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Building permit approvals decline across-the-board in first quarter

CONSTRUCTION STARTS, as measured by approved building permits, fell 22.4% in the first quarter, with all segments posting declines during the period, the Philippine Statistics Authority said.

Building permits totaled 30,838 during the quarter, against 39,762 a year earlier.

The project applications proposed to build 7.903 million square meters of space and were valued at P86.072 billion, down 20.1%.

Permits for residential construction, which accounted for 66.5% of all approved building permits, declined 25.5% year on year to 20,515.

Permits to build duplexes/quadruplexes fell 35.1% to 235 units, followed by apartments/accessories (-31.1% to 1,818), single houses (-24.8% to 18,400), residential condominiums (-14.3% to 24), other residential (-13.6% to 38).

Approved applications for non-residential construction declined 10.8% to 5,755.

Approved permits for agricultural structures declined 40.7% to 240, followed by those for “other non-residential buildings” (-33.3% to 118), institutional buildings (-22.4% to 1,065), industrial buildings (-19.8% to 535), and commercial buildings (-0.8% to 3,797).

Approved permits to build additions to current structures declined 26.4% to 1,163, while applications to conduct alterations and repairs fell 19% to 3,405.

CALABARZON — the region immediately south and east of Metro Manila consisting of the provinces of Cavite, Laguna, Batangas, Rizal, and Quezon — had the most approved building permits with 5,600 or 18.2% of the total. Next was the Central Visayas with 4,722 or 15.3%, followed by the Ilocos Region with 3,048 or 9.9%.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the latest results reflect the impact of the Taal Volcano eruption in early January and the lockdowns that began in mid-March.

“The enhanced community quarantine that was implemented in the latter part of March was the game-changer… When everything was asked to stop, all construction had to stop as well, and even the ones that are still to be implemented had to stop altogether,” Mr. Asuncion said in an e-mail.

After confirmed COVID-19 (coronavirus disease 2019) cases

rose to the hundreds in mid-March, President Rodrigo R. Duterte locked down areas with concentrations of the disease.

“I believe that the worst is over for the construction sector, at this point. Although the second quarter may post the worst-ever decline for approved building permits, the rest of the year may see an improving outlook as the world gets a better grip on COVID-19 and its characteristics,” Mr. Asuncion said. — Jobo E. Hernandez

BSP urged to unlock stimulus potential of Agri-Agra

A PARTY-LIST legislator said the central bank needs to treat the Agri-Agra Law as a potential driver of the economic recovery, and exert more effort to ensure bank compliance with the lending quotas set for the agriculture and agrarian reform sectors.

Manila Teachers Representative Virgilio S. Lacson, vice chairman of the Committee on Banks and Financial Intermediaries, asked the Bangko Sentral ng Pilpinas (BSP) to ensure compliance with the quota of at least 10% of lending being extended to agrarian reform beneficiaries and 15% to farmers and fisherfolk.

“I think that’s the solution so I think we ask the BSP to be strict with this Agri-Agra Law, so it can help stimulate the economy immediately,” he said during a committee hearing.

“The compliance of banks is very low. As of 2017, it’s just P573 billion of all the banks combined, in 2018, it’s P707 billion, if all the banks are compliant we can have P1.034 trillion.”

Quirino Rep. Junie E. Cua, panel chairman, said the lapses in compliance will be addressed by House Bill No. 6314, which strengthens the financing system for agriculture, fisheries and rural development.

Mr. Cua said currently banks prefer to pay the penalty for non-compliance or under-compliance rather than lend to borrowers they deem risky.

“This is the reality we’re trying to solve in this bill that we have passed, it is now in the Senate, to amend that Agri-Agra law. We are trying to address the basic problem of why banks are not willing to lend and (prefer to be) penalized,” he said.

“Based on our study, (banks) feel the small farmers, if they are not organized… are poor credit risks (with very low) ability to repay,” he said.

“The cost of lending is also very high because instead of lending P25 million to one organization you need to deal with 1,000 people borrowing P25,000,” he added.

Mr. Lacson also asked the resource persons why micro- and small-sized enterprises are getting a small proportion of bank loans aimed at small businesses.

BSP Managing Director for Policy and Specialized Supervision Lyn I. Javier said the smaller businesses are receiving a proportionate amount of funds.

“Since the micro enterprises are really small businesses, the loans they may have availed of are also small relative to the loans availed of by the medium-sized enterprises,” she said.

“Another factor could be the appetite of the banks also in lending to these sectors… as well as the access to financing (and) availability of banking services in their respective areas.” — Charmaine A. Tadalan

Finance dep’t says small businesses can also be aided by keeping credit cheap

THE Department of Finance (DoF) said the many demands on the government’s resources during the pandemic are forcing it to weigh the need to maintain a solid sovereign credit rating while also aiding hard-pressed small businesses.

Assistant Secretary Antonio G. Lambino II said a solid sovereign credit rating will eventually benefit micro-, small, and medium-sized enterprises (MSMEs) by gving them access to cheap credit.

“Sa madaling salita, gusto po talaga nating tulungan ‘yung access to credit ‘nung ating mga MSMEs (We can also aid MSMEs via access to credit) and that is why we have to balance all of these things — from subsidies to credit rating, the things that we fund in addition to subsidies,” Mr. Lambino said in an online forum organized by the Department of Trade and Industry (DTI) Tuesday.

“If our credit rating is good and the policy rate is managed well, ‘yung interest rate po, magtrickle down po to the borrowers (the benefit from low interest rates will trickle down to the borrowers),” he added.

Last week, Moody’s Investors Service maintained its Baa2 rating for the Philippines, a notch above the minimum investment grade, noting that the country’s strong fiscal position built up in recent years will help it weather the coronavirus crisis. It likewise maintained its “stable” outlook, which indicates no change to its evaluation over the next six months to two years.

Bangko Sentral ng Pilipinas (BSP) Managing Director of the Center for Learning and Inclusion Advocacy Pia Bernadette R. Tayag said banks continue to struggle with understanding the needs of MSMEs because their operations are geared towards servicing larger clients.

“Gusto namin magka-kapasidad ang mga bangko na intindihin ang buong value chain para maintindihan nila na itong mga players na ito, itong mga small farmer, meron siyang ginagawa para sa mas malaking chain, kumbaga para mas maging panatag ang loob ng mga bangko na magpautang (We want banks to develop the capacity to understand the entire value chain, like small farmers, who are doing something for a bigger chain. This will help banks to be more at ease in extending credit to them),” she said.

Ms. Tayag said the bank is developing a uniform MSME loan application form for banks and financial technology firms to standardize the credit process and help MSMEs become familiar with the requirements for obtaining loans.

Ms. Tayag added that the BSP is working on a credit risk database from bank data on MSME financial statements to improve credit profiling of small businesses. — Luz Wendy T. Noble

PEZA announces plans for skills training institute as first university ecozone launches

THE Philippine Economic Zone Authority (PEZA) said it plans to develop a skills training and research institute in partnership with its first university special economic zone (SEZ).

PEZA on Monday launched its first Knowledge, Innovation, Science and Technology (KIST) Park at Batangas State University (BSU). KIST Parks are special economic zones using idle land at state universities and colleges for potential locators to lease.

President Rodrigo R. Duterte designated the BSU location a PEZA-registered special economic zone on May 22.

“Being a KIST Park will now enable Batangas State to partner with foreign schools to bring their programs so we can create a more skilled Filipinos as we embark on transforming our workforce to become multi-skilled, multi-knowledge, and world class,” PEZA Director General Charito B. Plaza said in a statement Tuesday.

PEZA, the university, and the Philippine Association of State Universities and Colleges (PASUC) have also signed a memorandum of agreement to develop a special economic zone institute.

“The SEZ Institute aims to provide skills training, research, etc. based on the type of industry identified in the region and be partner with SUCs with competence to transform every Filipino worker into multi-skilled, world class rich human capital, addressing one of the efficiency factors investors are looking for,” Ms. Plaza said.

Trade Secretary Ramon M. Lopez expects the special economic zone to boost industry.

“Ang KIST Park ay siguradong makakatulong sa pagbunsod ng kapasidad at kakayahan ng BSU na magsagawa ng mga pananaliksik para matugunan ang mga pangangailangan ng industriya pati na rin ang pag-incubate ng mga startup enterprises upang matugunan ang demand ng merkado. (KIST Park would surely help BSU improve its capacity for research to address the needs of industry and to incubate startup enterprises to respond to the needs of the market)” he said.

Ms. Plaza expects overall investments in 2020 to decline. The investment promotion agency approved P22.5 billion in investment projects in its July 10 board meeting, the majority of which are new activities from current locators.

These include 10 economic zone proposals and seven ecozone facility enterprise projects.

There are 63 applications for the proclamation of new economic zones at the Office of the President. — Jenina P. Ibañez

The Gift: Perfectly balanced, as all things should be

Seemingly straight out of an episode of The Twilight Zone, the current reality does not feel real.

The Asian Development Bank estimated earlier this year that 87,000 to 252,000 jobs would be lost in the Philippines due to COVID-191; this was an understatement, to say the least. The Philippine Statistics Authority (PSA) reported in its April 2020 Labor Force Survey2 that the unemployment rate rose to 17.7% accounting to 7.3 million unemployed Filipinos — a 15- year-high.

The Department of Labor and Employment (DoLE) further projects that around 10 million workers may lose their jobs by the end of the year. Moreover, the DoLE has tallied about 200 permanent business closures while over 3,000 businesses closed temporarily.3 It was also reported that the DoLE-NCR has already registered 30,157 requests for Certificate of Involuntary Separation (CIS) as of July 1, 2020 — twice the number of CIS applicants from the month before.4

In an interview, Maybank Kim Eng Economist Lee Ju Ye projected the Philippines’ unemployment rate would hit 18.5% this year — the highest in the ASEAN region. The Philippines was named (along with Indonesia) as the most likely country to lag in jobs recovery, due to its longer lockdowns, its struggle to flatten the pandemic curve, and its relatively small fiscal support.5

This is not to say that the Philippine government has done nothing, heartlessly leaving the people to fend for themselves. Aside from government projects such as the Social Amelioration Program (SAP), labor specific COVID-19 mitigating measures have been put in place such as the following:

• Implementation of Flexible Work Arrangements (DoLE Labor Advisory No. 09-20 and 17-20)

• Partial Closure of Establishments to Mitigate Losses (DoLE Labor Advisory No. 17-20)

• Adjustment of Wage and Wage-Related Benefits (DoLE Labor Advisory No. 09-20 and 17-20)

• Suspension of the Probationary Period (DoLE Labor Advisory No. 14-20 and 14-A-20)

• COVID-19 Adjustment Measures Program “Camp” (DoLE Department Order No. 209-20)

• Small Business Wage Subsidy “SBWS” Program (SSS-DoF-BIR Joint Memorandum Circular No. 001-20)

• Temporary Employment — “Tupad” Program (DoLE Department Order No. 210-20)

• Financial Assistance for Displaced Landbased and Seabased Filipino Workers — “DoLE-AKAP” (DoLE Department Order No. 212-20)

The foregoing notwithstanding, after more than four months of varying levels of community quarantine — and reports that the government considered implementing a “Hybrid” GCQ in NCR, an entirely new animal — the pandemic still has not ended; consequently, its effects are still felt.

During the months of quarantine, the government has expanded its testing capability and treatment facilities; however, for Dr. Rabindra Abeyasinghe, World Health Organization representative in the country, the Philippines’ contact tracing and suppression capacities, unfortunately, are “a little weak.”6

Recent data indicate that the positivity rate of those tested for the virus has increased, from 6.5% in June to 7.7% on July 13.7

As if beating a dead horse wasn’t enough, the Department of Health (DoH) also reported that the utilization rates of ward and isolation beds for cases of COVID-19 in Metro Manila are now over 70% and have breached into what it called the “danger zone.”

Amidst continuous statements that the current dilemma is the people’s fault, and confusion on the government’s concrete action plan, the onus to find a solution was then seemingly outsourced to the LGUs, the employers, and even worse, the common citizens. On the other hand, the ILO is of the opinion that the main responsibility falls on public authorities. Accordingly, crisis management cannot be subcontracted but it can be shared.

That being said, the private sector has done its part; the DoLE has reported that over 80% (4,062 out of 5,049) of business establishments in Metro Manila have complied with the interim guidelines on workplace prevention and control of the coronavirus disease (COVID-19).8 Reports of company generosity in the form of monetary donations, free or discounted services, and exhaustion of alternatives to termination, have also littered the news.

During times when some matters are more bent than they are flattened and battling projection numbers are of utmost importance, not all is lost.

It has been reported that Australia is currently interested in hiring Filipino welders and workers in livestock agriculture.9 The Philippine Economic Zone Authority (PEZA) has approved the registration of 50 projects, bringing in P22.5 billion worth of investments.10 The Build, Build, Build (BBB) Program will result in about 400,000 jobs for construction workers. Jobs are also available in the business process outsourcing (BPO) sector.11 The pending P1.5-trillion COVID-19 Unemployment Reduction Economic Stimulus (CURES) Act of 2020 is also something to look forward to.12 Most importantly, there are reports of great progress by Oxford and Moderna in the search for the illusive COVID-19 vaccine.

Notwithstanding everything that has happened over the past four months, it is always the present that is the most important. They say that, “yesterday is the past, tomorrow is the future, but today is a gift. That is why it’s called the present.” The actions and decisions made today will ultimately dictate what happens to the future generations.

Easier said than done, but if we could only find the perfectly balanced — as all things should be — interests of the government, the employers, and the employees, the burden won’t be as heavy as it is now; one can’t exist without the others anyway.

1 Ernie Cecilia, DPM, “Share in the sacrifice, or lose more jobs” available at https://www.manilatimes.net/2020/05/21/campus-press/share-in-the-sacrifice-or-lose-more-jobs/726043 (last accessed July 16).

2 Employment Situation in April 2020 available at https://psa.gov.ph/statistics/survey/labor-and-employment/labor-force-survey/title/Employment%20 Situation%20in%20April%202020 (last accessed July 16).

3 “Permanent business closures estimated at 200, Labor dep’t says” available at https://www.bworldonline.com/permanent-business-closures-estimated-at-200-labor-dept-says (last accessed July 16).

4 Samuel P. Medenilla, “Jobless benefit applications jump twofold in July to 30,000” available at https://businessmirror.com.ph/2020/07/15/jobless-benefit-applications-jump-twofold-in-july-to-30000 (last accessed July 16).

5 Ben O. de Vera, “Study: 8M Filipinos to lose jobs as virus overwhelms economy” available at https://business.inquirer.net/302441/study-8m-filipinos-to-lose-jobs-as-virus-overwhelms-economy (last accessed July 16).

6 Christine O. Avendaño, “WHO finds PH virus suppression, contact tracing ‘a little weak’” available at https://newsinfo.inquirer.net/1306902/who-finds-ph-virus-suppression-contact-tracing-a-little-weak (last accessed July 16).

7 Sheila Crisostomo, “WHO to Philippines: Shorten COVID testing time” available at https://www.philstar.com/headlines/2020/07/15/2028109/who-philippines-shorten-covid-testing-time (last accessed July 16).

8 Ferdinand Patinio, “Over 4K firms in NCR compliant with workplace rules vs. COVID-19” available at https://www.pna.gov.ph/articles/1108923 (last accessed July 16).

9 Pia Lee-Brago, “Australia to hire Pinoy welders, agriculture workers” available at https://www.philstar.com/headlines/2020/07/10/2026909/australia-hire-pinoy-welders-agriculture-workers (last accessed July 16).

10 Louella Desiderio, “PEZA approves 50 projects worth P22.5 billion” available at https://www.philstar.com/business/2020/07/16/2028228/peza-approves-50-projects-worth-p225-billion (last accessed July 16).

11 Ferdinand Patinio, “Gov’t programs available for OFWs displaced by pandemic” available at https://www.pna.gov.ph/articles/1109074 (last accessed July 16).

12 “As quarantine eases, worker layoffs start” available at https://businessmirror.com.ph/2020/06/02/as-quarantine-eases-worker-layoffs-start (last accessed July 16).

The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes, and not offered as, and does not constitute, legal advice or legal opinion.

 

Antonio Karlo A. Noguera is an Associate of the Labor and Employment Department of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW).

aanoguera@accralaw.com

(632) 8830-8000

Health resilience through the implementation of health laws

Over the weekend, the Philippines counted 67,456 confirmed COVID-19 cases, with 22,465 recoveries and 1,831 deaths. Of the total cases confirmed, 43,160 cases are considered as active, majority of which were identified as being in the National Capital Region (NCR).

Based on the latest trends and revised projection, experts from the University of the Philippines said that the number of infections could now reach 85,000 cases at the end of the month. This is 10,000 more cases compared to the previous projection when the President was supposed to declare a modified enhanced community quarantine in the NCR for July 16 to 30, but was appealed to remain at the stricter general community quarantine (GCQ).

The sudden increase in cases was attributed to the improved testing capacity, an increase in the number of accredited laboratories, and the relaxation of restrictions to reopen the economy. The spike in the number of cases has overwhelmed health facilities. Just last week, several hospitals in Metro Manila, both private and public, declared they were at full capacity and wouldn’t be able to accept any more infected patients.

More so, frontline health workers are overburdened. Many of them, whether doctors, nurses, medical technologists, allied medical professionals and other personnel, sacrificed their own health and safety just to perform their sworn duty. After more than four months, these personnel are now physically, socially and emotionally stressed.

Adding further insult to injury, the immediate release of benefits for the frontliners who were infected or have died was not made. Even some of the health workers who were hired on a contractual status experienced delays in receiving their hard-earned salary.

The welfare of our health workers should have been considered thoroughly and the government should prioritize addressing the issues to prevent their recurrence.

Moreover, the pandemic has affected the delivery of vital health services to different patients. With limited transport and due to the fear of acquiring the virus, the health seeking behavior of these patients, especially those who have chronic illnesses, have significantly decreased. Thus, patients with limited resources have no choice but to accept that they need to defer their regular check-ups, scheduled therapies, procedures or even surgeries. For some parents, they have intentionally delayed the scheduled vaccinations of their kids that are essential for the additional protection against diseases.

The Department of Health (DoH) has faced so many challenges and scrutiny in this pandemic crisis. Even the Secretary of Health has repeatedly been in the hot seat and even called to resign his post. Recently, the health agency was questioned due to its slow spending and lack of transparency in the emergency response. Given the initial budget of around P100 billion and additional amount of P48 billion intended for the COVID-19 response, only half was spent from January to May amidst the crisis.

Nonetheless, the experiences and lessons learned can be transformed into an opportunity to strengthen our healthcare system based on existing laws and policies. Key to this is the provision of sufficient resources and sustainable funding, specifically for the progressive implementation of the Universal Health Care (UHC) Law.

For 2021, the DoH proposed around P182 billion for its budget. Unfortunately, this is only 4.2% of the P4.3 trillion target national budget for next year. It is still lower than the World Health Organization’s recommendation of at least 5% of the total budget of a country for the implementation of health-related programs.

As the government aims to eradicate the crisis and prevent future ones, the different stakeholders should be enjoined to ensure a resilient health system for all Filipinos.

On July 27, President Duterte is set to deliver his fifth State of the Nation Address. One can simply hope that he would tackle the plans to improve the current healthcare system. It is also anticipated that landmark health laws (i.e. UHC Act, National Integrated Cancer Control Act, etc.) will be given adequate appropriation for immediate implementation. There should be no debate on their urgency to address the gaps in our healthcare system which the programs mandated in these two laws will directly address.

Alvin Manalansan is a Non-Resident Fellow at the Stratbase ADR Institute and a Convenor of CitizenWatch Philippines.

COVID-19 and Filipino migrant workers: Issues and Policies

By Ma. Alcestis A. Mangahas and Geoffrey M. Ducanes

THE COVID-19 pandemic is having a massive impact on economies and employment worldwide. Forecasts made by multilateral organizations as of June 2020 puts global economic output this year declining by about 5%. Meanwhile, the International Labor Organization (ILO) estimates that around 400 million full-time jobs were lost worldwide in the second quarter of 2020, and that while some recovery is expected, employment is still projected to be down the equivalent of 140 million full-time jobs in the fourth quarter.

Among the most heavily affected workers during this crisis are migrant workers, particularly those not classified as performing “essential work” in their country of employment.

The Philippines, as one of the top sources of migrant workers in the world, is already feeling the pinch in terms of the job displacement, repatriation, and stranding of scores of thousands of its workers, as well as the drop in remittance flows to the country. Remittances in April 2020 was already lower by 16% from last year and forecasts for the entire year see remittances declining by 10% to 30%.

DISPLACEMENT, REPATRIATION, AND STRANDING OF FILIPINO MIGRANT WORKERS
Displacement. According to data published by the Philippine Overseas Employment Administration (POEA), drawing from regular reports of labor attaches from the Department of Labor and Employment (DoLE), the global displacement of OFWs rose rapidly from 5,849, first reported in April 1, to 182,401 in June. Middle East displacements dominated, representing 78% of all displaced OFWs (141,895), though there are also large displacements in Europe (20,348, 11.1%) and the United States (8,790, 4.8%). By the end of 2020, DoLE forecasts that the level of repatriation would rise to about 400,000 workers.

Repatriation. Displacement does not lead to immediate repatriation. In the Middle East, displacement could be limited to adjustment in working hours or reduction of benefits and conditions of work, whereas the rights to stay and residence could continue.

The DoLE data show that the number of overseas Filipino workers (OFWs) repatriated as of July 8 has reached 49,880, representing around 20% of overall displacements. In April, the repatriation of OFWs from Europe and the Americas were facilitated because cruise ships were allowed to dock in Manila Bay and the Filipino crew disembarked. Middle East repatriations were zero in April, started in May, and expanded in June and July, made urgent by both international pressure of destination governments and domestic dismay at internet videos of Filipinos in dire straits in the host countries.

Stranding. When residence and exit permits in the host country expire, provisions for housing and accommodation almost always end immediately. In this situation, prompt repatriation is needed. However, during the pandemic there are natural deterrents to quick repatriation. Airport closures, the absence of flights, and uncertainty about who shoulders the costs have impeded progress. The Philippines’ restrictions on flight entry, imposed early in the pandemic, have caused the numbers of stranded Filipinos to rise. From 225 in April, the number of stranded Filipinos as of end June was at 43,169, with over 58% of them in the Middle East.

WELFARE IMPACT ON MIGRANT WORKERS AND THEIR HOUSEHOLDS
In normal times, OFW households typically do very well, compared to most other households. Analysis of the Philippine Statistical Authority’s household survey data shows about two-thirds of OFWs belong to the richest 40% of households (top two income quintiles), while only 16% are in the poorest 40% of households (and only 5% are in the poorest 20% of households).

But OFW households are also highly dependent on remittances and the loss of remittances can easily tip some into poverty. On average, an OFW household relies on remittances for 43% of its total household income. The complete loss of remittances due to the job loss of its OFW member is sufficient to pull the incomes of OFW households in the second income quintile and even some of those in the third income quintile below the poverty line. Most of the OFWs in low income households are women in elementary occupations (including domestic workers) and services and sales workers. If these are the OFWs losing their jobs and they do not get it back or do not find new jobs, it will have a huge negative impact on the welfare of their households.

POLICY AND PROGRAM RECOMMENDATIONS
To address the humanitarian and socio-economic impacts of COVID-19 on our OFWs, the following four areas of concern should be considered:

• Organized Return. At destination, our OFWs require immediate humanitarian assistance to enable a safe and dignified return. Ensuring a safe return requires establishing identified protocols on health assurances, return travel arrangements. Coordination and communication is required at all levels, including diplomacy at the posts, to ensure documentation of workers’ accrued benefits and assurance for eventual claims.

What has been missing so far in the immediate response is establishing a database of OFW returnees, to obtain full data of their personal profiles and employment training and experience. There should be an effort as well to document the loss of incomes, benefits, and gratuities in the host country, to allow for future claims. Information on educational and occupational profiles will help prepare for employment assistance in the future.

• Returned OFWs will need information on local employment opportunities whether these are: start/develop your own business type of training with credit lines of support; or where possible, wage employment through possible private sector partnerships. Training would be useful especially in skills upgrading around e-commerce, the digital economy and the health care sector.

On the policy level, social protection of displaced workers need to include the returned OFWs, especially those distressed. This is especially critical for those entirely or almost entirely dependent of foreign exchange remittances and having no alternative income sources.

Policy and program focus should shift to ensuring employment and social protection of our workers continuing to live and work abroad, especially in ensuring access to health care and services. Diplomatic representation is essential at the highest levels to safeguard visa rights and provide opportunities for additional and supplemental work.

• Rebooting foreign employment and providing safe channels for repeat work. International labor migration is not expected to completely stop, but it is likely to reduce in scale and pace, certainly within the next two years. There are expectations that the demand for additional labor will continue to increase, especially in aging societies. Requirements for health staff will continue to be stable and so with IT, operations and maintenance (engineering). International shipping will expand with the comeback of trade but manning for cruise ships is not expected to resume soon.

To restart foreign employment will require new safe channels for foreign employment supported by bilateral agreements and regional frameworks. It will require providing for safe-track, green channels for work that would include digital processing of documents, agreed protocols for health testing, pre-departure training and safe travel. It may require having personal, protective equipment and uniforms.

This commentary is an abridged version of Ateneo de Manila University Department of Economics Policy Brief No. 21. http://ateneo.edu/sites/default/files/downloadable-files/Policy%20Brief%202020-21.pdf

 

Ma. Alcestis Mangahas is a Fellow of Social Weather Stations (SWS) while Geoffrey Ducanes is Associate Professor at the Ateneo de Manila University Department of Economics and also a Fellow of SWS.

China is getting closer to its Lehman moment

By Anjani Trivedi and Shuli Ren

WALL STREET’s movers and shakers are largely seen as part of the solution to the coronavirus-ravaged US economy. Chastened by the collapse of Lehman Brothers and the great recession over a decade ago, they were forced to scale back businesses considered risky and clean up their balance sheets. In this crisis, they’re no longer the problem.

The same can’t be said of China. Beijing has made martyrs of its banks and insurers, asking them to lend to the needy, forgo profits and support the animal spirits of its trillion-dollar capital markets. But, along with brokers, they’re still a troubled bunch, far from being sturdy pillars of the financial system. If anything, COVID-19 has exacerbated credit risks. China’s Lehman moment, when isolated events cross the line into systemic effects, is just lurking around the corner.

Last Friday, regulators took control of nine troubled firms, controlled by fallen billionaire Xiao Jianhua’s empire under Tomorrow Holding Co., totaling more than 1.2 trillion yuan ($171.5 billion) in total assets. It’s one of the largest seizures in China’s recent history. Xiao was taken from Hong Kong’s Four Seasons hotel by Chinese authorities three years ago and has disappeared from the public eye since.

That is unsurprising: Insurers have been problematic since at least 2017. A review then found that their corporate governance scores were deteriorating. Companies like Huaxia Life Insurance Co., one of the seized firms, were selling policies that flouted rules and improperly disclosed policyholders’ information. The insurance regulator said it was “determined to weed out illegal and improper practices.” It also found that companies were falsifying funding sources and leveraging the same assets for multiple loans.

The takeovers come a year after the seizure of Baoshang Bank Co., when we wrote that counterparty and solvency risks had arrived — together. Regulators tried to say then that it was a one-time solution. Yet, the most recent events point to these issues becoming acute, and spreading. At some point, the chain of lending and liquidity will be disrupted.

Beijing has once again shied away from letting the market price such likelihoods. “The dilemma is fundamental,” as analysts at Rhodium Group wrote after the Baoshang incident. Authorities can allow the market to digest failures, or try to maintain “stable” production of ever-riskier forms of credit. They can’t have both. By effectively assuming counterparty risk, regulators are hurting market credibility at a time of rising jitters as financing channels are squeezed.

To be fair, they didn’t have much choice. Heavily leveraged, a single-digit percentage drop in asset value induced by COVID-19 could wipe out these firms’ equity book value. Take Huaxia Life. Over the last decade, via aggressive selling of high-yield savings products, it has become the fourth-largest insurer in China, with close to 600 billion yuan in total assets at the end of 2019. Its assets-to-equity ratio stood at a whopping 26 times.

It’s not hard to imagine large asset write downs behind closed doors. As the impacts of COVID-19 distressed businesses in the second quarter, the worst bond rout in a decade caused investors to nurse losses on even relatively safe wealth management products, not to mention riskier non-credit investments. In the first three months of the year, data provided by CLSA Ltd. show that Huaxia Life’s book value shrank by 23% quarter on quarter, due to mark-to-market losses of its investments. It’s no wonder that the insurer is on regulators’ radar, or that they’re trying to send a message.

Still, China’s financial woes extend beyond a fugitive businessman’s overly extended balance sheet. Since 1995, only 12 firms have been seized by the central bank or other agencies — half of them over the last year, excluding the ones last week. Some large trust companies have fallen afoul of authorities, unable to pay back investors’ principal and interest in recent months.

Under the latest takeovers, regulators will send teams to take the roles of shareholders, directors and management. Other financial firms, including some of China’s largest insurers and securities houses, will end up as trustees. In theory, they’ll push to shrink the troubled businesses and monetize assets.

Call it what you want, but this is China’s version of financial contagion. Just plugging holes will no longer cut it. How many firms can regulators try to salvage? How much capital will be injected? Can they find willing shareholders and white knights?

The answers to such questions won’t come without pain. According to CLSA, 11 insurers with about 15% of the market and 2.4 trillion yuan in total assets would be “walking a tightrope” with regulators. On average, if their asset value was 2% to 5% less than what they showed in 2019, their surplus capital — the capital over the minimum regulatory red line — would have been wiped out. If Beijing ever needs to rescue them all, the costs would be enormous. If not, the insurers would have no choice but to dump assets, which could threaten the broader market.

So far, Beijing hasn’t successfully unwound troublesome financial empires. In the two years since the overextended buyer of New York’s Waldorf Astoria, Anbang Insurance Group Co., was seized, attempts to dispose of its assets and find strategic investors have turned into a prolonged and painful process.

It may be time for Beijing to face its fears and let some companies fall off the cliff. In doing so, it may finally be able to save the ones that really matter.

BLOOMBERG OPINION

Internet analyst sees permanent tailwind from lengthy lockdowns

Internet companies are likely to be long-term winners from the pandemic as lockdown measures have now lasted long enough for changes in consumer behavior to become permanent, according to Credit Suisse.

“It takes 66 days for a change in behavior to turn into a habit,” and “we are now well into the time frame for consumer behaviors learned during quarantine to become lasting habits,” the firm wrote.

Analyst Stephen Ju singled out social-media companies as among those that would likely benefit from this tailwind, echoing a growing consensus that has been made elsewhere about e-commerce names.

As part of its call, Credit Suisse raised its price targets on Facebook, Snap, Pinterest, and Google-parent Alphabet, all of which derive most of their revenue from digital advertising.

“One of the biggest questions facing investors is ‘will it stick’ in terms of app engagement” and online purchasing behavior, the firm wrote. The length of the lockdown is “a clear signal that the acceleration in queries, time spent, and e-commerce purchasing should be growing and hopefully accelerating from a higher baseline.” The firm cited a Google Cloud Next session for the statistic about 66 days.

The First Trust Dow Jones Internet Index Fund, an exchange-traded fund that tracks Internet stocks, is up more than 30% in 2020. The S&P 500 is higher by less than 1%.

Credit Suisse’s comments mirror a recent report from Jefferies about e-commerce stocks. “Behavioral changes brought about by the pandemic have permanently increased online consumption,” the firm wrote, adding that e-commerce traffic “has remained robust even after states began reopening.”

Earlier this month, Bloomberg Intelligence calculated that the penetration of digital U.S. retail sales “could double by 2024,” a trend accelerated by coronavirus-related store closings. Citi also expects online retail will continue to gain share. While total U.S. retail sales “are expected to be only 1% above 2019 levels” in 2022, “e-commerce is expected to increase 43%,” while brick-and-mortar retail falls 4%, the firm wrote, citing eMarketer forecasts.

EU leaders agree on massive stimulus plan

European Union leaders agreed on a massive stimulus plan at a pre-dawn meeting on July 21. — REUTERS

BRUSSELS — European Union (EU) leaders agreed on a massive stimulus plan for their coronavirus-blighted economies at a pre-dawn meeting on Tuesday after a fractious summit that lasted almost five days.

Summit Chairman Charles Michel tweeted “Deal” shortly after the 27 leaders reached agreement at a 5.15 a.m. (0315 GMT) plenary session.

“This agreement sends a concrete signal that Europe is a force for action,” Mr. Michel said at a dawn news conference

“It is about a lot more than money. It is about workers and families, their jobs, their health and their well-being. I believe this agreement will be seen as a pivotal moment in Europe’s journey, but it will also launch us into the future.”

French President Emmanuel Macron said the deal was truly historic and that he was convinced the recovery plan and budget could meet the challenge of the coronavirus pandemic.

Officials said the deal, which came after Mr. Michel presented compromises on a 750 billion euro recovery fund, is critical to dispel doubts about the bloc’s very future.

News of the deal saw the Euro rise to a fresh four-month high of $1.1470.

The EU was slow to coordinate its initial response to the COVID-19 pandemic and, already weakened by Britain’s departure from the bloc, a united front on economic aid would demonstrate that it can step up to a crisis and stay united.

“It has been a long summit and a challenging summit…,” Irish Prime Minister Micheal Martin said as the Brussels summit approached the record length set at a 2000 meeting in the French city of Nice of almost five full days.

European nations have done a better job of containing the coronavirus than the United States after a devastating early few months that hit Italy and Spain particularly hard, collaborating on medical, travel and economic fronts.

The European Central Bank has pumped unparalleled money into economies to keep them going, while capitals hammer out their recovery fund.

Diplomats said the leaders appeared to put aside the rancour that stood in the way of a compromise over hours of haggling through the weekend.

‘STINGY AND EGOTISTICAL’
Emotions had ran high at a dinner on Sunday as a group of fiscally frugal northern nations led by the Netherlands stood their ground on the level of free grants within a proposed special recovery fund of 750 billion euros overall.

Mr. Macron lost patience in the early hours of Monday, banging his fist on the table in frustration at “sterile blockages” by the “frugals,” two diplomats said.

Polish Prime Minister Mateusz Morawiecki also railed against the “frugals,” branding them “a group of stingy, egotistic states” that looked at things through the prism of their own interests.

Poland would be a top beneficiary of the recovery package, receiving tens of billions of euros in grants and cheap loans, along with high-debt Mediterranean-rim countries that have taken the brunt of the pandemic in Europe.

But the rhetorical skirmishing faded on Monday, and the leaders homed in on an agreement on the stimulus package and, linked to it, the EU’s 2021-2027 common budget of around 1.1 trillion euros.

Hopes for a deal to help address Europe’s deepest recession since World War Two sent Italy’s borrowing costs to their lowest since early March and pushed the euro to a 19-week high.

Mr. Michel proposed that within the 750 billion euro recovery fund, 390 billion should be non-repayable grants, down from 500 billion originally proposed, and the rest in repayable loans.

The Netherlands had pushed for a veto on aid for countries that backslide on economic reform, but diplomats said it was now willing to back a “stop-the-clock” mechanism by which member states could put a brake on disbursements for three months and have them reviewed.

Disbursements will also be linked to governments observing the rule of law. Hungary, backed by eurosceptic ally Poland, had threatened to veto the package if funds were made conditional on upholding democracy, but diplomats said a way forward on that was found. — Reuters

Singapore grapples with deadly dengue

SINGAPORE is on track to record its worst dengue outbreak in history, with new weekly cases that have surpassed Covid-19 cases in the city-state.

Recorded cases of the disease reached 1,736 in the week ending July 18, the highest number of weekly infections ever recorded, according to the country’s National Environment Agency. Dengue, also known as break-bone fever, is spread via mosquito bites and can cause symptoms like fever and body aches.

Deaths from dengue are creeping up even as health authorities in the country continue to grapple with the ongoing coronavirus pandemic. So far this year, 19 people have died of dengue, the Straits Times reported Monday, about two-thirds the reported death toll of 27 people from Covid-19. Like dengue, new Covid-19 cases are still averaging a triple-digit daily rise, though the figure has tapered off somewhat from previous months.

The country’s environmental agency has warned that the total number of dengue cases this year — currently at more than 18,900 cases — is expected to surpass a historical high of over 22,000 reported in 2013. Last week, Singapore announced stiffer penalties for households and businesses repeatedly found with mosquito breeding grounds on their premises, while vector control efforts like fogging have increased. — Bloomberg

MP Promotions thrilled to have Marcial in its fold

RECOGNIZING how Tokyo Olympics-bound Eumir Felix Marcial brings added dimension to its roster of fighters, Manny Pacquiao (MP) Promotions said it is thrilled to have the boxer in its fold and take the latter’s career to another level.

Met members of media at the online Philippine Sportswriters Association Forum on Tuesday for the first time after agreeing to a promotional deal last week, Mr. Marcial and MP Promotions President Sean Gibbons said they are excited over the newly signed partnership and that they are looking forward to getting things going and exploring the numerous opportunities ahead.

After taking his time to evaluate all his options in turning professional, Mr. Marcial, 24, finally revealed last Thursday that he had made the decision to sign a six-year promotional deal with the group of Filipino boxing legend Manny Pacquiao as he believes under the promotion he would be taken care of and that he would continue to grow as a fighter.

In choosing to sign with MP Promotions, Zamboanga native Marcial said a key factor was the former’s full support of his desire to continue representing the country in international tournaments like the Southeast Asian Games, Asian Games and the Olympics.

Right now, International Boxing Association (AIBA) rules allow professionals to compete in events it sanctions, something the boxer wants to continue pursuing.

With MP Promotions, Mr. Marcial joins world champions Pedro Taduran, Johnriel Casimero and Jerwin Ancajas, whose paths as world-class pro fighters he wants to follow.

Given the circumstances of Mr. Marcial as a “pro-Olympian fighter,” apart from his vast potential to establish a solid professional career, Mr. Gibbons said MP Promotions is thrilled to have welterweight Mr. Marcial on board their team.

“I think we have the brightest, biggest prospect from the Philippines in Eumir. What an honor to have him in MP Promotions. I’m not used to working with amateurs but I’m excited to work with him,” said Mr. Gibbons.

“He takes the promotion to another level. We usually work with top fighters already but Eumir is special because he qualified for the Olympics. He is a unique fighter. The Philippines don’t have big boxers like him. His journey is different because in the Olympics he is also representing the country,” the MP Promotions official added.

SUPPORTING OLYMPIC QUEST
With Mr. Marcial’s contract built around fulfilling his Olympic obligations and pursuing his gold medal dreams, Mr. Gibbons shared that the first year of the contract would largely be dedicated to supporting Mr. Marcial’s preparation.

They are currently working with the boxer for the best possible arrangement for his training, including considering Mr. Marcial’s request to bring over his coaches from the amateur ranks, like Don Abnett and Ronald Chavez, citing familiarity, as well as in consideration of the current situation with the coronavirus disease 2019 (COVID-19) pandemic.

“We are working with Eumir and the federation (Alliance of Boxing Associations of the Philippines),” said Mr. Gibbons.

Mr. Gibbons went on to say that they do not see Mr. Marcial’s decision to turn professional getting in the way of what he wants to accomplish in the rescheduled Olympics next year.

MP Promotions is looking to give Mr. Marcial a couple of fights before he plunges to exclusive Olympic training next year.

The promotion is eyeing one fight in October or November depending on the COVID-19 situation.

Featuring Mr. Marcial in a four or six-rounder undercard of a possible Pacquiao fight, too, is not being discounted, Mr. Gibbons said.

Mr. Marcial booked a spot in the Olympic Games in Tokyo at the 2020 Asia and Oceania Olympic boxing qualifiers in Amman, Jordan, in March. — Michael Angelo S. Murillo

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