ANALYSIS: A bounce-back strategy for ‘a crisis like no other’

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Editor’s note: Jose Galang is a senior copy editor at CNN Philippines. He is a veteran business/economics/political economy journalist and has previously headed newsroom operations at The Manila Chronicle, Business Day, and Business World, among others. He has also written for the Far Eastern Economic Review, Financial Times, and a London-based online science and development journal.

Metro Manila (CNN Philippines, April 16) — While there is still uncertainty about how much longer and how deep the COVID-19 pandemic would damage global social and economic conditions, the Philippine government has drawn up a strategy to both control the damage on livelihoods and the economy as well as spark a recovery in the aftermath.

On the face of it, the program that the Duterte administration’s economic team has stitched together looks to be comprehensive and coherent. It covers the urgent need to boost the healthcare system and its frontliners in confronting the deadly virus, as well as cash assistance to citizens whose means of subsistence have vanished in the outbreak’s fallout.

This early, however, the program is already encountering great stress. Officials and business leaders agree more needs to be done. After all, COVID-19 has triggered “a crisis like no other,” says the managing director of the International Monetary Fund, Kristalina Georgieva.

The pandemic is “causing tragic loss of life, and the lockdown needed to fight it has affected billions of people,” Georgieva lamented in a message ahead of this week’s annual spring meetings of the IMF and the World Bank Group.

The spring meetings, to be attended by finance ministers and central bank chiefs of about 190 countries, will be conducted “virtually” for the first time. They are expected to decide on coordinated actions to “help shield the most vulnerable people and revitalize the economy” amid the rampaging coronavirus.

The IMF is expected to present this week a four-pronged approach toward accelerating the speed of the recovery from the crisis. It is interesting to note that the key elements of the program unveiled last week by the Philippine government’s economic team are in step with the strategy that the IMF will propose.

National recovery program

A combination of innovative measures addressing the public health emergency and remedies used in past local and global financial crises are the key components of the national recovery program crafted by the government economic team led by Finance Secretary Carlos Dominguez III.

But without tightening the grip on lapses in implementation at various levels of government, however, these measures are not likely to offer comfort to large sections of an anxious nation. Even now, the distribution of relief goods and cash aid to communities under strict lockdown has remained patchy. There is also confusion over who should be getting cash subsidies.

Dominguez mentioned large sums — so far a cumulative ₱1.17 trillion package of fiscal and monetary measures — that probably could sustain lifeline support for the needy even if the coronavirus continues its spread that will require the current enhanced community quarantine to be kept in place until the end of May.

ANALYSIS: Quarantine extension will only work with social distancing

There are now more than 5,000 COVID-19 cases reported in the country, said to be the highest number of infections in all of Southeast Asia. To at least slow the spread of the virus the government ordered last March 17 the quarantine on Luzon, the nation’s largest island where the capital region Metro Manila and major industries are located.

Originally set to lapse in mid-April, the quarantine has been extended until the end of this month, with multiple provinces and cities in the Visayas and Mindanao replicating the restrictions as new infections continue to emerge across the archipelago.

Support and recovery measures

Thus far, the fiscal measures announced by the government have included the purchase of more test kits and health equipment, social protection for harshly-affected workers, and support for the tourism and agriculture workers. These measures are estimated to be worth ₱27.1 billion, or about 0.15 percent of the 2019 GDP, the combined value of all goods and services produced by the economy. The low percentage value indicates that the economy can afford to do more for the health sector.

The government has also laid down a ₱200-billion cash assistance program for 18 million low-income households that will each get cash transfers of between ₱5,000 and ₱8,000 for two months. The amount that a household will get will depend on the minimum wage rate in the region where the family resides.

Also in the assistance program are specialized microfinancing loans and loan restructuring to vulnerable households and affected small and medium enterprises.

Most recently, the government has also decided to provide small businesses with a wage subsidy in response to calls for social amelioration assistance also to the middle class. An estimated ₱51 billion would go to employees of small businesses that regularly pay taxes and contribute to the Social Security System.

An estimated 1.6 million small businesses in the informal sector were affected by the stringent quarantine restrictions. Around 436,000 of these firms had been forced to shut down operations while around 1 million were allowed to maintain skeletal work forces. Small businesses engaged in essential services and allowed to operate number around 117,000.

Around 3.4 million workers in small firms, classified as belonging to the middle class, are affected by the lockdown. Of these, 2.6 million workers are in the so-called alphalist of the Bureau of Internal Revenue, indicating that their employers comply with BIR requirements. This latter group will be given priority in getting cash assistance, while options are being studied on how to provide help for the remainder.

For its part, the Bangko Sentral ng Pilipinas has reduced its policy rate twice since the local COVID-19 outbreak began in January. The key rate has now been cut by a total of 75 basis points to its present level of 3.25 percent. Additionally, the central bank late in March lowered the ratio of reserves banks are required to keep in their vaults, effectively releasing more cash in the streets.

In support of the government’s campaign to ease the effects of the outbreak, the Bangko Sentral purchased some ₱300 billion worth of Treasury bonds. This transaction is effectively a borrowing incurred by the national government from the central bank.

To help banks provide relief to their borrowers that have been allowed by the Bayanihan to Heal as One Act a temporary grace period for loan payments, the Bangko Sentral implemented a number of measures that include: a temporary relaxation of requirements on compliance reporting, penalties on required reserves, and single borrower limits; easier access to the central bank rediscounting facility; a temporary relaxation of provisioning requirements as approved by the Bangko Sentral; and a relaxation of prudential regulations regarding marking-to-market of debt securities. These measures are intended to speed up the processing of lending for early releases of cash to bank clients.

To help ensure a stable supply of essential products during the lockdown period, the Department of Trade and Industry and the Department of Finance have agreed on a more liberal grant of incentives for the manufacture and importation of critical equipment or supplies. The importation of these products is exempt from import duties, taxes and other fees.

If necessary, the national government will also seek new borrowings through a bond issuance. There is still no amount pinned on this plan, especially since costs of floating bonds have been pushed up in the wake of volatile financial markets due to the COVID-19 crisis. It is a consolation that the peso exchange rate has remained stable despite weak export revenues and remittances from overseas Filipino workers.

Financing the program

In all, the fiscal and monetary assistance package that the government is implementing to provide assistance to individuals and businesses affected by the COVID-19 outbreak is estimated to cost around ₱1.17 trillion.

To help raise money for this package, the government will realign ₱205 billion from some items in the 2020 national budget seek, borrow ₱300 billion from the Bangko Sentral through the issuance of Treasury bonds, seek loans of $5.7 billion (worth nearly ₱290 billion) from the Asian Development Bank, the World Bank, and the China-led Asian Infrastructure Investment Bank.

The ADB launched a $5-million (over ₱252 million) Bayan Bayanihan program to provide food (a bag of rice and canned goods) to low-income families in Metro Manila that have lost their livelihoods due to the COVID-19 pandemic. It has also approved a $3-million (₱151 million) grant to help the government purchase emergency medical supplies and deliver “immediate and effective” health care services.

Last week, the World Bank also approved a $500 million (₱25.23 billion) disaster risk management development policy loan to help the Philippines cope with “urgent needs created by the COVID-19 crisis.” The entire amount is intended to help strengthen the country’s policy and institutional capacity to “reduce disaster risk, respond to, and recover from natural disasters.

To augment these, the government intends to: seek from Congress a supplemental budget for the rest of this year, improve collection of taxes and of cash dividends from government corporations, and possibly sell off government buildings and land, or even some agencies that now serve as cash cows for the state.

The financing plan appears to be well-crafted for the expected heavy doses of cash injection into the economy to stave off a collapse. But there are unknowns in the severity of the pandemic’s impact and the length of time it will take before the slump turns around. If this period of uncertainty is prolonged, the cost of the efforts to stabilize the economy and propel it toward growth again will become more bloated.

The four-pronged approach of the IMF, which is considered as the world’s lender of last resort, will have the following key recommendations: continue with essential containment measures against the coronavirus spread and support health systems; protect affected people and firms with large, timely, targeted fiscal and financial sector measures; reduce stress to the domestic financial system and avoid contagion that could hit other nations; and plan for a recovery even as the world moves through the containment phase.

As earlier pointed out, the Philippine response to the crisis—labelled by Dominguez as an “economic bounce-back program”—bears similarities to the IMF’s major recommendations. Does that represent an assurance that the country, which is already bracing for an economic contraction this year, will be able to prevent a more serious devastation from this global calamity?

Only more nimble steps and more sacrifices by both the government and the Filipino people will determine the ultimate result. What we know for now is that there is a lot of uncertainty and volatility that will keep everyone on their toes.