Hobbled

We now know we are not going to have a V-shaped recovery.

Analysts are now estimating our economic contraction for 2020 will be deeper than forecast, settling at about -9 percent. Our unemployment figure stands at about 8.7 percent, foreclosing any surge in consumer demand over the holidays.

The country is calamity’s sister. We began the year with towns around Taal Volcano evacuated over the possibility of a major eruption. The volcano simmered down, mercifully. But the danger remains.

We are closing the year with a string of major typhoons hitting Luzon, causing major flooding, destruction of crops and infrastructure, and widespread misery. The damage to agriculture is now reflecting in higher food prices.

In between the natural disaster and the calamities brought about by extreme weather, we had to struggle with a pandemic. Public health restrictions brought down the economy this year. Those restrictions are not about to be completely lifted. NEDA chief Karl Chua expects some degree of quarantine rules to remain in effect through the length of 2021. That will hobble the domestic economy in varying degrees, depending on how virus infections are managed.

Hopes have been buoyed by the confirmation that efficacious vaccines have been developed to fight COVID-19. But the exuberance might be exaggerated. The vaccines will be available in significant scale only by mid-2021. They can be administered only to the extent that our health system is capable of: which is slowly.

Our officials have been very frank about it. It will take us between 2 and 5 years to administer the vaccine to the extent needed to bring about some sort of herd immunity.

In Denmark, millions of minks were culled because they were found to be hosting a mutation of the COVID-19 vaccine that could be immune to the vaccines developed. The world, even as the northern countries now reel from the surge of infections attributed to cold weather, must continue to be vigilant about other possible mutations. These mutations could negate all we have accomplished so far to contain this health emergency.

The point is: this pandemic could still resurge despite the vaccines now available. We will still have to set aside fiscal resources to buttress our public health system. Those are resources otherwise usable for the recovery effort.

The Philippines is second only to Indonesia in COVID caseload and deaths in the East and Southeast Asian regions. We have brought down the number of daily infections significantly since July. But our progress has been exceedingly slow.

Because of continuing infections and the health protocols required, we cannot expect domestic travel to pick up any time soon. International tourism will remain down for two or three more years. This means our tourism sector, an important component of our domestic economy, will remain crippled for a while – notwithstanding Berna Romulo Puyat’s truly heroic effort to shore up local tourism enterprises.

Tourism has been our most versatile sector before the pandemic. It required the lowest investment per job created. It necessarily dispersed economic opportunities to the provinces that needed them most. It created income sources for communities where none existed. Unfortunately, it is most vulnerable to the economic fallout from a pandemic.

Not a few were scandalized by news that the DSWD had money left over from the emergency aid to families and that the DBM has not unloaded all of the funds allocated by the Bayanihan II Act. We have to understand, however, that government agencies cannot simply sprinkle money across the archipelago. There are processes to be followed, safeguards to be maintained and audits to be performed.

Efforts to stimulate domestic activity by fiscal means will be hobbled by the poor capacity of our bureaucracy. If we had instituted a national ID system two decades ago, it would have been easy to distribute billions in direct subsidies to poor families. As it happened, we had to distribute the emergency aid in cash form and through local officials. That produced a lot of leakages and delay.

We have not automated our bureaucracy early enough nor bothered to raise public sector wages enough to attract the talent we need. That now produced “absorptive capacity” problems as we try to hasten recovery through public spending. We can fund projects quickly, but the bureaucracy will require time executing them.

We have First World aspirations but stubbornly maintain a Third World bureaucracy. That will not work if we want to turn our economy on a dime from recession to rapid growth.

The BSP and the Monetary Board have been aggressive as well in the effort to induce recovery. They have brought down interest rates to encourage borrowing. We now have among the lowest interest rates ever.

In addition, new capital was infused into the government financial institutions to expand their lending to domestic enterprises. Both DBP and Landbank initiated new lending programs to help rescue distressed small businesses.

However, there appears to be hesitation among our small businesses to borrow and reopen their businesses. There is also hesitation among private banks to lend to businesses facing uncertain prospects. Unless a climate of strong confidence in our economic growth forms, there are real hindrances to regenerating our domestic economy.

It now boils down to a confidence game.

Beyond its actual effect in building herd immunity, the early start of the vaccination program will play a larger role in rebuilding confidence in the economy. That is the non-quantifiable element absent in the current stimulus effort.

The actual recovery, from all indications, will be longer and weaker than we might prefer to imagine.