T’S the economy, stupid.”  These four words from nearly three decades ago—coined by American political consultant James Carville in 1992—resoundingly echo these days.

The other two catchphrases Carville used to win for Bill Clinton the US presidency eerily seem relevant—“Change vs. more of the same” and “Don’t forget health care”—as the Philippines’s public health-care system and public health buckle under the weight of the coronavirus disease 2019 pandemic.

The economy followed soon after, with the impact of government’s measures against the pandemic nearly stalling all production and business activities. The combination of a public health crisis and the extreme measures government applied to stem its spread wreaked havoc not only on the country’s economic gains but also on the government’s economic and social targets.

The best indicator of the impact is on jobs: the Philippine Statistics Authority (PSA) has said some 5 million people lost theirs since the Duterte administration imposed a lockdown on March 17.

Steps, protocol

IBON Foundation Inc. Executive Director Jose Enrique A. Africa said if the PSA will include those who dropped out of the labor force, total unemployment would reach 14 million, or an unemployment rate of 21 percent.

According to Africa, it is worth noting that 70 percent of the unemployed are part of the informal sector.

The jobs data is important as these reflect consumption and consumption demand.

Inflation has remained benign; but Africa and economists, like Ateneo Center for Economic Research and Development (ACERD) Director Alvin P. Ang, said the low pace in the increase of prices is really a reflection of weak aggregate demand.

Ang also said this reflected the low confidence in the economy. He said if the government can only ensure that protocols are clear and steps to manage Covid-19 from national to local are in place, “that is assurance enough that could boost confidence.”

He said the country cannot wait for a vaccine to be available in order to provide assistance or employment for the millions who have lost their jobs and those who may still lose them.

Ending contractualization

THIS year’s joblessness has also placed doubts on the Duterte administration’s vow to stamp out illegal contractualization.

Labor and Employment Secretary Silvestre H. Bello III admitted the government’s focus on the pandemic has limited the movement of labor inspectors since mid-March.

“We are not as confident with our expectation [on newly regularized workers] this year as in previous years because of the effect of the pandemic,” Bello told the BusinessMirror in a phone interview.

Former Partido Manggagawa Party-list Rep. Renato Magtubo chided Bello for such a tepid stance.

“How can they effectively carry out a drive against illegal contractualization when [the] inspection of establishments is suspended,” Magtubo said.

“Regularization of employment subject to prevailing rules and regulations can be done with or without the pandemic if only the DOLE [Department of Labor and Employment] would sustain inspection of establishments and address results of which appropriately.”

Regularization campaign

IN its last update on its regularization campaign, the DOLE said in December that it was able to compel companies to absorb 580,539 contractual workers since August 2016.

Of the said cumulative figure, only 166,599 came from last year, which was significantly lower compared to the number of regularized workers in 2018, which reached 320,999.

Still, even with the decline, former dean of the University of the Philippines-School of Labor and Industrial Relations (UP-SOLAIR) Rene E. Ofreneo said the number of regularized workers in the last three years is by itself already a significant feat.

Besides the declining number of regularized workers, Duterte’s decision to veto the Security of Tenure bill—which would have restricted the practice of contractual employment—left many labor groups to further doubt the chief executive’s commitment to achieve his campaign promise of ending illegal contractualization during his term.

Volunteers, contractuals

DESPITE these setbacks, labor leaders like Jose G. Matula, the chairman of the labor coalition Nagkaisa and president of the Federation of Free Workers (FFW), said they will still continue to push the government to compel companies to regularize contractual workers, especially those in the frontlines during the pandemic.

“We are urging government to regularize those health workers hired as volunteers or under contract of service to be part of the civil service, as well as the grocery cashiers and baggers supplied by agencies to malls and supermarkets, since they are also essential workers,” Matula said.

Meanwhile, Employers’ Confederation of the Philippines (ECOP) Chairman Sergio Ortiz-Luis Jr. said many establishments will have difficulty absorbing their contractual workers due to their limited business operations during the lockdown.

“Many companies are now reducing their workforce. So the issue now is not contractualization, but how to allow workers to go back to their work,” Ortiz-Luis said.

And the Labor Department is now preoccupied with the soaring figures of unemployed workers because of Covid-19, which include 127,000 local workers and 400,000 overseas Filipino workers (OFWs).

Economic pessimism

HENCE, economists are less optimistic that government’s targets, particularly of increasing economic growth to 8 percent to 9 percent next year and to reduce poverty to 14 percent, would be achieved.

Ang said the pandemic is the primary reason these targets will not be met. The government’s infrastructure project, dubbed “Build, Build, Build,” is an example.

University of the Philippines Professor Emeritus Raul V. Fabella told the BusinessMirror that projects being undertaken by the Department of Public Works and Highways (DPWH) are “down to 50 percent of the revised list.”

“Majority [of the projects] have been rebooted so we need to address this Covid-19 before we can go back [to where we were before],” Ang said.

Philippine Institute for Development Studies (PIDS) Research Fellow Jose Ramon G. Albert agreed, saying that all targets crafted prior to Covid-19 will not be met.

Albert said there will be long-term consequences and the government should act in order to get back on track in its development efforts.

“Of course there are repercussions; but this is why it’s important to have the right priorities, build a better environment that will lay the grounds for digitalization that will make the economy more agile,” he added.

Total food chain

IN an earlier presentation at the House of Representatives Committee on Economic Affairs, Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said the government, for one, should focus on agriculture as a main driver of the economy. This means putting more emphasis on agriculture production and the entire food value chain.

Chua said this attention on agriculture will give Filipinos confidence that their basic needs are available at affordable prices.

In order for this to happen, Chua said there’s a need to thoroughly discuss the value chain, supply chain and support services needed to make production more efficient.

Since the imposition of the lockdown, the Department of Agriculture (DA) has pushed for a P66-billion stimulus package for agriculture that seeks to boost local production and utilize technology in farming and market distribution, among others.

However, only the P8.5-billion rice resiliency project (RRP) out of the P66-billion proposal has been approved and implemented by the national government. The RRP seeks to boost local rice output by at least 700,000 metric tons through the provision of fertilizer to farmers and expanding areas that would receive high-yielding quality seeds.

The question remains how the DA would sustain financial support and investment in agriculture.

Heightened risk

CHUA said the government will also have to prepare for “heightened risk of financial insolvency” of firms and industries.

Philstocks Financial Inc. analyst Piper Chaucer Tan said that the surge in bad debts is likely to impact the expansion plans of the banking industry.

This, as major industries including tourism, hotels, non-essential retail, property, restaurants, entertainment and casinos are highly exposed to default risks.

“Banks must maintain their balance sheet at a liquidity level to prevent a systemic risk in the financial system,” Tan said.

The financial sector might find it difficult to keep the balance sheet robust while expanding banking services to both resilient and vulnerable industries, he explained.

Expansion paused

BDO, in a recent interview with the BusinessMirror, said it originally planned to open 50 to 70 new branches this year.

“However, due to the pandemic and restrictions/limitations under the ECQ [enhanced community quarantine] and GCQ [general community quarantine], the branch expansion may not be completed as planned,” the bank said.

“The bank, however, intends to continue deploying new branches to the extent possible or as allowed by regulations,” it added.

Ayala-led Bank of the Philippine Islands (BPI) said in May that it would halt building more branches.

The bank shelved its plans to build additional branches for BPI, BPI Family Bank and BPI BanKo due to the pandemic.

“With the exception of BanKo branches, where over three years we built 300, we had slowed down our branch build-out in the past few years, expecting that digital transactions will overtake branch transactions in a few years,” BPI added. “The lockdown has brought the tipping point forward.”

Project halted

WHILE the financial sector is pushing forward with digitalization projects, it’s the opposite for the Insurance Commission (IC).

To help government boost its war chest against Covid-19, the IC recently gave up its P1-billion allocation for the two project components of its information and communications technology (ICT) modernization program.

The Department of Budget and Management earlier asked different departments and agencies to identify programs, activities and projects that can be discontinued so government can generate savings for its Covid-19 response.

IC Commissioner Dennis B. Funa told the BusinessMirror the allocation was supposed to be used for the improvement of the resiliency of their ICT network against cyberattacks and for harmonization of its information systems, processes and workflows on a commercial cloud- or web-based system.

“The ICT program is important to [the IC] and the insurance industry because a more secure IT [information technology] network and streamlining of operations on a cloud-based platform results in the improvement of the delivery of public service by this Commission, which is mutually beneficial for both parties especially in light of the increasing necessity for the continuous delivery of public services under remote work arrangements or ‘work-from-home’ arrangements due to the pandemic,” Funa said in an e-mail to the BusinessMirror.

Enabling players

FUNA added that “notwithstanding the benefits that could have been derived from the ICT modernization program, however, [the IC] deemed it more important to assist the President in helping save more lives during the pandemic, as the health, welfare and lives of our countrymen are more important considerations as of the moment.”

Given that industries experienced declines in insurance sales and investment income, Funa said the IC is focused on helping the insurance, pre-need and health maintenance organization industries recover from the adverse economic and financial effects of the pandemic, as well as on the industry’s pivot toward digital business.

The chief of the agency regulating the insurance sector pointed to a study that said the financial and insurance sector will suffer an almost 70-percent decline in activities.

“In this regard, we are doing everything to help the industries generate sales by allowing online marketing and selling,” he said.

Opportunities scarce

FUNA added that the IC temporarily relaxed the licensing requirements for insurance sales agents.

Funa said the second impact “is the decline in investment income.”

He told the BusinessMirror: “There really is not much choice now in terms of investment opportunities. The money held by insurance companies must generate investment income…. That cannot happen now.”

By assisting industries in their recovery from the pandemic, Funa said they believe they are also doing their share in helping the Philippine economy get back on its feet.

“If this Commission’s regulated entities are able to bounce back from the adverse effects of the pandemic, the same will translate into more Filipinos being able to avail themselves of insurance, pre-need and HMO [health maintenance organization] benefits during these uncertain times and simultaneously help jumpstart the Philippine economy,” he explained.

Priority sectors

IN order to boost growth after the pandemic and ensure that the country’s long-term vision is met, Neda Undersecretary Rosemarie G. Edillon said there are priority sectors under the Philippine Development Plan (PDP).

These include housing and urban development, which will spur construction-related manufacturing activities, specifically those that are geared toward house construction, as well as utilities—electricity, gas and water.

Another industry is overall manufacturing, such as food processing, transport, construction materials and other manufacturing industries.

That appears to be a tall order: even before tourist destinations were closed, malls shut down and public transport units prohibited, it was the export sector that suffered first blood when the government imposed a lockdown.

When the outbreak erupted in China, the Chinese government closed thousands of factories. With China being the world’s largest trader, the closures left a hole in supply chains worldwide, including in the Philippines.

After all, the country’s imports from China last year enlarged nearly 16 percent to $25.49 billion, from $22.01 billion in 2018, PSA data revealed.

Most of these imports are raw materials and units that exporters here use to make finished products and semi-finished products.

Local manufacturing

AS such, the decline in China’s production and the disruption of global trade hurled an avalanche of setbacks on the local manufacturing sector.

Shipments from January to May declined more than 20 percent to $22.55 billion, from $28.42 billion during the same period last year.

Exports of electronic parts fell close to 19 percent to $12.48 billion, from $15.36 billion, based on PSA data.

And while figures in May improved from April, Trade Secretary Ramon M. Lopez said it would take many months before exports can return close to target levels.

However, Lopez said it is “too early” to revise medium-term objectives at the moment.

The Trade and Industry chief said he is sticking with the government’s goal for until 2022 of $122 billion worth of exports, both in goods and services.

Economic partnerships

LOPEZ said now is the best time for the Philippines to conclude free-trade agreements (FTAs) it is negotiating with economic partners, as these trade deals will secure markets for exporters, as well as reduce the tariffs they pay.

“As to changing the [2022] target, we are nowhere near discussing that,” Lopez told the BusinessMirror. “We see that this 2020 is really challenging; but we are hoping 2021 will provide us faster growth.”

“The FTAs are hopefully our solution to boost our export numbers from the slowdown that it is experiencing right now,” he added. “We have to continue the FTA [negotiations] to revive our economy.”

According to Lopez, he views the Regional Comprehensive Economic Partnership, for example, as key to reviving and strengthening the country’s exports.

While all these multi-track measures are well considered, helping get the economy back on its feet as soon as possible—while keeping people healthy and stopping Covid-19’s spread—is the toughest balancing act for the moment. The nation looks to Monday’s State of the Nation Address (Sona) for signals of how well this balancing act can be played out. It might as well be people asking their leaders, “SO, pa’no NA [So, what happens now]?”

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