Broader and international implications — COVID-19 pandemic
CROSSROADS TOWARD PHILIPPINE ECONOMIC AND SOCIAL PROGRESS - Gerardo P. Sicat (The Philippine Star) - March 25, 2020 - 12:00am

Since the Luzon lockdown, and even before, I have been watching over the coronavirus disease 2019 pandemic developments, at home and internationally. The implications of this crisis cover a very broad perspective – economic, national, sociological, theoretical, and practical.

All plans are in disarray. All plans previously made – global, national, community, group or club, family, or personal – are in some form of disarray and require a refocus, a grand refocus toward basic, immediate priorities.

Long-term plans must be reviewed, but not until a view of the new, immediate post-pandemic horizon becomes clear. That new horizon depends on government decisions taken and their efficacy in mitigating the damage from the pandemic.

The financial consequences to the long-term plans would then be more defined.

The damage is in the attainment of intermediate plans. The damage wrought, and to be wrought, by the pandemic are related to the intermediate plans that have been made at the (relevant or specific) level — global, national, community, personal etc.

This is because the finances or budgets allocated for them, or the amount of time that have been invested in planning for them, have been compromised by the instantaneous adjustments that are undertaken momentarily. These actions take away some or much flexibility for the future because they extract the resources that have been saved or allocated.

Example: How does the nation survive to the next level of development after the challenge posed by this pandemic? Totally unexpected, with bright plans for the next stage of Philippine development toward “middle income status” in the World Bank GDP definition, the country’s economic march is brought to a sudden stop.

But now, the world economy is also damaged. The extent and magnitude of the global damage depends on the following: (1) The duration of the pandemic crisis. (2) The devastation it brings to businesses, households and to financial markets. And, most important, (3) The amount, scope and efficacy of the policy interventions made by governments to mitigate the damage in the major countries.

Thus, all economies are in unprecedented territory. Governments are stimulating their fiscal and monetary gears in a way never done before. Demand contraction has been forced by large lockdowns to stem the disease transmission. A major consequence is supply disruption of unparalleled proportions in local, regional, national and global economies.

In the advanced economies, the damage to labor and to businesses (large and small) could be tempered principally because the formal networks of contacts are established. Recipients of help could be reached by monetary and economic transfers quickly and efficiently through these channels: networks of banking, payrolls of businesses, and, especially of social security and unemployment insurance.

This is not the case in the Philippines as in many other less developed countries where a large proportion of the labor market is employed in the unorganized sectors. These are the most vulnerable because they are largely dependent on day-to-day satisfaction of needs and are principally mostly out of reach of formal social protection networks and from the financial system.

Therefore, the system of transfers of assistance has to be undertaken by local governments and institutions on the ground. This would require essentially physical contacts and outreach, creating possible leakages and inefficiencies in distribution.

Government interventions. Governments are attempting to resupply disrupted income and expenditure flows as a result of the lockdowns. As the center of gravity of the pandemic moves to the advanced economies, governments are embarking on a “whatever it takes attitude” to provide economic stimulus.

The size of announced interventions – not yet complete – are in large, unprecedented amounts. European countries are in the midst of major stimulus measures.

The United States is planning a $2-trillion fiscal rescue. In addition, the US Fed (central bank) has made major loosening of monetary measures, from bond buybacks to a return to near zero interest rate policy.

In times of severe economic times, extraordinary spending undertaken, with fiscal standards released.

The post-pandemic world. Some countries will succeed, although the whole world will come out damaged as at the end of any devastating war.

Yet, as in the case of the end of true wars among nations, some will emerge in better position to recover than others, even as all humbled and challenged, some will be left with a diminution of their resources.

Predictions of rapid V-shape recoveries are too optimistic. (A “V-shape” recovery is one in which rapid growth happens after the economic fall unlike an “L-shape” recovery in which prolonged difficulties and recession happen.)

The reason is that all economies (and their business institutions) will be faced with large debts that were unimagined before. An unprecedented rise in their debt to GDP ratios will usher in a new problem of large dimension for the international economy. So, the next international adjustments will involve how to manage this large debt overhang in the world economy, and among national economies.

Nations will rebuild on what is left. Some will be steps below where they have been, while others will be many more steps behind. The capable nations will arise from it with future efforts, but will be capable of rebuilding further.

In this rearrangement, some nations left behind in development before could emerge better equipped to catch up with others, while others will slide further behind.

Which will it be for us? It depends on the success of our responses and decisions.

At home. At press time, the government is preparing emergency powers for the President to realign the P275 billion budget to help alleviate the public health problem. This is essentially the first response to the economic and social challenges emerging from the lockdown.

Even while these are made to deal with the immediate problems, one of the major programs of government is to pursue the much needed improvement of public infrastructure facilities.

The economic viability required from the next stage of development depends on the effectiveness of government programs to help households and businesses acquire some degree of liquidity during the trying period of pandemic crisis.

Minimizing the short-term damage and assuring that the economy pursues its investment programs in the aftermath are a must.

My email is: gpsicat@gmail.com. For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.p h/gpsicat/

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