Philippine economy

[ANALYSIS] 5 ways Duterte is derailing PH economy’s recovery

JC Punongbayan
[ANALYSIS] 5 ways Duterte is derailing PH economy’s recovery
'Whatever the remedy, Duterte needs to act fast'

Brace yourselves for a slow, shaky recovery.

It’s bad enough the Philippine economy shrank by a record 16.5% in the second quarter of this year, the worst on record. Analysts also suggest we will likely suffer the worst economic contraction in ASEAN by year-end. 

The International Monetary Fund foresees our economy will shrink by 8.3%, while ASEAN-5 in general will shrink by only 3.4%. The Asian Development Bank estimates a 7.3% contraction. The World Bank expects a 6.9% downturn, possibly 9.9% if worse comes to worst.

The root problem, of course, is that the Duterte government failed to act quickly against the pandemic. (READ: Had Duterte acted earlier, PH economy would be safe to open by now)

Nearly 8 months later, things are still not looking up. In fact, Duterte’s policies are set to prolong rather than hasten the economy’s recovery. Here are 5 reasons for that.

  1. Misplaced austerity

Duterte and his economic managers are being unreasonably stingy. 

Amid the global recession and large-scale economic suffering, economists worldwide — even those who used to advocate austerity — are pushing governments to spend aggressively, even if it means aggressive borrowing. 

As some put it, “austerity is dead.” Above anything else, people’s welfare and economic dignity must be upheld.

But Duterte and his economic managers are immune to these changing winds. They have long insisted that our government cannot afford to shell out mammoth funds for economic stimulus and aid. For months Duterte even kept deceiving the public by saying walang pera (there’s no money).

Such misplaced austerity manifested itself in the paltry Bayanihan 2 law (which allocated just P165.5 billion for the pandemic response) as well as the 2021 budget bill (which totals P4.5 trillion, only 10% larger than this year’s budget).

This, at a time when government spending is likely to be the strongest — if not the only — source of spending growth. (READ: End of growth: How the pandemic ruined PH economy beyond recognition)

2. Health, aid budget cuts

Apart from being small compared to our needs, the 2021 budget is also focused on all the wrong things. 

For one, the health sector will not get the budget boost it sorely needs. Government hospitals will suffer a whopping P2 billion budget cut. The budget item called “Prevention and Control of Communicable and Non-Communicable Diseases” will get P10 billion less than what the Department of Health said it needs. And merely P2.5 billion was allocated for vaccines; at best that’s good for less than 5% of the population. (READ: Where is Duterte’s proper vaccine budget, plan?)

Significant aid for poor households and unemployed workers is also not forthcoming. Businesses are left to die left and right without receiving any financial assistance. If this goes on, the economy will be much harder to jumpstart. 

Government is instead pouring hundreds of billions of pesos on big-ticket infrastructure projects (think roads, bridges, flood control projects). Not only will these prove infeasible in the middle of a pandemic, but they’ll also serve as pork projects in the run-up to the 2022 elections. (READ: Why we can’t Build, Build, Build our way out of this pandemic

Duterte is also pouring P16.44 billion into support of its “anti-insurgency” campaign, which will likely intensify the military’s red-tagging, harassment, and propaganda efforts. A “generals’ pork,” if you will.

The economy’s recovery hinges on Filipino’s health and economic dignity. Underfunding the health sector and economic aid at this time can only spell trouble.

3. Delayed spending

Even more directly, Duterte himself is hampering the recovery by failing to spend emergency funds urgently. He’s taking his time too much.

Budget Secretary Wendel Avisado himself admitted that as much as P46.2 billion — or more than 30% of the P140 billion provided for by the Bayanihan 2 law — has yet to be approved by the Office of the President. 

These funds are meant for, say, emergency subsidies for poor households, employment and livelihood programs, pandemic-related expenses, as well as the Department of Agriculture’s Plant, Plant, Plant program. 

A measly P4.4 billion (3%) has been released to agencies on the frontlines of the pandemic response. 

Before this, it took Duterte nearly 3 weeks to sign the Bayanihan 2 law after it was approved by both houses of Congress — as if the pandemic didn’t warrant any urgency on Duterte’s part.

Spending bottlenecks have also hampered the emergency subsidies in Bayanihan 1: it’s October already, yet only 98% of the aid meant for May has been distributed.

Unless disbursement and absorptive capacity issues are resolved, Build, Build, Build will also fail to be the showpiece of our recovery, as constantly touted by the economic managers.

4. Premature reopening

The Duterte government is also pushing for the quick and premature reopening of our economy. 

The idea is well-meaning enough: to counter the staggering decline of consumer spending, the swelling ranks of the unemployed, and the alarming rate of business closures.

But loosening quarantine restrictions is by no means an economic panacea. 

The reopening of select sectors in past months did not produce an economic snapback. Malls and restaurants are still largely empty. Beaches and other tourist sites are still devoid of tourists. Domestic flights are still few and far in between. 

Consumer confidence is key to the recovery. But that confidence won’t bounce back until the epidemic curve has truly been flattened and new COVID-19 cases are brought to or near zero. (READ: Kalusugan muna bago ekonomiya)

The virus must be controlled first. Prematurely opening huge swathes of the economy could only push back its full recovery to a much later date — paradoxical as that may sound.

5. Inadequate testing

Finally, government is reopening the economy even as its COVID-19 testing capacity has been severely compromised.

Analysts have noted a considerable drop in tests conducted in recent days. This follows the fact that on October 15 the Philippine Red Cross stopped conducting tests because of the P930 million still owed to it by PhilHealth.

This unfortunate turn of events highlights the fact that the Duterte government, by itself, has miserably failed to significantly expand its testing capacity. Yet even with Red Cross around, government has failed to meet its avowed targets of 30,000 to 50,000 tests a day. 

Red Cross’ exit will invariably cripple our country’s testing effort which, as recently as September, the Palace boasted to be the “best testing policy in the whole of Asia and probably in the whole world.”

On October 19, Duterte made assurances that his government will look for ways to repay the Red Cross immediately. 

Money should not be a problem. Government has been borrowing billions of dollars in new loans in past months. Even the Bangko Sentral stands ready to support the Treasury and the pandemic response if need be.

Whatever the remedy, Duterte needs to act fast. We can’t reopen more sectors of our economy without enough tests. That’s like walking straight into a minefield without a metal detector in hand.

But since when did the Duterte government respect science and rely on data to inform its policies? – Rappler.com

The author is a PhD candidate and teaching fellow at the UP School of Economics. His views are independent of the views of his affiliations. Follow JC on Twitter (@jcpunongbayan) and Usapang Econ (usapangecon.com). 

JC Punongbayan

JC Punongbayan, PhD is a senior lecturer at the UP School of Economics. His views are independent of the views of his affiliations.