Introspective
I am pleased to share with readers excerpts from a recent report and Zoom forum appearance connected with, what else, coping with COVID-19.
Following is the executive Summary of the May 26 quarterly outlook report that Christine Tang and I wrote for subscribers of GlobalSource Partners (globalsourcepartners.com) called “Is it the end of the world as we know it?”
Only a handful of countries can claim to have been prepared for the COVID-19 pandemic. The Philippines is not one of them. When local transmission began, the government resorted to the only tool it had to contain the outbreak: the lockdown hammer. It used this to close government and business, offices and schools, and even public transport. The economic cost was enormous, at P1.1 trillion, or 5.6% of GDP, for the 45-day lockdown.
In this time of extreme uncertainty, when past data offer little guidance for the future, and policy responses are evolving quickly, forecasting becomes even more of an art than science. For this forecast exercise, we started with the Q2 lockdown, then visualized the economy under a “new normal,” and likely outcomes from government efforts to avoid a second wave of infections on one hand, and to revive the economy on the other.
The outlook is quite grim: a sharp contraction of 7% this year, with GDP not expected to rebound before 2022. Indeed, with masking directives, distancing protocols, borders closed, and police checkpoints everywhere, the hit R.E.M. song from the 1980s (“It’s the End of the World as We Know It”) continually replays in our heads.
We have been seeing a lot of a chart from the Economist, showing the Philippines ranking 6th among 66 emerging market economies in terms of public debt, foreign debt, cost of borrowing, and reserve cover. The assumption has been that the government has the fiscal space to do whatever it takes to counteract a recession. Yet fiscal authorities have been quite restrained on the subject of fiscal stimulus. Indeed, fiscal authorities have a tough balancing act ahead. What they choose to do — and we think they have room to maneuver — will matter greatly for how well the economy will emerge from this crisis.
It appears that even President Rodrigo Duterte is suffering from lockdown fatigue. As soon as the ECQ in Metro Manila was “modified” to let some businesses partly reopen, he invoked presidential exemption and flew home to Davao. Indeed, nobody expected the ECQ to last this long, nor how slow the government would be to ramp up infection testing. We have had no word on how the pandemic may have affected Duterte’s approval ratings, but we may expect them to follow economic and social indicators. The deeper and longer the economic downturn, the greater the risk of more populist measures, and fear of a lame-duck presidency. Indeed, political analysts say the constant presence of Senator Christopher Go at the president’s side during his regular COVID-19 press briefings is a sign that succession planning is ever on the president’s mind.
Following are my remarks as a reactor in a Stratbase Zoom roundtable on PPP post COVID-19, held on May 29.
In a book titled Momentum that Toti Chikiamco and I co-wrote with three others friends last year — Dondon Paderanga, Raul Fabella and Noel de Dios — a number of our old columns talked about PPP (public-private partnership) and the circumstances under which it is the ideal mode for project development and implementation. I was delighted to see that one of my columns there was posted by former PPP Center chief Phil (Pecson) or perhaps earlier by predecessor Cosette (Canilao) in the PPP Center site. The title of the column is “The Great Infrastructure Debate.” (You can read it at https://ppp.gov.ph/in_the_news/the-great-infrastructure-debate/ or you can get a copy of our book published by FEF.)
It talks about the pros and cons of PPP vs using the GAA and concludes that “given the huge infrastructure requirements of the Philippines it should not be PPP versus ODA but rather PPP AND ODA”
I further noted that “the lively debate may have been driven by the sudden change in public policy, yanking without compelling reasons several projects at advanced stages of preparation to an ODA or tax funded mode after these have been prepared for a PPP bid over many years. This has raised concerns over the consistency and stability of government policies from many capable local and global players who have invested substantial resources to bid for these. Included in these are five regional airports and Kaliwa Dam.”
Had the administration pursued these projects, these would likely have already been completed and serving the public. Especially the much-delayed bulk water project.
But that is water under the bridge, pardon the pun, and we need to move on. And as a policy advocate, like Stratbase guys, I believe that we should “never let a good crisis go to waste.” What is possible to do in the remaining time?
This is what I wrote in a column last week as one among key reforms that can be done for the third phase of PROGRESO, the recovery “bounce back” phase.
“More reliance on PPP, including bringing to the finish line projects that have been under protracted negotiations. This can help rebuild damaged investor confidence. It will also help conserve now stretched fiscal resources. Government also needs to assure stability in regulation for existing PPP and enact the long pending PPP bill in Congress.”
This will also build on the working public-private partnership now taking place in coping with this crisis, most notably in the 3 T program — testing, tracing and treatment — and in helping the most vulnerable members of society cope. Something no less than the President acknowledged warmly, including with unexpected kind apologies.
Senator Grace Poe, Congressman Edgar Sarmiento, and FEF President Toti Chikiamco identified good candidates for future PPP reform and collaboration:
1) In the area of mass public transportation: PUV service contracting, and public infrastructure to support the same.
2) Open up the economy to more competition in PPP by amending the outdated Public Services Act and passing the long delayed PPP bill.
3) Bid out public health projects in various regions for services based on outcomes.
Let me also add:
4) Water projects are one of the most cost-effective public health interventions governments in developing countries can do. Peso for peso, I bet it can save more lives from prevention of deaths of common water borne diseases — dysentery, gastroenteritis, schistosomiasis, cholera, etc., vs other public health interventions, eg. the high economic cost of lockdowns to prevent mortality from COVID-19.
Incidentally, handwashing, the most potent tool vs COVID-19 together with wearing face masks, is only possible if there is water.
In this connection, I end with a wish that the limbo state of affairs in which the MWSS Water Concessions are trapped with the setting aside of the international arbitral award due to idiosyncratic regulation of an earlier administration, is sorted out soonest. This will send a clear signal, especially at this time, that the Philippines is open for investments. And that the concessionaires can continue to provide us with affordable, secure water service as they have been doing for over two decades. Something that could not be delivered by MWSS pre-PPP.
You will forgive my bias since I was involved in it as Undersecretary of the Department of Finance with oversight for Privatization in 1996. MWSS privatization, in my view, remains the best infra PPP case in terms of service delivery and mobilization of financial capital (debt and equity). Concessionaires achieved these outcomes due to their performance anchored on a credible concession contract which is now being reviewed.
Romeo L. Bernardo was finance undersecretary during the Cory Aquino and Fidel Ramos administrations.
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