Infectious pessimism
DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - September 16, 2020 - 12:00am

Filipinos are generally optimistic. Even those in poverty dream big dreams of better lives within reach in their lifetime. So, why are there more pessimists among us these days?

SWS had been tracking our mood through several administrations. Pessimists overwhelmed optimists only during the Estrada and Arroyo years.

Folks have been optimistic through the Noynoy and Duterte years until just now. In the SWS July 3 to 6 National Mobile Phone Survey, the pessimists overtook the optimists.

SWS found 40 percent of adults expect the economy to worsen (termed by SWS as economic pessimists), versus 24 percent expecting it to stay the same, and 30 percent expecting it to improve (economic optimists) in the next 12 months.

The 40 percent economic pessimists in July is the highest in over 12 years, since the 52 percent in June 2008. On the other hand, the 30 percent economic optimists in July is the lowest in over five years, since the 27 percent in March 2015.

Well… there is a reason to feel down. The Covid virus has settled in and our officials are still feeling their way around. While the daily number of new cases seems to be on a downward slope, it is still in the two to 3,000 range. Businesses aren’t back to normal since GCQ restrictions are still in effect.

BSP Gov Ben Diokno pooh pooed the SWS survey saying pessimism it is just the perception of ill-informed people. I have news for Ben… in politics, perception is reality and the wise political leader takes perception seriously.

For a Pinoy who just lost his job here or abroad and has no prospects for a new one, negative perception is reality. That’s difficult for an economic manager with the generous salary and perks of a BSP governor to understand.

Here’s reality… A special SWS July 3 to 6 National Mobile Phone Survey found adult joblessness at 45.5 percent of the adult labor force. This is a 28-point increase from 17.5 percent in December 2019, and a new record-high since the 34.4 percent in March 2012.

SWS estimates the number of jobless adults at 27.3 million in July compared to 7.9 million in December 2019. Joblessness is real. Joblessness equals hunger.

The worst is yet to come, so it seems. There is an endless stream of overseas workers returning to the country after losing their jobs abroad. Close to 200,000 have so far returned. How many more lost their jobs abroad, but refuse to go home in the hope of landing a new one?

Fitch Ratings said in a special report that the pandemic’s effects would suppress remittance flows.

“We expect flows to weaken in the coming quarters… Declining remittances in economies that are dependent on them may affect sovereign ratings through pressures on external finances and economic growth.”

This is the clearest warning yet from Fitch that our investor-grade sovereign rating may be on its last leg as remittances decline.

“Remittance flows have helped keep current account deficits contained by offsetting large trade deficits.”

Declining remittances and the strong peso also diminish the buying power of OFW families, which negatively impacts domestic consumption – the main driver of our economy. That would make it more difficult for our economy to recover from the Covid-induced recession.

Fitch: “Lower remittance flows could affect public finances through two channels: lower revenue collection from weaker consumption and higher social spending to support remittance-dependent households, as well as returning migrant workers. Many countries in the region already have limited fiscal space to address the current coronavirus shock and the decline in remittances could exacerbate current challenges.”

But, some would say, pessimists should look at the bright side. Surely, they say, something good must be happening because the peso is stronger than ever.

Well… the peso exchange rate is not a good indicator of the economy’s health. The peso’s current strength is artificial. As CNBC puts it, “Asia’s best-performing currency is partly supported by a weak economy.”

The peso is strong largely because of strong gold prices and we have substantial gold reserves. As our gold stock is revalued, our gross international reserves go up as well. Strong GIR equals strong peso. Nice if you are the BSP governor, but essentially mere book entries.

Also, with the Covid lockdown, imports are down so we are not using up as much dollars for import payments as before. Foreign borrowings of government are also bringing in a flow of foreign exchange deposited with the BSP and fattens GIR.

Fitch warns that “as the economy reopens, we expect the current account surplus to shift back into deficit and demand-side inflationary pressures to build up, reducing the attractiveness of the peso’s fundamentals.”

Our problem from the start was we didn’t have a leader who inspired public confidence in the government’s epidemic response. If we had the equivalent of Sonny Dominguez as health secretary, we would have done better even if our Great Leader was essentially missing in action.

The generals in the IATF do not have an appreciation of the total picture, do not understand the fast pace of scientific developments with the virus and made decisions that are not often based on science. They also disregarded for the longest time other issues like economics. The lockdown was the only tool in their toolbox, but implementation at the local level has been spotty.

The worst performers among world leaders in this crisis in terms of deaths and cases had been Trump and Bolsonaro of Brazil, both egocentric strongmen types who do not care about the science.

The best performers were women like German Chancellor Angela Merkel whose popularity rose during the pandemic. Germany has a comparatively low fatality rate from the virus, thanks to a successful test-and-trace system that was installed early on during the pandemic.

The other is New Zealand’s Prime Minister Jacinda Ardern.

We aren’t over the hump. The next few months will be critical in controlling the virus. If successful, the level of pessimism among our people would be addressed.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

FILIPINO RODRIGO DUTERTE SWS
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