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Nestlé joins Red Cross in COVID-19 efforts

NESTLÉ Philippines, Inc. has turned over to the Philippine Red Cross (PRC) P10 million to help the institution in the government’s efforts to provide for people in need of health care.

“The Nestlé purpose is enhancing quality of life and contributing to a healthier future. Our first priority is the welfare of people, families, and communities. Therefore, it is only fitting for us to extend support to the Philippine Red Cross, as we have done time and again in the past,” said Kais Marzouki, the company’s chairman and chief executive officer.

The company said the donation is part of its program called Kasambuhay ng Pamilyang Pilipino to address COVID-19. It said the program includes assisting one million families and thousands of frontline workers, as well as its own employees and those of its business partners.

The company quoted Sen. Richard J. Gordon, PRC chairman and CEO, as saying: “The partnership with Nestle shows great corporate social responsibility at the height of our country’s fight against our invisible enemy, COVID-19.”

Citing Mr. Gordon, Nestlé Philippines said the PRC has two COVID-19 operating laboratories, located in its national headquarters and its multi-purpose center in Mandaluyong City, and expects to have three more laboratories up and running within two to three weeks.

It said the capabilities of the PRC will make it possible to test 2% of Metro Manila’s population of 12 million.

Yields on seven-day term deposits slip further

YIELDS ON the central bank’s term deposit facility (TDF) continued to slip amid higher bids and after slower inflation in April.

Total tenders for the seven-day term deposits of the Bangko Sentral ng Pilipinas (BSP) hit P181.221 billion on Wednesday, more than double the P70 billion auctioned off and also beating the P137.159 billion in bids logged last week for a P50-billion offer.

Yields sought by banks on the one-week papers came in at 2.25% to 2.29%, a slimmer band compared to the 2.25% to 2.375% range logged on April 29. This caused the average rate to settle at 2.2654%, down by 4.79 basis points (bps) from the 2.3133% fetched a week ago.

“The results in the TDF auction continue to indicate strong market interest for the BSP’s deposit facilities, supported by ample liquidity in the financial system,” BSP Deputy Governor Francisco G. Dakila, Jr. said in a statement.

The TDF is the central bank’s primary tool to shore up excess liquidity in the financial system and to better guide market interest rates.

Auctions for term deposits with longer tenors of 14 and 28 days have been suspended for nearly two months already since the BSP suspended TDF offerings at the onset of the enhanced community quarantine (ECQ) in Luzon in March to support the banking system.

The EQQ was extended until end-April, with some parts of Luzon, including Metro Manila, still under ECQ until May 15, while some have since transitioned to general community quarantine (GCQ).

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said investors have been more prudent in spending and are parking their money in safer havens, which have led to higher bids and lower yields for the central bank’s TDF.

“The continued decline in the auction yield came as more businesses have been more conservative with more cash holdings amid the lockdowns, thereby making the TDF a source of relatively higher interest rate returns for excess cash holdings,” Mr. Ricafort said in a text message.

He added that yields went down due to slower inflation in April.

“The TDF yield continued to decline amid the latest easing of the inflation rate to a 5-month low of 2.2% in April 2020,” he said.

Headline inflation in April slowed from the 2.5% print in March as well as the three percent seen in the same month of 2019.

The April print was within the 1.9%-2.7% forecast range given by the BSP Department of Economic Research for the month. A BusinessWorld poll of 13 economists yielded a 2.1% median estimate for last month’s inflation.

Year to date, inflation averaged at 2.6%, still within the BSP’s 2%-4% target band and above the revised two-percent forecast for the entire 2020.

Data from the Philippine Statistics Authority showed that the decline in transport prices caused by the drop in oil prices as well as the deceleration of nonfood commodities offset faster price uptick in food and non-alcoholic beverages.

BSP Governor Benjamin E. Diokno on Tuesday said the central bank “stands ready to deploy any available measures in its toolkit as we continue to assess the impact of coronavirus pandemic on the domestic economy.” — L.W.T. Noble

Microsoft to pitch new Xbox game console, services with monthly showcases

MICROSOFT CORP., gearing up for its biggest-ever year of launches for Xbox products and services in the middle of a global pandemic and economic recession, will replace its plan for a splashy public game-conference event with a monthly series of online showcases.

The virtual events start on May 7, with a look at third-party games planned for its new console, called Xbox Series X. In June, the company will highlight the Xbox platform and services, and July’s session is intended to cover games produced by Microsoft’s own 15 game studios, including the next iteration of its biggest franchise, Halo. The Redmond, Washington-based company had originally planned to unveil many of the details about the new products next month at the E3 conference, which has been canceled.

Gaming audiences “love the authenticity of us showing up in our sweatpants here in our home office and talking about what we are doing,” Xbox chief Phil Spencer said in an interview. This also seemed like a good time to eschew the typically flashy, celebrity-studded events the video-game industry is known for, he said. “We can all look at the unemployment numbers right now. We can also understand we’re in video games, while we have front-line medical workers out there that are keeping people alive.”

Microsoft is set to release the new console for the holiday season, and is planning its first game-streaming service, called xCloud, for later this year. Shifting events online and toning them down aren’t the only changes possible because of the COVID-19 virus that has disrupted workplaces and production schedules, as well as the global economy. While Chief Financial Officer Amy Hood said last week the console launch is “on track” and device manufacturing in China is returning to normal, there may be delays in some outside developers’ games for the new device, Mr. Spencer said.

Microsoft has taken steps to make it easier for third-party game developers to work from home. For example, Microsoft gives these teams specialized development kits that let them simulate the environment of the unreleased next-generation console so they can build games for it. Normally those kits are closely guarded and have to stay in the office, but now the company is letting them be used from developers’ homes.

A lot depends on how far along in development games were when their studios were forced to move to remote work. Programming and some other tasks can be done from home offices, while complicated motion-capture of animation used for games is harder to do on the computing rigs most people keep at home. “That’s just not happening right now,” Mr. Spencer said.

“In terms of timelines, we’re finding now that game production is in some ways more challenging than hardware production,” he said. “You have one hardware timeline and then you’ve got all these games.”

Already some developers have announced delays for games intended to arrive this spring. Microsoft shifted Minecraft Dungeons to May from last month, and CD Projekt Red moved a game to September from April. Some games for Sony Corp.’s PlayStation, including The Last of Us and Ghost of Tsushima, have also been pushed back.

Because Microsoft now sells a video-game subscription called Game Pass, which gives customers access to more than 100 titles, Mr. Spencer said there’s less concern about what will be ready when the new console goes on sale. He is confident that there will be enough exciting new games ready when the Xbox Series X hits the market.

So far, the coronavirus disease 2019 pandemic has mostly been positive for Microsoft’s video-game sales, as stuck-at-home gamers of all ages turn to their consoles for entertainment and social engagement. Last week, Microsoft said Game Pass topped 10 million customers. But the longer-term economic impact and rising unemployment will probably affect how many people can afford to pony up several hundred dollars for a new machine later this year.

Still, Mr. Spencer — who joined Microsoft in 1988 as an intern and has been in consumer software for so long that he worked on things like the CD-ROM version of Encarta — said a lot remains unknown as Microsoft navigates its new-product push amid unprecedented global market forces. — Bloomberg

How PSEi member stocks performed — May 6, 2020

Here’s a quick glance at how PSEi stocks fared on Wednesday, May 6, 2020.


Senate sees stimulus boosting 2021 budget to P5-T

THE Senate Committee on Finance said the 2021 spending plan will likely be a “stimulus budget” of about P5 trillion to revive the economy after the coronavirus disease 2019 (COVID-19) emergency.

Palagay ko (I think) it will be a stimulus budget, so you’re talking of maybe close to P5 trillion,” Senator Juan Edgardo M. Angara, who chairs the committee, said in a virtual briefing Wednesday.

The Department of Budget and Management (DBM) in December said it was looking at a P4.64-trillion national budget for 2021, more than 13% higher than the 2020 edition.

“One-third niyan for loan servicing (A third of the budget is for debt service),” he said.

“‘Yung non personnel items, palagay ko karamihan diyan even the infrastructure will be tied towards providing stimulus (Parts of the personnel and infrastructure budgets could be tied in some way towards providing stimulus),” he said.

Mr. Angara also said the 2021 General Appropriations Act will likely also prioritize government spending on the health sector, particularly on the Philippine Health Insurance Corp., as well as the improvement of health facilities nationwide.

Nakita natin medyo na-expose tayo sa capacity to test, to ramp up testing. Naging mabagal tayo kung ikumpara sa ibang bansa (Our inability to ramp up testing was exposed by the crisis. We were slow compared to other countries),” he said, adding that such capacity should not only be performed by the Research Institute for Tropical Medicine.

“I think we need that capacity in Luzon, Visayas and Mindanao.”

Mr. Angara backs a stimulus package for the next six months to one year, which will support hard-hit industries such as the tourism sector.

The Bayanihan to Heal as One Act, which granted a P5,000-8,000 monthly subsidy to low-income households for two months, expires after three months.

Senate President Vicente C. Sotto III said in a separate briefing that the chamber will convene the Committee of the Whole on Monday to be briefed by economic managers and members of the Inter-Agency Task Force on Emerging Infectious Disease.

He also plans to meet separately with the Departments of Health, Agriculture and Transportation on Tuesday. — Charmaine A. Tadalan

DoF sees P1-trillion budget deficit, 5.3% of GDP

THE Department of Finance (DoF) is projecting a P1-trillion budget deficit this year, equivalent to about 5.3% of gross domestic product (GDP), as the spending requirements for the pandemic bring deficit norms into uncharted territory.

“What is going to be our deficit for the year? Our estimate is around a trillion pesos (P1 trillion),” Finance Secretary Carlos G. Dominguez III said in a news conference Wednesday.

Finance Undersecretary Gil S. Beltran told BusinessWorld in a mobile message that a P1-trillion deficit is equivalent to 5.3% of GDP.

Mr. Beltran also confirmed that the Development Budget Coordination Committee (DBCC) adopted the 5.3% upper limit for the deficit this year, against the 3.2% cap set before the coronavirus 2019 (COVID-19) outbreak.

In 2019, the budget deficit was P660.2 billion or 3.55% of GDP.

Mr. Beltran added that macroeconomic assumptions for the medium term are “still being formulated.”

Mr. Dominguez said the government is capable of financing such a deficit because of the Philippines’ strong fiscal position.

He also said there are no plans to ask Congress for a supplemental budget this year despite rising expenditures.

“We will strive to live with the P4.1-trillion budget this year and so far we’ve been okay with that. It has been difficult because we have to reallocate from past priorities to new priorities but that’s the reality of the situation,” Mr. Dominguez said, adding that the economic team is reviewing the budget plan for 2021.

The government plans to borrow around $5.7 billion from multilateral agencies including the World Bank, the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB).

Mr. Dominguez said the Department of Finance (DoF) will continue negotiating for project-based bilateral financing agreements committed by Japan, South Korea and China.

“In fact, there is also bilateral financing available from France, of I think $200-300 million,” he said.

Finance Undersecretary Mark Dennis Y.C. Joven, who also heads the DoF’s International Finance Group (IFG), said the group cannot disclose specific details of the agreements while negotiations are pending, saying only that the target is to obtain both project finance and budget-support facilities.

Mr. Joven noted that many countries expressed willingness to help the Philippines, “realizing that the coronavirus pandemic is a global problem and not limited by borders.”

“We are exploring, but we’re hoping that some of these (agreements) will mature this year,” Mr. Joven said in a phone interview Wednesday.

So far, multilateral lenders have approved a total of $2.1 billion worth of loans for use in the COVID-19 containment effort — $1.5 from the ADB and $600 million from the World Bank.

The government is seeking another $750 million from the AIIB to confinance programs with the ADB.

STIMULUS PACKAGE
Mr. Dominguez said the DBCC has also approved the outline for a stimulus package that will be discussed with Congress this week.

“We have prepared the outline of the economic stimulus package which has been approved by the DBCC. We will discuss this at length with the legislature, tomorrow or Friday, so that we can come up with a really responsive and responsible stimulus package,” he said.

Mr. Dominguez said the package will consist of three parts: direct support for the vulnerable population; the recovery plan for the economy; and measures that will “sustain and keep (the country) healthy” after the pandemic ends.

He said the recovery component will include “assistance to banks who support their clients and job creation,” which will involve measures to be implemented by the central bank.

Several stimulus package bills are being drafted by members of the House of Representatives including the proposed P1.3-trillion Philippine Economic Stimulus Act (PESA) bill.

NEDA Acting Director-General Karl Kendrick T. Chua said in a text message that the size of the stimulus package will be determined after the economic managers’ meeting with the legislators. — Beatrice M. Laforga

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