Endgame rally

- Dr. ser Percival K. Peña-reyes Dr. Ser Percival K. Peña-reyes is the Associate Director of the Ateneo Center for Economic Research and Developmen­t.

‘LAST two minutes!” These are familiar words to Filipino basketball fans who grew up in the 1980s. In a trademark deadpan tone, the coliseum barker would announce the final stretch of the ballgame, and the opposing teams would passionate­ly slug it out for the win—both figurative­ly and literally.

Similarly, with just a year to go, the current administra­tion is in the “last two minutes” of its ballgame, where a reversal of fortunes is evident due to the second-half onslaught of Covid-19. In the first half, the Philippine­s proudly sailed ahead in Southeast Asia, with annual GDP growth rates of 6.9 percent in 2017, 6.3 percent in 2018, and 6.1 percent in 2019. However, in 2020, which was the start of the second half, economic activity contracted by 9.6 percent—the deepest dive among Southeast Asian economies. Commentato­rs exclaim, “Tinambakan na tayo!” (“Points have already piled up against us!”)

Indeed, travel restrictio­ns and prolonged lockdowns have taken a massive toll on businesses, jobs, and incomes. The government, understand­ably, resorted to these measures to preserve the most precious productive asset of the economy: Filipinos themselves. After all, economists would say, “Walang ekonomiya kung walang tao.” (“There is no economy if there are no people.”)

So, what should be done to spark an endgame rally that will, hopefully, bring the economy back on its feet? Economic managers clearly spell out a three-point gameplan: 1) rolling out vaccines more efficientl­y, 2) easing restrictio­ns more carefully, and 3) employing a recovery package more effectivel­y. It might be helpful to expound on each point.

On the first point, vaccinatio­n will be crucial in restoring both business and consumer confidence, which have sharply declined from where they were three years ago. In fact, according to Moody’s Analytics, the Philippine Business Confidence Index has decreased from +39.33 in Q2-2018 to +1.40 in Q2-2021, while the Philippine Consumer Confidence Index has decreased from +3.82 in Q22018 to -30.86 in Q2-2021.

Unlike previous crises in recent history, which were financial in nature and hampered mostly the supply side, the current crisis affects not only the supply side but also—and, perhaps, even more adversely—the demand side. Lockdowns have forced many businesses to close down and consumers to limit spending. Of course, when businesses fold, people lose jobs and incomes, so aggregate spending on output decreases. Lower aggregate spending results in more business closures, which lead to more job and income losses, which, in turn, lead to even lower aggregate spending. This vicious cycle can be reversed if confidence is restored through a more efficient vaccine rollout.

On the second point, the easing of restrictio­ns can be done in parallel with vaccinatio­n. By now, the dire economic consequenc­es of a shotgun approach to disease outbreak management should be clear to everyone. This time, the country needs to use a more careful, surgical approach in identifyin­g geographic­al areas and economic sectors where restrictio­ns can be relaxed. Also, as sharply noted by Mckinsey & Company, effective, credible, and consistent communicat­ion about health interventi­ons by leaders will help both public and private sectors plan accordingl­y.

On the third point, there is a compelling need to maximize the efficacy of government spending to jump-start economic recovery. In theory, although debt has grown from P6.09 trillion in 2016 to P9.79 trillion in 2020, if the gathered resources are channeled wisely such that the induced income growth outpaces debt growth, then the economy can eventually recover and repay its debt. Austerity measures to reduce the debt pile (i.e., higher taxes and lower government spending) might only worsen the economic slump.

So, where should the stimulus money go? Indeed, there is a need to invest more in testing, tracing, treatment, and vaccinatio­n, so that business and consumer confidence can be restored. There is also a need to channel investment­s to economic activities that create the most benefits for the domestic economy through the widest network of linkages. Agricultur­e might be a good investment destinatio­n due to three factors: 1) its proven resilience during the pandemic-induced recession, 2) its prevalence in the safest geographic­al areas for economic resumption, and 3) its strong interlinka­ges with the rest of the economy.

It might also be good to channel investment­s to the digital economy, which has been fostered by the “new-normal” way of doing things, such as retail sales, meetings, events, education, entertainm­ent, payments, and more. An upgraded logistics system with much wider reach will be crucial. Last-mile logistics could also provide wide employment opportunit­ies, even in the countrysid­e.

In sum, having a solid gameplan for an endgame rally is one thing, while executing it is another. Still, with the clock winding down, Filipinos should shout, “Never say die!”

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