased by almost one percent. The recovery rate increased from 20% in April to 58% in July.

As of July 11, there are 54,222 coronavirus cases in the Philippines, from the 3,094 confirmed cases in April, or close to an 18-times increase in the intervening months. In the April 5 tally of Johns Hopkins Hospital, the Philippines suffered 144 deaths compared to 1,372 deaths as of July 11, with the mortality rate of 4.65% in April going down to 2.53% in July. The recovery rate in July is at 25% (14,037), much improved from the 37 cases or a pitiful 1% that recovered in April.

Numbers are most comforting when showing improvement. But in the anxiety caused by the unknown, minds wander, developing suspicions and insecurities about how improvements can happen, after becoming conditioning to the idea of a bleak two years ahead of continued restrictions. For fragile human nature, it might even be better to receive bad news first before good news, to brace against the worst, and to force a focus on what can be done to recover and build a new life. For that’s it: almost everything has to be new, as in a resurrection after the world’s coronavirus purgatory.

The economics of the pandemic will need planning and rebuilding at ground zero. It might not be useful or logical to track GDP growth or decline as these are based on the past and trending of comparative macro (country) or micro (business, individual) performance — that is all gone into compartmented history. Rather than the romantic vow to “rebuild,” the more pragmatic plan might be to simply “build new” — a paradigm shift.

“Hardest hit (by recession) are those countries where the pandemic has been most severe and where there is a heavy reliance on global trade, tourism, commodity exports and external financing,” the IMF June report said. Economic planners and individuals designing a new lifestyle for themselves have best to take hints from that very basic enumeration of the economic activities that suffered most.

Should the Philippines not think of weaning itself away from its heavy dependence on imports, especially rice and other cereals, whose importations grew by 72% in May 2019 (psa.gov.ph)? Agriculture must be a primary economic activity. We should review our strong dependence on exports of fruits and agricultural products, as these perishable goods have become expensive for the local market. And should we rethink the generous exports of copper and other metals, growing to almost 200% combined in the same period? Cost-benefit analysis will fine-tune this, but extra prudence might prevail for mined products as national wealth.

About 10% of the country’s population works abroad. As of 2018, a total of $25.8 billion was sent home by OFWs contributing 10% to 11% to GDP. Most have lost contracts because of the economic downturn caused by COVID-19 in their host countries. Perhaps most OFWs will have to re-tool and think of new endeavors, helped by the guidance and training of the Department of Trade and the Department of Labor.

Business Process Outsourcing (BPOs) contributed 12% to 15% to the country’s GDP in 2018. Performance in this industry will not be as stellar thanks to the necessary downsizing of the foreign businesses that, pre-COVID-19, had counted on lower outsourcing costs of off-site Filipino workers. Should not the displaced BPO workers be harnessed for boosting local industries, specially the IT industry, in the present safe haven of online business?

Should we hurry to re-open and revive the tourism industry when few people are traveling, thanks to the social distancing required under modified virus restrictions? Cruises and airline tourist travel have been zero thanks to the quarantines, and demand will probably not revive to its former vigor because of fears of future similar health threats. Other services like live entertainment will be in less demand after the coronavirus quarantines, when entertainment was safely provided on the internet.

Finally — debt. The IMF particularly warned against “external financing” of country deficits. Excessive debt bodes our being economically shackled even beyond release from a recession. Current debt to GDP benchmark ratios cannot apply anymore after the devastation of the coronavirus that has cut global GDP growth to negative. Best to live with what one has.

And that would apply to personal finance. Why must a developing country like the Philippines continue to be a consumer-driven economy like the big countries, in fake abundance abetted by profligate credit? Again, one must learn to live with what one has. Better yet, to uphold the old value of saving for a rainy day — like a coronavirus pandemic.

COVID-19 has given good advice on GDP numbers and economics.

 

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

ahcylagan@yahoo.com

PBA return push gets further wind

By Michael Angelo S. Murillo, Senior Reporter

THE Philippine Basketball Association’s (PBA) push to return to action following months of inactivity because of the coronavirus disease 2019 (COVID-19) pandemic got further wind late last week after the league met with team officials and members of the board to discuss the protocols for a possible resumption.

Recently got the nod of the Inter-Agency Task Force for the Management of Emerging Infectious Diseases (IATF), the lead government agency in the country’s fight against COVID-19, to resume practices and conditioning albeit under strict health and safety protocols, the PBA has been busy reaching out to stakeholders to get input from them to ensure that the return push of the league is successful.

On Friday, PBA Commissioner Willie Marcial met with the coaches and team managers to discuss the league plans and protocols in relation to the return, first to practices and, eventually, to the matches themselves.

The team officials were said to be supportive of the guidelines set forth and view them as “doable.”

“I think it’s good. All we have to do is follow it,” Barangay Ginebra coach Tim Cone was quoted as saying by the official league web site after the meeting held at the PBA office in Libis, Quezon City.

“I think the PBA has put up an effective guideline to safeguard the players. It’s just a matter of attitude from the players to maintain it,” NLEX coach Yeng Guiao, for his part, said.

In the team workout procedure, all teams are required to take a COVID test three days before training commences. After that, teams will again have to undergo COVID testing every 10 days. All training facilities should initially be disinfected using hospital standard disinfection procedures, aside from the usual before-and-after group workouts disinfection process.

Players are also required to follow the “closed circuit” method that confines their travel to home to practice facility and back.

Last month, Mr. Marcial met with player-representatives of the member teams to talk to them about the guidelines and what is expected of them as the league attempts to inch its way back after deciding to suspend the season on March 11 because of the pandemic.

Following the meeting with team officials, the league then met on Saturday with members of the PBA board, which also threw its full support to the return plans.

In the meeting, it was agreed that should there be any COVID-19 cases among the players during the individual workouts the respective teams will shoulder the hospital expenses.

“The teams will take care of all the hospital expenses when their players get COVID-19. It’s like when players get injured. So there’s no need for any insurance,” Mr. Marcial said.

Also, upon the suggestion of Alfrancis Chua, Barangay Ginebra governor, the board upgraded all testing procedures to swab tests. The initial recommendation by the PBA Commissioner’s Office is for players to undergo rapid-swab-rapid tests in that order every 10 days.

All tests will be conducted by San Miguel Corp.’s laboratory but teams will shoulder the costs.

The PBA is looking to start conducting phase-in practices and workouts by next week and if things proceed as smoothly as hoped, the league said it will write to the IATF once again in August for the next phase of having team scrimmages.

The league also set for August making a final decision on whether to resume the currently suspended season or not.

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