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Why the IATF’s strategy did more harm than good

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Andrew J. Masigan-125

Numbers Don’t Lie

British banking giant HSBC recently published its forecast for the Philippine economy and the outlook is bleak. After clocking-in a 0.2% contraction in gross domestic product (GDP) in the first quarter, the bank forecasts a deep contraction of 7% in the second quarter, another contraction of 4.3% in the third quarter, and yet another shrinkage of 3.9% for the fourth quarter. This will bring the full year contraction rate to 3.85%. The last time the Philippines posted negative growth was in 1998.

HSBC’s forecast coincides with the projections of the National Economic and Development Authority (NEDA) which predicted an economic contraction of 4.3% to 4%.

The 10 industries most affected by government’s quarantine measures are: the arts, entertainment and recreation industry whose revenue loss amounted to 82.3% of pre-COVID levels; the travel, hotel and restaurant industry that lost 81.9% of revenues; technical repair services plunged by 77%; educational services dropped by 76.8%; construction activities dove by 74.6%; servicing of motorized vehicles sank by 73.4; financial and insurance services fell by 71.2%; sports and fitness services dropped by 70.4%; real estate plummeted by 68.6%; and professional, scientific and technical services fell by 67.1%

As of this writing, 4.9 million Filipinos have already lost their jobs and unemployment is now at an all time high of 17.7%. Out of the 998,342 micro-, small- and medium-sized enterprises (MSMEs) in operation, it is estimated that at least 40% will not survive the quarantine and its aftermath.

The economic damage of the pandemic could have been avoided had the Inter-Agency Task Force on Emerging Infectious Diseases (IATF) not prescribed such harsh quarantine measures. Granted, a level of lockdown was necessary to contain the spread of the virus, but the Enhanced Community Quarantine (ECQ) and even the General Community Quarantine (GCQ) were too severe and needlessly destroyed parts of the economy. It relegated millions to unemployment and drove thousands of MSMEs to insolvency.

If the IATF took the advice of the business sector, it would have adopted Vietnam’s strategy. Vietnam addressed the pandemic by immediately declaring a travel ban on China. It embarked on aggressive contact tracing and focused its quarantine efforts only on the hotspots — the very streets, buildings, and neighborhoods where those infected reside. Meanwhile, it allowed the economy to keep operating including all facets of commerce, factories, and services.

Vietnam’s strategy proved more effective. Its infection rates are down and so are its death rates. The economic impact on MSMEs and job losses was minimized. It shielded its economy from a recession as it is still forecasted to grow by 1.6% this year.

In contrast, the IATF prescribed a shot-gun approach to address the pandemic in the Philippines. Instead of closing only the barangays where infections were recorded, it chose to close the entire island of Luzon and key cities in the Visayas and Mindanao. Its strategy consigned the 10 industries mentioned above to the brink of death. It caused our economy to spiral into recession.

What burns acerbically is that despite such draconian measures, infections in the Philippines are still on the rise. The IATF can’t even determine where we are in the infection curve since its base data is grossly inaccurate. Let’s not forget, the IATF only started to talk about ramping-up testing and tracing in April when it should have done it in January when the first COVID-19 case was discovered. Even today, it has yet to achieve 30,000 COVID-19 tests per day.

The militaristic quarantine measures that Health Secretary Francisco Duque, General Carlito Galvez, and the rest of the IATF put into play was a mistake. They did more damage than good. Curiously, none of the members of the economic team are represented in the IATF, which is probably why Duque and Galvez implemented their shotgun strategy without regard to the effects it would have on the economy.

Unfortunately, President Rodrigo Duterte, who has the last say on the matter, was not able to discern the faults in the IATF’s militaristic plan. Sadly, our jobless countrymen and bankrupt MSMEs must bear the brunt of his lapse in judgement.

A V-SHAPED RECOVERY
In the early days of the ECQ, the IATF used fear to scare the public into obeying the harsh measures of the quarantine. As a result, the populace became excessively fearful (and paranoid) of both infection and arrest.

As we begin to re-start the economy, the fear that the IATF perpetuated has become the greatest barrier to recovery. See, fear prevents people from going out to consume goods and services. Fear causes a drop in consumer demand. A drop in demand translates to a corresponding drop of production. A drop in production consequently causes more layoffs and more companies going belly up.

The IATF failed to realize that fear will destroy the very foundation of our consumer-driven economy. This is why a V-shaped recovery is not something we can expect. The use of fear was another miscalculation of the IATF.

LONG-TERM RECOVERY
The NEDA and the Department of Finance (DoF) were banking on the Corporate Recovery and Tax Incentives for Enterprises Act, or the CREATE Law, to facilitate our long term recovery. Apart from lowering the tax burden of local firms (to help them survive), CREATE would have made us more competitive in the race to attract foreign investments, what with the flexibility to tailor-make incentive packages for them. The entry of foreign investments is vital to rebuild our industrial base and provide jobs for our displaced countrymen.

But despite the urgent call of NEDA, the DoF, and 31 business organizations from the private sector, the self serving clowns in Congress chose to prioritize the passage of the Anti-Terror Bill over CREATE. Congress is now in recess and that puts CREATE and our economic recovery program in limbo.

In one fell swoop, the IATF destroyed our once strong economy through its wrong strategy and many missteps. Congress just made our recovery harder to achieve. Sorry to say but the manner by which this pandemic is being handled is a disaster.

 

Andrew J. Masigan is an economist.

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