A nightmare (1)

I fear the worst has yet to come. Country after country is registering COVID-19 intrusion: 171 to date, and growing. The rise in infections is exponential and a recession in much of the world now seems

inevitable.Governments are scrambling to do something about it, anything. But they don’t know what is best to do, and are reacting, not pro-acting. Days matter, yet it’s too many days till governments impose lockdowns. A lockdown is the only seeming solution. You can’t catch COVID-19 if you aren’t close to anybody. Forget the one-meter space, you can’t control it. In the Philippines, a stop signal is just a suggestion for pedestrians. They won’t keep a one-meter spacing where closeness is a given — you can’t expect people to recognize this and act responsibly. Look at Bondi beach in Sydney before the government closed it down. A beach never shut down before, not even during two world wars. For our poor there’s no choice, they’re crammed together where they live. They’re at risk through no fault of theirs, although the fact that they’re isolated may be saving them.If you read The Economist, you’ll get scared. The economies of the top countries are falling more rapidly than was forecast even a couple of weeks ago. Economists’ forecasts are being thrown out the window. And this is the disturbing trend: Declines are happening ever quicker. French President Emmanuel Macron said this is a war. But people could get together and work together in a war. COVID-19 has split people and societies apart. Humans are social animals. This is devastating that society.

As the Economist said, “One country after another is demanding that its citizens shun society.”

“PLANET EARTH IS SHUTTING DOWN.”

Italy, Spain, Iran, South Korea have economies in serious jeopardy. Japan is already in recession. In the US, the escalation is frightening and President Donald Trump is completely misunderstanding the problem (not unusual for him), putting economic revival ahead of health, although reality may be slowly sinking in and others are following. Economists can’t keep up. China was forecast to fall by 3 percent as soon ago as February. It fell 13.5 percent. Fixed-asset investment declined by 24 percent, six times more than predicted. The world is faced with a brutal recession. Suppression is all that offers hope, but that comes at huge economic cost. Country after country, including the Philippines, is facing debt levels unheard of a few weeks ago.

The Economist again: “In just two months the world economy has been turned upside down. Stock markets have collapsed by a third (as of March 24, the PSE was down 32 percent from its peak at the start of the year) and in many countries factories, airports, offices, schools and shops have been closed to try to contain the virus. Workers are worried about their jobs and investors fear companies will default on their debts. All this points to one of the sharpest economic contractions in modern times.” That sounds like a recession on a world scale is inevitable, unless massive government intervention happens at speeds unheard of, and at levels undreamed of before, to stop it.

Central banks are in a bind, though; interest rates are close to zero. So, you can’t go lower to stimulate demand (a usual action to reverse a downturn).

On top of that, people are trapped at home, so can’t spend. And where would they spend when everything is closed? Companies certainly aren’t in any rush to borrow to grow. The Philippine Central Bank, BSP, does have room to move. With a policy rate of 3.75 percent, it can reduce it. On March 18 it did, by 50 basis points. But how does that help? It may ease the burden on those seeking new loans, but they will be few. For some existing borrowers with flexible loan terms, they will pay lower interest rates. But its more essential purpose is to send the signal that credit is now cheaper for those who need to grow their business.

I see the biggest problem for the Philippines is the government’s historic inability to move fast—just ask the people of Marawi who’ve been waiting two years now just for a simple house. Congress has, for once, moved with alacrity (I guess they’re scared like all of us) in passing a law so that the President can bypass systems and reallocate funds.

More next week.

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