23 Oct 2020 – A better economy

by Tony Lopez, Manila Standard, 23 Oct 2020

“You cannot possibly get a better economic team than these two whiz kids of management and economics.”

During the world’s worst crisis of the last 100 years, President Duterte has been blessed to have in his economic team the tandem of Finance Secretary Carlos “Sonny” Dominguez and Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno. You cannot possibly get a better economic team than these two whiz kids of management and economics.

Dominguez has an economics degree and MBA both from Ateneo. Diokno has a bachelor’s degree in public administration, a master’s degree in public administration and a master’s in economics, all from UP; an MA in political economy from Johns Hopkins University, and a PhD in economics from Syracuse University New York.

When COVID-19 struck in March this year, Sonny Dominguez went along with the decision of the nondescript group called IATF, which is populated mostly by generals, to declare a total lockdown on entire Luzon island. This lockdown was later extended nationwide. The result, in three to seven months, was a sprawling economic disaster of unprecedented proportion.

Seeing the damage, Sonny and Ben, acting in concert or on their own initiative, went to work.

In late March, Sonny got from Congress the Bayanihan Heal as One Act. It was the greatest economic stimulus and financial inclusion act ever approved by Congress. That law was renewed, the Bayanihan Two, last Sept. 11, 2020.

Bayanihan One easily transferred over P1 trillion in the hands of the people.

Bayanihan Two allocates a more modest P140 billion for health care personnel, P39.5 billion for government banks to lend to small businesses (the backbone of the economy; also a bank loan has ten times multiplier effect), P24 billion for Plant, Plant, Plant (to produce food for the people), P5 billion for contact tracers, and P4 billion for tourism, among recipient sectors of the economy.

Bayanihan Two reduces red tape. Mergers of P50 billion or less are allowed without review by government, up from P5 billion before. This should allow businesses to develop synergies, increase efficiency and allow nimbleness to cope with opportunities of post-pandemic normalcy.

Telcos can install cell sites without debilitating permits that discourage new cell sites, for the next three years.

Admits Finance chief Dominguez, “it (the lockdown) was doing more harm than good.” In place of lockdowns, the head of Duterte’s economic team insists on “health protocols so we don’t get a spike in cases.” Duterte himself sums up the health protocols in three words – “masks, hugas, iwas” – for wear masks, washing your hands frequently, and keeping a distance from the others.

“We cannot completely lock ourselves up to avoid COVID-19 at the expense of other vital dimensions of our lives. We should take less costly but effective measures,” Dominguez says.

“It is fortunate that when the COVID-19 crisis hit, the Philippines was financially ready,” says the Finance chief.

He says “the game-changing reforms we passed over the last four years have strengthened our fiscal stamina. Without our series of tax reforms, the rice tariffication law, and other far-reaching measures, the COVID-19 crisis would have inflicted much more pain on our people and on the economy.” The measures, he points out, “have provided us the necessary tools needed to fight the pandemic.”

Dominguez thinks Bayanihan Two opens the way for the government to begin rebuilding our domestic economy by ensuring help to key industries, without intervening excessively in the workings of the private sector financing. The credit programs will support, rather than diminish, the financial sector’s continued strength and stability.

Not to be outdone, Diokno’s BSP injected P1.9 trillion (about US$ 39.2 billion)—equivalent to 9.6 percent of GDP—into the financial system.

With consumers and the economy awash with cash, Diokno thinks “the worst is over.” That may explain President Duterte’s unprecedented 91 percent job approval and trust ratings in September.

“But we are not out of the woods yet,” the BSP chief cautions.

Still, Dominguez and Diokno see the economy stirring up.

The Purchasing Managers’ Index (PMI) moved past the growth threshold of 50, settling at 50.1 in September.

Net inflow of foreign direct investments already posted growth rates starting in May, with the latest at 35. percent growth in July. This points to favorable job-generation prospects ahead, Diokno points out.
The unemployment rate improved from a record high of 17.7 percent in April— which was the height of the lockdown—to 10 percent in July. Contraction of imports slowed down from 65.3 percent in April to 22.6 percent in August.

The decline in exports eased from 49.9 percent in April to 18.6 percent over the same period. Major indicators suggest that financial markets are responding well to our policy responses.

The peso is among the strongest currencies in this part of the world, recording a year-to-date appreciation of 4.36 percent against the US dollar as of October 13.

Says Diokno: “With all these positive trends as backdrop, we expect an even firmer economic recovery by next year. Based on official government projections, GDP will swing from a contraction of 4.5 to 6.6 percent this year to a growth of 6.5 to 7.5 percent next year.”

The BSP has been quick and decisive in responding to the crisis. “Our actions were meant to, first, boost market confidence and cushion economic activity; second, provide liquidity to complement government programs; third, sustain financial stability; and fourth, support continuous delivery of financial services,” relates Diokno.

Included in the P1.9 trillion pumped in by BSP, are cuts in the policy rate and the reserve requirement.
Additionally, BSP did something extraordinary: It lent P840 billion to the government—P300 billion which the state paid last September, and another P540 billion approved last Oct. 1, 2020.
Says Diokno:

“Our targeted measures have benefited the vulnerable sectors. For example, loans to micro, small, and medium enterprises (MSMEs)—which account for over 60 percent of employment—now count as part of banks’ compliance to the reserve requirement. As such, we have seen a quantum jump in loans to MSMEs.

“The suspension of fees on registration of digital payment services—plus the moral suasion for banks to waive fees on electronic fund transfers (a call that has been overwhelmingly responded to)—have aided digital financial transactions of the public amid quarantine.

“The increase in the single borrower’s limit and the limit on real estate loans are seen encouraging banks to lend, in support of economic recovery and growth.”

“BSP is keen to help realize all the characteristics of a New Economy in the post-COVID era: stronger, more technologically savvy, and more inclusive. 6 As shown by our strong macroeconomic fundamentals, we’re prepared for this crisis,” says the BSP chief.

“When the coronavirus pandemic fades, I expect the Philippines to be an economic champion, outperforming other emerging economies in its class.”