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Windless

FIRST PERSON - Alex Magno (The Philippine Star) - May 11, 2021 - 12:00am

The Philippine economy, it seems, is like a sailboat on a windless day. It is listless.

The Philippine Stock Exchange has been drifting downwards for two weeks running. Analysts say there is a lack of clear direction.

The stock market is not the real economy, of course. But it is an important barometer of business sentiment. The fact that it is drifting south tells us that business sentiment is lackadaisical.

Most analysts blame the recent tightening of community quarantines for taking the wind out of business sentiment. Tighter quarantine restrictions apparently worked well in checking the second wave of infections, a wave of far greater magnitude than we saw all of last year. But they also forced many businesses to shut down. Unemployment remains at over 7 percent and millions of vulnerable families are forced to the edge.

The OCTA Research Group found a dramatic reduction in the reproduction rate of the virus. It is now well under 1 percent and, as a consequence, daily infection numbers are expected to fall below 2,000 by next week.

Should that happen, the number of active cases could fall dramatically. That should make other health measures such as contact tracing more effective. Common sense tells us that beyond a certain threshold, it is impossible to do effective contact tracing.

Still, as we saw before, the number of new daily infections could plateau at a high number. Two thousand new cases a day is a high number. It keeps us vulnerable to a new surge.

Recall that India was able to bring down daily infection numbers to a really low point. But relaxation of restrictions set the stage for the calamitous surge we now see. Nepal, on a per capita basis, is actually in a worse situation. The surge in infections now spreads to Sri Lanka, the Maldives and even Cambodia and Thailand.

Educated by what happened in India, our authorities are not likely to dramatically open up the economy. NCR+ could still be kept at MECQ for the rest of May. This does not encourage an upswing in market sentiment.

The only real assurance the economy is ready to open is the vaccination program. On this point, our progress has not been ideal.

Although we were able to begin vaccinating last March, the program has been slow. This is due to constrained vaccine supplies.

Over the last few days, we received a couple of million new doses of vaccines. That should enable us to significantly scale up the vaccination program the next few weeks.

Next week or the week after that, the vaccines purchased by the private sector consortium is due to be delivered as well. That will greatly complement the government effort. It appears we could manage to vaccinate ten million people by June. But that number will not ignite market sentiment.

We had expected large deliveries from vaccine manufacturing powerhouse India. But because of the severity of the surge that country now endures, we are unlikely to get that. Demand for doses in India is larger than its vaunted manufacturing capacity could supply. Fortune does not smile on us.

It is correct that the IATF decided to concentrate the vaccination program on NCR+. This area accounts for over half the country’s GDP. It is densely populated and has the highest infection rates. We get the most bang per dose if we concentrate on this area first – both in preventing more infections and spurring economic activity.

We will know possibly by tomorrow that quarantine status for NCR+ after May 15. While infection numbers have dwindled, they have done so less dramatically than we expected.

Meanwhile, there are other challenges lurking on the horizon.

The natural gas wells at Malampaya are due to run out in less than four years. About 40 percent of the power consumed by the Luzon grid relies on gas supplies from Malampaya.

Four years is not a long time for energy development. We should start building new wells now. But all the potential natural gas fields are, unfortunately, in the hotly contested “West Philippine Sea” area. There can be no major well construction in the area unless we arrive at a modus vivendi with China.

It will not be easy to work out such a modus vivendi with the tensions now prevailing. A bunch of hardliners, waving arbitral rulings like they were talismans that will override all practical political realities, managed to commandeer strategic considerations on the matter. The legalistic hardliners are complemented by a political bloc which thinks our South China Sea claims should be the defining issue for the 2022 elections.

The “arbitral ruling” they cling to might be impressive on strictly legalistic terms. But remember, this is an “arbitration” that involves only one party to the dispute. The Philippines underwrote all expenses for these proceedings, including the salaries of the judges. Many ASEAN member countries are not too impressed by this “ruling.” Indonesia, Singapore and Cambodia lean towards China.  Vietnam worked out its own modus vivendi with its powerful northern neighbor.

It is understandable that many of our neighbors are not too keen about the Philippines’ expansive archipelagic claims. These claims, after all, extend to cover parts of North Borneo in the south and parts of Taiwan in the north. They would rather that all countries in the region collaborate on achieving some sort of ocean governance encompassing all the open navigation and joint exploitation concerns.

Meanwhile, a very large hole is about to materialize in our energy supply situation while all the posturing goes on.

PHILIPPINE ECONOMY
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