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Slow, U-shaped recovery shaping up behind Q2 rout — FMIC, UA&P

THE recovery will be slow and U-shaped with the dismal performance of the economy extending into the second quarter, according to First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P).

In the April issue of their Market Call, FMIC and UA&P said gross domestic product (GDP) will “contract severely” in the second quarter, when the Luzon lockdown was effective for all of April and half of May.

“Earlier optimism for a V-shaped recovery has dissipated as supply chains, both domestic and international, got disrupted,” according to the report, issued Wednesday.

“The economy may instead see a U-type recovery from a period of decline to a slow movement back to normalcy,” it added.

For the first quarter, FMIC and UA&P said they estimate negative to flat outcomes since the impact of the enhanced community quarantine (ECQ) came in late in the quarter.

However, output and exports from other regions spared from strict lockdown measures, should have produced some growth, according to the report, which cited agriculture and mineral exports out of Mindanao.

“While we have a bit of hope for flat GDP in Q1 buoyed by exports and output in the Visayas and Mindanao, the Enhanced Community Quarantine (ECQ) from mid-March to end-April in Luzon will thrust GDP growth deep into negative territory in Q2,” it said.

PSA will report official first quarter GDP data on Thursday, May 7.

The report noted that lockdowns here and overseas caused unemployment to spike and production to be cut back severely, dampening the income and spending of both consumers and producers, with governments responding with “unprecedented deficit spending.”

The measures also disrupted supply chains due to factory shutdowns, temporary store closures and inventory buildups, adding to the series of issues faced by producers.

“On a quarterly basis, Q2 will likely see a bigger dip in manufacturing output since April has a full month of factory shutdowns and more lead time will be required to get supply chains to function effectively,” it said.

It said inflation “won’t be a concern” as global oil prices plummeted, pulling down prices of goods, which will offset the tax hikes that took effect this year for alcoholic drinks and tobacco products, and upticks in basic commodity prices caused by supply chain disruptions.

It added that crude oil prices are not likely to recover “anytime soon” as demand remains weak across the globe.

FMIC and UA&P also expect a budget deficit equivalent to 7-8% of GDP this year with tax revenue expected to drop on weak production and sales, while government expenditures will surge.

“Nevertheless, the government still has the ability to borrow more from both domestic and foreign sources in order to boost its COVID-19 response program,” it said.

The government estimates a budget deficit equivalent to 5.3% of GDP this year, up from a 3.2% ceiling projected earlier before the pandemic. — Beatrice M. Laforga

New House bill calls for P1 trillion in stimulus spending

A BILL providing for a P1-trillion post-pandemic economic stimulus package was filed in the House Wednesday by Albay Representative Edcel C. Lagman.

House Bill 6693, which if passed will be known as the COVID-19 Response Act, proposes to set aside P164 billion for the Department of Social Welfare and Development for its social amelioration program.

It also proposes P82.26 billion worth of funding for wage subsidy and livelihood financial assistance to displaced workers to be implemented by the Department of Labor and Employment and P110.51 billion for the Department of Health’s COVID-19 containment efforts.

The bill also allots P100 billion to the Department of Trade and Industry for financial assistance to micro, small and medium enterprises, manufacturing enterprises, and export-oriented companies; P50 billion to the Department of Agriculture for financial assistance to farmers; and P71.61 billion for the Department of Tourism’s Tourism Recovery Program.

About P90.31 billion will be allotted to the Department of Transportation to support the aviation and maritime sectors; P200 billion to the Department of Public Works and Highways for the construction of health facilities and implementation of infrastructure projects; and P100 billion for assistance to local government units to be implemented by the Department of Interior and Local Government.

The measure also seeks to allocate about P4 billion to upskill workers through the Technical Education and Skills Development Authority’s programs.

Mr. Lagman said funding sources include measures to be implemented by the Bangko Sentral ng Pilipinas; grants and concessional loans from the World Bank and the Asian Development Bank; government bond issues; the sale and privatization of government assets; and the extension of tax amnesty programs.

“In order to continue the various emergency assistance to the marginalized sectors as well as to the adversely affected members of the middle class, and to bail out businesses which are reeling from the onslaught of the evolving severest recession since the Great Depression, the enactment of this bill for continued emergency response and economic stimulus package is of critical immediacy,” he said in the bill’s explanatory note.

Marikina Rep. Stella Luz A. Quimbo and Albay Rep. Jose Maria Clemente S. Salceda earlier proposed their own versions of an economic stimulus bill which were consolidated into the proposed Philippine Economic Stimulus Act (PESA).

According to AAMBIS-OWA Party-List Rep. Sharon S. Garin, who co-chairs the House’s Defeat COVID-19 committee economic stimulus cluster, the latest draft of the PESA proposes about P475 billion in the first year of the intervention period of 2020-2022 and is currently pending at committee. — Genshen L. Espedido

March port revenues drop 79% on COVID-19 disruptions

REVENUE earned by ports nationwide fell 79% in March due to disruptions to the supply chain caused by the coronavirus disease 2019 (COVID-19) outbreak, the Philippine Ports Authority (PPA) said.

In a briefing Wednesday, PPA Vice Chairman and General Manager Jay Daniel R. Santiago said revenue

took a hit from the enhanced community quarantine imposed on Luzon in the middle of March.

“Sa buwan ng Marso ng 2019 year on year kung ikokompara sa Marso ng 2020, bumagsak ang revenues ng ating pantalan ng halos 79% (in March port revenue dropped 79% year on year),” he said.

Though port operations were exempt from the quarantine, many cargo owners could not take out their shipments because their own operations were affected by the lockdown, while inbound shipping also declined because factories in China were still not at full production.

According to guidelines of the Inter-Agency task Force for the Management of Emerging Infectious Diseases, cargoes of critical goods are exempt from the quarantine restrictions.

The PPA said the March result brought the agency’s net profit in the first quarter down 25% year on year. — Gillian M. Cortez

Tax consequences of retrenchment due to COVID-19

The coronavirus disease 2019 (COVID-19) outbreak has significantly impacted the global economy and sent it into a slowdown. The Philippines is no exception.

With public health at stake, the government imposed necessary measures to mitigate the spread of the disease, suspending mass transportation, shutting down most businesses, and declaring lockdowns. The loss of earnings and the significant costs incurred by businesses have brought the economy to a level that no one could have foreseen.

Employers have had to find ways to make ends meet. Alternative work methods were adopted to sustain operations, and to the extent possible, cut down on costs. However, despite all efforts to mitigate losses, many enterprises, large or small, could have no option but to downsize their work forces or permanently close the business.

RETRENCHMENT
Under Article 283 of the Labor Code, the employer may terminate an employee for the installation of labor-saving devices, redundancy, retrenchment, or the closure or cessation of operations of the establishment or undertaking.

In the Supreme Court decision G.R. No. 174214 dated June 12, 2012, the term retrenchment was defined as “the termination of employment initiated by the employer through no fault of and without prejudice to the employees.” It can only be resorted to prevent a substantial or reasonably imminent loss, say during a recession, depression, seasonal fluctuations in business activity, or during lulls occasioned by lack of orders, shortages of material, or conversion of the plant to a new production system, the introduction of new methods or more efficient machinery, or automation. In other words, business losses, lack of work, or considerable reduction in the volume of business are valid reasons for termination of employment.

In such cases, the law requires employers to pay separation benefits to the impacted employees equivalent to one month’s pay or at least half a month’s pay for every year of service. A fraction of at least six months is to be considered a full year.

IS THE SEPARATION PAY OF A RETRENCHED EMPLOYEE SUBJECT TO TAX?
Under Section 32(B)(6)(b) of the Tax Code, any amount received by an official or employee or by his heirs as a consequence of separation from the service of the employer because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee shall be exempt from tax.

As confirmed by the Bureau of Internal Revenue (BIR) in several rulings, any payment to the employees, due to their involuntary termination for grounds beyond their control, is exempt from taxation, regardless of the amount.

Such exemption, however, does not extend to remuneration not relating to the retrenchment per se such as earned salary, government-mandated 13th month pay and other benefits on account of employment that are in excess of the P90,0000 tax-exempt threshold. These items are subject to income tax, and consequently, to withholding tax on compensation regardless of the retrenchment.

Therefore, it is important to segregate or distinguish separation pay from the regular salaries and other compensation items reported in the income tax return (ITR), audited financial statements (AFS) and in the Alphalist of Employees (alphalist). This is because in the event of an audit, the BIR normally compares salaries reported in the ITR/AFS and the alphalist. If there is a discrepancy in the amounts reported in these documents, the BIR will likely assess the employer for deficiency withholding tax on compensation and disallow the related expense for income tax due to under-withholding, or attempt to assess deficiency income tax on the ground of undeclared expense resulting in undeclared revenue. Recording the separation pay to an account other than salaries or disclosing it under the relevant notes to financial statements could help address the issue.

ADMINISTRATIVE REQUIREMENT FOR EXEMPTION
To confirm the eligibility for tax exemption of the separation pay, the BIR issued Revenue Memorandum Order No. 66-2016 to guideline the securing a Certificate of Tax Exemption (CTE) from Income Tax and Withholding Tax. For retrenchment, the BIR requires the following documents:

1. Copies of the written notices served to the employee and the appropriate Regional Office of the Department of Labor and Employment (DoLE) at least 30 days before the intended date of termination, specifying the grounds for separation; and

2. A board resolution, in case of a juridical entity, or sworn statement to be executed by the owner, in case of a sole proprietor, stating that:

a. the retrenchment is reasonably necessary and likely to prevent business losses;

b. the losses, if already incurred, are not merely de minimis, but substantial, serious, actual and real, or if only expected, are reasonably imminent, with appropriate supporting evidence of said losses;

c. the retrenchment is made in good faith for the advancement of its interests and not to defeat or circumvent the employees’ right to security of tenure; and

d. the selection of employees to be terminated has been made under fair and reasonable criteria.

Applications for the issuance of a CTE for separation pay must be filed with the appropriate BIR office, where the employer is registered.

In times of economic hardship where businesses and employees are short of funds, it is crucial to implement the rules correctly. To a breadwinner, a paycheck will sustain the family. To a company, erroneous withholding may expose itself to BIR scrutiny, which may lead to an assessment. During times of austerity, there is little room for error where every peso counts.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

 

Nelson V. Soriano is a Director at the Tax Services Department of Isla Lipana & Co., the Philippine member firm of the PwC network.

+63 (2) 8845-2728

nelson.soriano@pwc.com

Malaysia will be crucial to Asia’s COVID-19 damage control

By Daniel Moss

ASIA has a new public emergency: breathing life into moribund economies.

Months after severely curtailing social and commercial activity in a bid to contain COVID-19, governments are scrambling to reboot activity. They confront a coronavirus that isn’t out of business but economies that very nearly are. The policy priority is shifting from suppressing infections at almost any cost to combating truly awful scenarios for jobs, prices and gross domestic product.

Malaysia has often been a poster child for Southeast Asia’s booms and busts. The nation is again at the confluence of powerful trends. Its experience in the pandemic illustrates conditions around the region, and the choices that it now makes may be instructive. In times of tumult, the country has usually been a source of stability. Malaysia tends to avoid the sudden swerves in policy and coups that have characterized many of its neighbors. The route that Malaysia takes to recovery will be closely watched. A crash-and-burn here would bode poorly for the region.

Prime Minister Muhyiddin Yassin has declared that nearly all curtailed activities can resume, rightly fearing a deep recession will be exacerbated every day the country is mothballed. But some powerful provincial administrations are balking. State leaders fret about a spike in infections. Should life return too quickly to a semblance of normality, there’s a legitimate concern that the lid keeping cases under control will be quickly blown. But should a nation wait to reopen for business until there is little or no chance of a renewed viral spread? That could take years.

Malaysia’s thankless equation is part of a global conundrum. Goldman Sachs Group, Inc. and Morgan Stanley economists said in recent days that there’s evidence that worldwide activity has bottomed and is starting to recover. But the rebound from a shockingly poor first-half is predicated, at least in part, on lockdowns easing. A jump in new cases from folks getting together again would prompt new closures.

Policy makers are contending with this great circularity. Vietnam called off its stay-at-home order last week. Singapore plans to gradually lift a few restrictions imposed during its “circuit-breaker” period. Indonesia, which for months denied the pandemic could penetrate its borders, has more COVID-19 deaths than anywhere in Asia outside China and India. Jakarta is taking a big hit to growth and may be running out of time to get ahead of the downturn.

For Malaysia, there are also homegrown political challenges. Just as the pandemic was rippling through the region, coalition intrigue felled Mahathir Mohamad’s government, the first led by a long-suffering opposition since independence. The new cabinet restores much of the old power structure but has yet to face a session of parliament; its claims of having majority-backing have yet to be tested on the floor. These are consequential times for a team that lacks the stable mandate of a general election.

In a nod to the dire circumstances, Malaysia’s central bank axed its benchmark interest rate by half a percentage point Tuesday, the biggest reduction since the Great Recession. Bloomberg Economics foresees the economy shrinking 6.7% this year. The bank said conditions will be “particularly challenging.” Together with fiscal stimulus, officials aim to “offer some support to the economy.’’ Bank Negara has monetary space — the main rate stands at 2% after the cut — so why not use it? This isn’t the time to fret about the approach of zero. Across the world, borrowing costs are being pushed to rock-bottom levels.

The bank doesn’t just have to worry about growth vanishing; consumer prices fell in March for the first time in a year. Malaysia could be heading for its first annual deflation since 1969, according to economists at United Overseas Bank Ltd. Presenting Bank Negara’s annual report last year, Governor Shamsiah Yunus told journalists to put deflation out of their minds. It shows how the unlikely has become entirely plausible in the COVID-19 era.

The year 1969 was a defining moment in Malaysia’s history. Communal violence devastated Kuala Lumpur and gave birth to policies that became a bedrock: The majority Malays would receive an array of preferences, especially in the public sector and education, over ethnic Chinese, who long controlled the bulk of private wealth. The framework has persisted, though critics contend it fosters rent-seeking and saps aspiration.

It hasn’t been tested by economic circumstances like these. As in other countries, Malaysia’s pre-existing conditions look more serious under COVID-19 pressure. A lot rides on how they’re handled. This government wasn’t voted into office, but it’s the one Malaysia has. Reaching across the aisle to create a national unity team — Mahathir’s cabinet, for all its shortcomings, did have physicians in its top two slots — would show seriousness. Few things matter now more than judgment and experience.

Huge forces are reshaping the global economy in which Malaysia has mostly prospered the past few decades. At the least, the pandemic will accelerate trends already in place. Long reliant on manufacturing exports, oil, and tourism, the country needs to retool, all the while managing an ethnically and geographically diverse populace. Does China, Asia’s most recent commercial patron, become emboldened or retreat? How does Malaysia handle that shift?

If the right choices are made, Malaysia lives to fight another day. If not, Southeast Asia loses another piece of stability in a world that needs it.

 

BLOOMBERG OPINION

Practical approaches

My friend Meniong, the late Negros Oriental governor and congressman Herminio G. Teves, would have been 100 years old on April 25. But it was not his fate to reach that milestone. It has been almost a year since he passed on last May 15, just 20 days after he celebrated his 99th birthday. It is in crucial times like now that I truly miss his practicality and old-age wisdom.

Meniong was a businessman and a politician. He served as governor and as congressman. His brother Lorenzo served as governor, congressman, and senator. Meniong’s son, Margarito or Gary, served as congressman, Secretary of Finance, and a constitutional convention delegate. And two of Meniong’s grandsons have served Negros Oriental as member of the House of Representatives.

But Meniong’s advantage over all his kin, and the source of his down-to-earth wisdom, was his life experience. He was around for a long time: born in the American period and prior to the Commonwealth era and the 1935 Constitution; he survived the Second World War in 1941-1945; saw the Republic gain independence in 1946; lived through Martial Law that started in 1972; and witnessed the 1986 EDSA revolt and the restoration of democracy in the country.

In terms of Economics, he went through the period of US parity; import substitution; Filipino-first; retail trade nationalization; the transition from agriculture to manufacturing and industries; and all the ups-and-downs and boom-and-bust cycles of the Philippine economy from 1920 until 2019. Rarely can we find individuals like him who were actively involved in both the country’s politics and economics for about 70 years of his life. This is a distinction usually enjoyed by institutions, not by individuals. But Meniong had that privilege.

He had a front row seat to the Philippine experience for almost 10 decades, being part or witness to many of the milestones in the country’s political and economic history. And, if Meniong was still alive today, he would probably say that while COVID-19 will knock us out not just once but perhaps many times over the coming years, the Filipino people will survive, like it has survived everything else that has come its way since Spanish ships found their way to our shores in the 1500s.

What I remember most about Meniong was his practicality, or his knack for “simple” solutions even to the most complex situations. In years that I had known him, he was always very down-to-earth, very folksy, and quick to offer a smile and a very firm handshake. And then there was his common sense way of dealing with things. He was a veteran of life, and it was the way he did things, the way he went about them, that I admired the most about him.

And it was his distinct or particular way of thinking that allowed him to successfully steer the Committee on Ways and Means at the House of Representatives as its chairman for a number of years. Ways and Means, of course, covered taxation and how the government could raise revenues to finance its operations, projects, and programs.

Meniong wasn’t an economist. His “economic” training came from his decades of experience in running his own enterprises. His educational background actually involved shipping. He went to the Philippine Nautical School and graduated at the top of his class in 1941 with a degree in maritime transportation. He was a deck officer on an inter-island ship when the war came to Philippine shores in December 1941.

During the war, given his maritime training, he helped out on a number of US vessels. He helped ferry military equipment and soldiers all around as part of the merchant marine fleet. That is, until a Japanese bomber sunk their ship. After the war, he was head instructor at Cebu Nautical School. He later joined Iloilo Negros Shipping Company’s Cebu City operations, and was its manager from 1947 to 1951.

I guess there is something about being a mariner, a seafarer, that helped keep him steady even in rough waters. Perhaps it is the experience of venturing out; of living in the high seas for days on end with limited supplies, unpredictable weather conditions, and the distinct possibility of not ever making it back to port for their families. Survival relies mainly on one’s own wits and abilities to weather even the worst conditions.

Meniong was already 49 years old when he first joined the pre-Martial Law congress. He was 65 when he became governor in 1986. He was 78 when he started his second stint in Congress in 1998, but he still managed to work for three terms or nine years. He was 87 when he “retired” from Congress, and renewed his focus on his businesses. At 91, he was still playing some golf and looking for new business ventures.

Years back he had asked me to edit his book on legislating tax laws. And it was while going over his book that I truly appreciated his common sense and practical approach to issues and other things. Meniong’s broad experience, and his unquenchable thirst for knowledge, were the main sources of his wisdom.

I recall a number of situations in the past, and his simple solutions to them. Like in the case of school delinquency and malnutrition in his district. He noted that many children skipped school to help their parents in the fields so that the family can earn and buy food. He resolved to fund school feeding programs where children would get to eat as long as they’d go to school. And, he made sure the school meals were fortified with milk and vegetables like malunggay.

And then there was the concern that many motels were allegedly under-reporting revenues, and tax payments. He suggested putting discreet “inspectors” at motel entrances tasked to simply count the number of cars or taxis coming in and getting rooms. This way, authorities could estimate or approximate the motels’ revenues, and their taxes due.

There was also a time when the US government was extending agricultural commodities grants to the Philippines. He quipped that by doing so, the US was actually saving money from having to just warehouse and store all their surplus farm products. By giving them to countries like the Philippines, even at subsidized rates, the US would get a better return.

It was his simple way of looking at things, and understanding their implications, that I miss particularly in this COVID-19 situation. I am sure he would have had some simple but effective approaches to providing particularly for the poor during quarantine or lockdown. And perhaps he would have also supported the move to temporarily raise tariffs on oil and fuel products to help raise more revenues for COVID-related interventions.

One suggestion recently came out from researchers in Norway regarding the reopening of public schools at intervals. Reading the proposal, as reported by The New York Times, I could not help but remember Meniong, for it was the type of practical suggestion that he could have supported as well.

Norwegian medical researchers suggested opening one school for two weeks with half the usual number of people and six-foot physical distancing. All students and teachers will be tested for COVID-19 before opening and after two weeks. If transmission didn’t increase in the reopened school after two weeks, then the trial would be repeated with more students and less distance each time.

This can be tedious, I know. It will also require focus and determination to get done, not to mention resources and a lot of patience from both authorities and the public. But the Norwegian suggestion is the kind of practical approach that can be considered to deal with our present situation.

It is not highly technical or high-technology driven. The main requirement is the availability of tests. And, of course, the support of people for a staggered school reopening, at two-week intervals. With this, over time, some semblance of regularity can be achieved. As like with all things, COVID too shall pass. It may take months, or years.

But it will pass, and life will go on.

 

Marvin Tort is a former managing editor of Businessworld, and a former chairman of the Philippines Press Council

matort@yahoo.com

Growth lockdown and Solar sa Politika

Some countries and economies have released their first quarter (Q1) 2020 GDP growth data already and I compared the growth rate of those that imposed a hard lockdown with those that have no or a light lockdown. The result is interesting (see Table 1).

Sweden did not impose a lockdown and nor business shutdowns yet it has fewer deaths per 1 million people compared to four other European countries, and it managed to escape growth contraction.

The same is seen for Asian economies with Q1 2020 data as of this writing — hard lockdown economies China, Hong Kong, and Singapore suffered contractions.

The Philippines will report its Q1 2020 growth on Thursday. One indicator of how bad things are in the country is the huge drop in electricity demand as many businesses were shut down. Consequently, electricity prices at the Wholesale Electricity Spot Market (WESM) declined big time in March-April (see Table 2).

NOT SO FREE ELECTRICITY
With a huge decline in electricity prices — of P2.73/kWh in March then P6.68/kwh in April 2020 compared to their year ago levels — there is no reason or justification for certain populist and socialistic groups to call for “free electricity” for lifeline customers (those who consume 50 kwh per month or less). Big losses were experienced by many generation companies (gencos) at these low prices.

The deep decline in electricity demand is an indicator of deep business losses starting March 16 when the enhanced community quarantine (ECQ) was imposed. The extension of the ECQ until May 15 was wrong and there should be no further extension beyond May 16 even for a single day.

SOLAR POWER WOES
A group of residents of Paluan, Occidental Mindoro sent me some materials about the sudden rate hike by the Solar Para sa Bayan Corp. (SPBC). This firm was granted a Congressional franchise via RA 11357 (July 31, 2019), the only genco in the country that was granted a legislative franchise. The firm is headed by Leandro Leviste. SPBC promised cheap electricity because the sun is free. True, the sun is free but the solar panels, the power conditioning unit, AC and DC disconnect, and other components are not free. Transportation and installation in far away areas are not free. The batteries to extend power for a few hours at night, backup diesel generating units for use at night, are not free.

In a site inspection in some barangays in Occidental Mindoro served by SPBC conducted by the Philippine and Rural Electric Cooperatives Association, Inc. (PHILRECA) in November 2018, they found out that aside from almost daily blackouts for several hours, while the rate started at a low P2.34/kWh it later rose to P11/kWh.

In a letter dated Feb. 13, 2020, SPBC informed its customers that it would raise its rate to P18/kWh because it needed to upgrade solar PV, procure its own diesel generating units, and it was still waiting for its subsidy (missionary electrification). I summarized the evolution of pricing by SPBC (see Table 3).

SPBC employed deception when it promised “cheap electricity” in seeking a Congressional franchise. Intermittent energy like solar will not be cheap, there should be backup units like battery and diesel gensets and the purchase of diesel fuel — and these are not cheap. Solar hates shade — from tall trees, thick clouds, and rain. Shade immediately reduces solar output.

The Energy Regulatory Commission (ERC) and LGUs should not grant the SPBC that big and sudden rate hike to P18/kWh, nearly double what electricity consumers in various electric cooperatives and private distribution utilities pay, despite paying many other charges (transmission charge, distribution charge, system loss, universal charge, etc.). SPBC should stick to its mandate of providing low electricity prices under RA 11357.

Mindoro island (composed of two provinces), along with other island-provinces like Palawan, Masbate, Marinduque, and Bohol should also get their own baseload power plants and not rely on huge gensets and endless subsidies via the universal charge for missionary electrification (UC-ME) that are passed on to all electricity consumers nationwide.

Lowering electricity prices in the Philippines is possible via the eradication of unnecessary costs like the UC-ME, reducing the feed-in-tariff (FIT) allowance for variable renewables, and reducing the wide and thick bureaucracies before gencos can put up new power plants, which contribute to higher power costs.

Having cheap, stable electricity, no blackouts even for a minute, is an important factor to allow the Philippines to bounce back from the growth lockdown because of the prolonged and extended ECQ.

 

Bienvenido S. Oplas, Jr. is the president of Minimal Government Thinkers

minimalgovernment@gmail.com

Feeling the pinch

By Tony Samson

ALREADY, our mind is on the post-quarantine scenario (already real in many places) now referred to as the “new normal.” There are designated winners (agribusiness, food manufacturing, furniture for social distancing) and losers (travel, cruise ships, oil, massage parlors).

Given the high percentage of consumption as a component of GDP, 74% for us in 2018, an important variable in any recovery scenario is consumer behavior. What will the consumer do after being released from… home? Will she go back to her old habits of spending future income with credit cards? Is window shopping putting enough social distance with the mannequin?

In economics, the theory of the “wealth effect” states that when the values of asset classes like stocks and property are rising, there is the feeling, among the invested classes, of growing wealth which leads to a higher propensity to consume. This behavioral state does not depend on taking actual profits by selling the assets and monetizing them. The rise in paper wealth is enough to trigger behavioral change. Thus a stock or property boom usually translates into higher car sales and record breaking prices for contemporary art in art auctions.

The two-month lockdown has caused the cessation of much economic activity like travel, malling, shopping (except for food and health care), dining out, and foot massage. It also deprived income for those in these businesses. Does this drop in economic activity and the loss of revenue for the small business owner of barbershops and waxing salons translate into a new mindset?

Add to this the drop in value of stocks, delayed construction of condos and hotels, possible shuttering of small businesses, loan delinquencies, and an overstretched public budget from social amelioration funding and stimulus packages. Even the infrastructure program (“Build, Build, Build”) may not proceed as scheduled, not necessarily from lack of funding but from restart delays due to lingering fears and social distancing needs.

Is there an opposite of the wealth effect, both psychological and real? Is the impact of the lost value of assets and the growing unpredictability of future earnings and job security from shaky businesses going to lead to a “poverty effect”?

What are the behavioral patterns of this post-quarantine economic virus?

Impulse buying will be dormant. Purchase of new sneakers for the workout, another bottle of single malt, and the latest phone model upgrade will be deferred. Why get a new jacket? After all, with the lockdown, the closet seems to be bursting. Only the shorts and the T-shirts for house wear moved. The once tempting sign of “sale” in a retail outlet will not even cause a flutter. Credit card use will be down. You still need to pay the old bill.

High-end purchases like cars, artworks, and property for investments will slow down. While the virus has hit the subsistence level hard, it has not spared even the wealthy, high-net-worth individual. It is this segment that had previously high consumption levels that will be hit by the poverty effect. Even industries like airlines are cancelling orders for planes meant for refleeting. The chain effect of such cancelled consumption due to closures or lower business prospects will result in job losses and lower consumption.

It will be a wait-and-see attitude even for the wealthy (or once wealthy) class. What the stock market analysts call “waiting in the sidelines” can trump “hunting for bargains” in the stock market.

The consoling thing is that the poverty effect is global, as was the quarantine. So the new normal of caution in spending and a reordering of priorities on what to spend on (back to basics) is a new normal. There isn’t much “best practice” to learn from in how to get out of the economic rubble.

Still, the poverty effect is not just psychological. The effect of poverty is only too real for the majority. The psychological and real barrier in spending at this time will adversely affect the level of consumption and reduce GDP growth prospects.

As in all down cycles of the economy, the individual needs to focus not on how much he has lost, but how much he still has left. And at this time, feeling the pinch is not just all in the mind.

 

Tony Samson is Chairman and CEO, TOUCH xda

ar.samson@yahoo.com

Why I just volunteered for a COVID-19 vaccine trial

By Faye Flam

THE NOTION of testing COVID-19 vaccines by deliberately infecting volunteers with the novel coronavirus — something that’s now on the table — isn’t necessarily crazy or unethical. It’s smart, and it has benefits that far outweigh the risks.

So-called challenge trials, as scientists call them, vastly speed up the process of vaccine testing and might also help us understand the natural immunity of people who’ve already been infected.

This doesn’t mean abandoning the framework of medical ethics that protects human research subjects from abuse. It means recognizing that there are risks and benefits unique to this situation.

In the weekend’s Washington Post, philosopher Richard Yetter Chappell and bioethics professor Peter Singer made “The Case for Experiments on Human Volunteers,” below which a chorus of commenters fretted that this would exploit poor people, drawn by what few dollars the researchers would hand them as compensation. Some suggested that the authors go first.

That’s not a bad idea, though older males are not the right people to go first (Singer is 73). I should go first. I’m exactly the kind of person who should be part of this experiment. In fact, I just signed up for one.

I found out about the prospect of human challenge studies in late March, when I interviewed Rutgers University ethicist Nir Eyal for a column on rationing ventilators. Later, he gave an interview to the journal Nature on the ethics of human challenge trials.

The problem with ordinary vaccine efficacy trials is that they’re very slow. This is what led Anthony Fauci to warn that it could take 18 months or more to identify a safe vaccine. (The fastest vaccine developed so far — the one for mumps — took four years.) Researchers typically have to test the vaccine on large groups of people and compare them to large groups of unvaccinated people, waiting weeks or months until an appreciable number of both the vaccinated test subjects and the unvaccinated control group to become exposed to the illness in the course of their regular daily lives. Challenge trials short-circuit that process by exposing people deliberately to the virus.

So that I could learn more about volunteering for such a study, Eyal put me in touch with Josh Morrison, who started a foundation called 1daysooner. The website has a place where I was able to add my name to a list of volunteers willing to be COVID-19 vaccine study subjects. Morrison, a former lawyer, told me he started the organization after becoming interested in advocacy and health issues. He’s gathered signatures of more than 3,000 people.

Before COVID-19, his organization facilitated living organ donations. He’s donated one of his kidneys to a stranger. But vaccine studies, even if risky, don’t require such hyper-altruists. What they do require is subjects with the ability to acquire and understand technical information.

Informed consent is a cornerstone of medical ethics. I’ve spent decades interviewing scientists, doing research, understanding new ideas and putting them into a readable format. Since February I’ve been on a steady stream of phone calls with virologists, immunologists, epidemiologists, pulmonologists, hematologists and risk communication experts. I’ve digested and understood what they’ve said. I know other vaccines have caused side effects. If anyone could give fully informed consent, I could.

Other volunteers could be selected from the ranks of scientists, medical students, medical ethicists and others who have the relevant skills to become knowledgeable enough to give genuinely informed consent.

Stanley Plotkin of the University of Pennsylvania, who invented the rubella vaccine, the R in the standard MMR vaccines, told me they really want volunteers in their twenties, which rules a lot of people out, including me. But others have proposed a more diverse range of ages. While people over 65 would be at too high a risk to be deliberately infected, there’s growing evidence that the risks have more to do with comorbidities — existing health problems — than age.

Volunteers could be screened for the most high-risk comorbidities, and older volunteers should be female, since we’re at lower risk than males. Older volunteers should be thinner and fitter and have lower cholesterol and blood pressure than the average American 20-something.

Eyal had originally suggested that whether the vaccine worked or not, volunteers would leave these studies with protective antibodies and the gift of immunity — something that’s become much-coveted in the age of COVID-19. But immunity to this new disease is not well understood, so the dream of “immunity passports” won’t become a reality anytime soon. At the very least, volunteers could test the protective value of these natural antibodies.

That’s something I learned from Plotkin. He said that even before vaccine trials began, human volunteers who tested positive for antibodies could participate in experiments where they got exposed to small doses of the virus to find out if these antibodies were indeed protective.

Since the amount of virus you’re exposed to might affect the course of disease, the doctors would want to use the minimum amount needed to develop symptoms in order to minimize risk.

I’ve already canvassed some experts who say a challenge wouldn’t necessarily be riskier than getting the virus out in the world, as most of us probably will without a vaccine. It might even be safer, since volunteers would likely be supervised and treated early with the best standard of care. There is a slight risk of something called antibody-dependent enhancement — in which the vaccine actually helps the virus get into cells. Something like that happened with a dengue vaccine, but you’d have to be extremely unlucky for it to happen in this case without showing up in animal studies.

Though some ethicists have debated paying volunteers, this would be a mistake. It would lead to the perception that the scientists were preying on those who need money. Nobody should participate in this kind of trial for the money.

But we should also recognize that, unlike a kidney donation, participation in COVID-19 vaccine trials wouldn’t be purely altruistic, either. Unlike kidney donors, volunteers would benefit from being perhaps the first to feel safe from the disease. They’ll also share in the collective benefit accrued from a broader return to a normal life when more of us have the freedom to move about, do our jobs, and find love and companionship.

There’s always the possibility that something unpredictable could go wrong — and that could lead to a public-relations nightmare that could derail vaccine research. But the bad PR might be worse if something happened to an innocent young person than to a considerably older, wiser, more informed person who knew what she was walking into.

Little about America’s approach to the pandemic has been ethical to date. We weren’t given informed consent about the lockdowns — many people don’t understand their purpose, or their limitations. There’s also been little informed consent on lifting them — it’s not clear whether people understand that the risk of contracting COVID-19 remains as large as ever in the US.

The lockdowns only delay deaths from the virus. A vaccine would end them. Surely that’s a reward for which some of us are willing to risk ourselves.

 

BLOOMBERG OPINION

Peso rises on trade data

THE PESO strengthened on Wednesday on profit taking and due to positive market sentiment following latest trade data and news of more easing of lockdowns across the world.

The local unit finished trading at P50.46 per dollar yesterday, appreciating by six centavos from the P50.52 close on Wednesday, according to data from the Bankers Association of the Philippines.

The peso opened the session at P50.61 per dollar. Its weakest showing was at P50.64 while its strongest was at P50.455 against the greenback.

Dollars traded slipped to $539.19 million from the $558.66 million logged on Tuesday.

A trader said the peso gained on the back of profit taking and market optimism as some economies gradually restart.

“We saw profit taking among investors. There’s also a risk-on sentiment from the markets as they took in the news of lockdowns gradually being lifted in some parts of the world,” the trader said in a phone call.

Reuters reported that the German federal government and its states approved a draft document to allow all shops and amateur open-air sports to reopen under conditions. They agreed that individual states will decide on the gradual opening of various aspects of public life.

States are also obliged to decide based on infection levels the gradual opening of universities, restaurants, bars, hotels, trade fairs, cosmetic studios, and theatres, among others.

Germany is among other European countries such as Italy, Spain, France that are gradually reopening their economies. In the US states such as Michigan and Texas among others.

Meanwhile, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the stronger peso came after the release of latest local trade data.

“The peso exchange rate closed stronger after the latest trade data which showed declines in both exports and imports, while trade deficit remains among the narrowest in two years,” Mr. Ricafort said in a text message.

Data from the Philippine Statistics Authority released on Thursday showed the country’s trade deficit amounted to $2.38 billion in March, slimmer than the $3.33-billion deficit seen in the same month last year but wider compared to the $1.66 billion deficit logged in February.

This came as total imports decreased by 26.2% to $6.91 billion from the $9.37 billion seen a year ago. Meanwhile, exports dropped by 24.9% to $4.53 billion from the $6.03 billion in March 2019.

For today, the trader gave a forecast range of P50.40 to P50.70 per dollar while Mr. Ricafort sees the peso playing around the P50.30 to P50.55 levels. — L.W.T. Noble with Reuters

PSEi drops on cautiousness over US-China tensions

By Denise A. Valdez, Reporter

THE MAIN INDEX ended lower on Wednesday as general investor sentiment remained cautious over the brewing Sino-US tensions.

The benchmark Philippine Stock Exchange index (PSEi) trimmed 32.40 points or 0.57% to close at 5,639.27. The broader all shares index also fell 8.93 points or 0.26% to 3,416.05.

“The market closed lower despite opening on green territory. This is due to the lingering uncertainty over the China-US tensions as President Trump releases statements about China being the source of the pandemic,” Timson Securities, Inc. Trader Darren T. Pangan said in a text message.

As US President Donald Trump remained stern in blaming China for a cover-up of the coronavirus disease 2019 (COVID-19) crisis which blew up into a global outbreak, experts from both countries have raised concerns on the new “cold war” between the two countries.

China’s Ambassador to US Cui Tiankai has called for a truce in the “blame game,” saying in a column in US newspaper Washington Post that China and US should instead “focus on the disease and rebuild trust between out two countries.”

With the China-US story still unfolding, investors chose to stay on the sidelines of trading yesterday, AAA Southeast Equities, Inc. Research Head Christopher John Mangun said.

“Investors were mainly cautious as they awaited a reaction from the Chinese government on accusations from top US officials that the COVID-19 virus originated in a Wuhan lab, he said in an e-mail. “Here at the PSE, the main index ended slightly lower on average trading volumes.”

The PSEi opened at 5,689.78 and reached a low of 5,594.81 before settling at 5,639.27 at the close. Mr. Pangan said profit takers have hounded the market after local shares expanded the previous session following President Rodrigo R. Duterte’s apology to businessmen Zobels and Manuel V. Pangilinan.

Five of six sectoral indices closed in red territory on Wednesday. Mining and oil fell 55.04 points or 1.19% to 4,570.53; industrials shaved off 73.18 points or 0.98% to 7,380.82; financials lost 9.85 points or 0.84% to 1,157.64; holding firms shed 41.62 points or 0.74% to 5,519.23; and services dropped 3.15 points or 0.23% to 1,347.33.

The sole gainer was property, which went up 7.02 points or 0.24% to close at 2,919.94.

Some 561.48 million issues valued at P6.05 billion switched hands yesterday, lower from Tuesday’s 619.49 million issues worth P6.43 billion.

Decliners outnumbered advancers, 126 against 69, while 36 names ended unchanged.

Overseas investors returned to selling on Wednesday, with the local market recording net foreign selling of P969.47 million from Tuesday’s net inflows of P86.52 million.

“PSEi’s losses today are seen as a slight pull back which keeps the trend healthy. We may see it continue higher toward the end of the week,” Mr. Mangun said on Wednesday.

Gov’t readies airport rules under new normal as cases top 10,000

NAIA Terminal-3

THE government on Wednesday announced new rules for the so-called new normal at the country’s international and domestic airports, as the coronavirus infections topped 10,000.

In a statement, the Manila International Airport Authority (MIAA) said it would enforce physical distancing, temperature and contactless security checks as authorities prepare for the reopening of commercial flights.

The agency said social distancing measures would be in place at all queuing points, while there would be temperature checks at security and vehicle checkpoints at the four terminals of the capital’s international airport.

The Department of Health reported 320 new coronavirus infections yesterday, bringing the total to 10,004.

The death toll climbed to 658 after 21 more patients died, it said in a bulletin. Ninety-eight more patients have gotten well, bringing the total recoveries to 1,506, it added.

Of the 320 new cases,56% or 179 were from Metro Manila, almost a third or 98 were from Central Visayas and 13% or 42 came from other regions, DoH said.

Meanwhile, the airport operator said 57 acrylic barriers have been installed at check-in counters at Terminal 1, adding that it was working double time to complete the installation at the four terminals’ 330 check-in counters.

The counters will also have yellow floor markings to enforce physical distancing among travelers

“I call on the airlines most especially, to help us in the implementation by instructing their check-in personnel to monitor passenger compliance with the guidelines,” MIAA General Manager Eddie V. Monreal said in the statement.

The agency said measures won’t be limited to the use of walk through X-ray machines, portable scanners, handheld metal detectors and the like, effectively limiting pat down or manual frisking to exceptional situations.

The presidential palace announced on Tuesday that the temporary ban on international inbound flights that started on Sunday would only be until 11:59 p.m. on May 8.

MIAA said people entering the airport must wear face masks, adding that it had bought 133,750 pieces of surgical face masks and 4,500 pieces of washable masks for its workers.

Only passengers with valid travel documents and confirmed bookings for the day will be allowed to enter the airport.

Continuous disinfection of all Ninoy Aquino International Airport facilities especially those used for flight operations would be done. These include aerobridges, baggage conveyors, check-in counters, immigration, customs and other help desks.

Disinfection activities will also be done on other airport facilities and equipment such as X-ray machines and trays, inspection tables, pushcarts, wheelchairs and other frequently touched surfaces, it added.

Budget carrier Cebu Pacific and flag carrier Philippine Airlines (PAL) on Tuesday said they have been preparing for the resumption of their commercial flights.

Cebu Pacific, operated by Cebu Air, Inc. said all its pilots and cabin crew would undergo rapid antibody tests before being deployed.

All its operating crew, including ground staff, will also don personal protective equipment while on duty.

It said all its aircraft would undergo extensive daily disinfection, and passengers must wear face masks upon entry at the airport and for the duration of the flight.

Cebu Pacific also said it might initially restart commercial operations with a limited number of domestic flights.

PAL, operated by PAL Holdings, Inc. said all its aircraft have air filtration systems and its crew would be in full personal protective equipment to protect every passenger on board against viruses.

Social-distancing cabin seating options as well as simplified meal or snack service will also be carried out.

“Due to the government’s extension of the Luzon-wide enhanced community quarantine period, all PAL international and domestic flights are canceled up to May 15,” PAL said.

Meanwhile, DoH said 1,859 health workers have been infected, 3180 of whom recovered while 34 died.

It said 113,574 people have been tested — 11,917 were positive, while 101,416 were negative.

Health Undersecretary Maria Rosario S. Vergeire told a separate news briefing they were reinforcing isolation measures.

She said DoH had set up a long-term plan that requires every local health system to have at least one treatment and monitoring facility with one bed or 2,500 people. This would ensure sufficient capacity to treat every COVID-19 patient, she said.

John Wong, a professor at the Ateneo de Manila University’s School of Medicine and Public Health, said coronavirus cases could increase again once the enhanced community quarantine in Metro Manila is relaxed after May 15.

He earlier said the curve could have flattened already after Luzon was locked down starting on March 17.

Mitigation measures such as physical distancing, hand hygiene and frequent cleaning should be observed to prevent this, he said at the same online briefing.

Meanwhile, Anna Lisa T. Ong-Lim, president of the Pediatric Infectious Disease Society of the Philippines, said most children infected with the virus show “very mild” symptoms.

She also said there were no definite findings that infants with COVID-19-positive mothers automatically get the virus.

Mothers who will breastfeed their children should wear face masks if they have a cough or sore throat to avoid infecting the baby, Ms. Lim said. — Arjay L. Balinbin and Vann Marlo M. Villegas