By Antonio S Lopez

There is a feeling of unease and uncertainty in the air, almost a similar moment when the waves recede miles back into the ocean and suddenly, there is great calm and a huge expanse of dry land. You jump with exhilaration like chimpanzees, happy that humans have supposedly found a vaccine against COVID-19, the deadly made-in-China disease caused by the coronavirus, series of 2019.

We feel this way, only to be jolted by a rampaging tsunami that devours everyone and everything in its rage causing massive death, destruction and desolation. The result: An economic wasteland unseen in the last 100 years.

What burns this sense is that nothing positive is heard from our top officials (except maybe they say it’s faster now to process cell tower permits, which is meaningless because construction is not allowed and even if allowed, workers have no means to go to work). Meanwhile, large-scale and almost senseless stealing of tax money goes on unabated before the very eyes of sick, angry, hungry, powerless people.

When Duterte came to power in July 2016, he inherited the longest economic expansion in the country’s history, 17.5 years or 70 quarters of unprecedented growth. By end-2019, there had been 84 quarters of consecutive growth, which means Duterte himself added 14 quarters of consecutive growth averaging about 6% per year.

This explosive growth, however, has come to a sudden, screeching halt. Revival is an uncertain and difficult process.

However, Bangko Sentral Governor Ben Diokno thinks economic recovery will be a little more difficult than having a picnic in the park.

Says Diokno, an economist:

“The 16.5% contraction of Q2 GDP does not mean that the Philippine economy is structurally weak. It is inappropriate to compare the Q2 performance of the economy with other crises in recent Philippine history: the 1984-85 pre-EDSA I crisis, the 1997-98 Asian Financial crisis; and the 2007-2008 Global Financial crisis. 

“I remember vividly that in previous crises, the peso depreciated, interest rates rose, public debt-to-GDP ratio expanded, gross international reserves thinned, and the banking industry wobbled. In sum, there were inherent weaknesses in the economy then. 

“I recall that in the 80s, the Philippines belonged to a select group called Heavily Indebted Countries (HICs). In the most recent economic episode, the economy plunged because of the strict, nationwide lockdown to save lives and to allow the buildup of health facilities and testing capacity due to the pandemic. It is not because the economy was weak. 

“The contraction is temporary. The economy is robust, characterized by strong fundamentals: falling interest rates; appreciating peso making it the most appreciated currency in Asia; sound external sector with gross international reserves as high as US$94 billion; low debt-to-GDP ratio which is the envy of many emerging economies; and robust banking industry with good capital adequacy ratio and low net performing loans ratio. 

“The setback is temporary. Recovery can come quickly once consumer confidence return, factories fired up, construction activity particularly the BBB Program is ramped up, and transportation is fully restored.”

The boom of 1998 to 2019, 21 years, had cut poverty incidence from 26% in 1997 to 16% by 2019, under Duterte, equivalent to over 11 million Filipinos rescued from poverty and carting the 99 million others to middle class status.

In 2020, the boom ended. The economy collapsed to its worst in Philippine history, losing P820 billion and five million jobs in the second quarter alone. GDP – the value of goods and services produced by the economy, will contract by 6 to 8% this year. The economy produces P20 trillion worth of goods and services every year. At 6%, the reduction is equivalent to P1.2 trillion. At 8%, the slowdown is worth P1.6 trillion. If you assume that it costs P2 million to create one job, then P1.6 trillion is equivalent to 800,000 jobs lost.

In the immediate future, there seems no end to the economic malaise. Combine that with physical malaise and you have a picture of utter suffering and desolation unseen in the last 100 years.

As the largest and most influential group of CEOs (more than 1,000 of them), the Management Association of the Philippines should help government strategies on how to recover.

In the last 20 years, only two things propelled the Philippine economy — consumption by households and the government (up to 73% of GDP), and remittances, $32 billion a year, which is more 100% value added dollars than foreign direct investments (FDIs) that flow each year to Vietnam, Thailand or Singapore.

Expat remittances are better than FDIs. To attract FDIs, the government gives away tax breaks and other perks, whose value can be better used for more productive or inclusive purposes. In many instances, the government ends up the loser. It gives away more money than the money invested by the so-called foreign investor.

COVID-19 stopped the vibrancy of an economy propped up by consumption and remittances.

There is no consumer confidence and consumers are afraid because they don’t want to get sick, or don’t want to spend whatever cash they still have, or are scared of lockdown checkpoints where a wrong word or wrong move can have a deadly consequence.

On the other hand, the government is technically bankrupt, thanks to trillions of “ayuda” it distributed willy-nilly and a good part of which did not reach millions of intended beneficiaries or was held up by red tape or outright robbery by people wearing government uniform or are in government.

This year remittances will be down $5 billion, or P250 billion taken away from the economy. Banks roll money about 7x, the so-called gearing ratio. Imagine multiplying P250 billion 7x and you just lost it.

Meanwhile, a study by experts from think tank PIDS predicts that with prolonged COVID-19 infection and income reduction as deep as 15%, the Philippines risks going back to its 2000 level poverty incidence of 26%. Imagine 12 million people suddenly poor and hungry again. That is a formula for civil unrest.