16.5-percent GDP drop: What went wrong?
Our country has experienced negative growth for two quarters in a row in 2020 and is now technically in recession. In the first quarter of 2020, we contracted by 0.7 percent, and for the second quarter, the Philippine Statistics Authority announced another contraction—a negative 16.5 percent. Both in real terms, 2018 prices.
Reader, I have been following the Philippine economy for over 60 years now, and this is the first time the country has been hit by a contraction of this magnitude.
Actually, on an annual basis, the Philippines has contracted only four times in the last 70 years: in 1984 and 1985 during the “golden” Marcos years when the economy was in debt crisis and contracted by 7.32 percent for two years in a row, then in 1991 and again in 1998 when we contracted by 0.58 percent (all these in 1985 prices). These last two as a result of international events (e.g., the Gulf Crisis, the Asian financial crisis). Remember the 2008 global financial crisis? We managed to show a positive growth rate of 1.4 percent in 2009.
So having a 16.5-percent contraction is like—a very big deal, right? So what did the government do to reassure the Filipino people? It called a press conference, during which members of the Cabinet were extolling the accomplishments of the Duterte administration. As if to say, “We had nothing to do with this economic fiasco, it was COVID-19’s fault. After all, aren’t other countries experiencing the same thing?”
Well, I beg to differ, Reader.
In the first place, the magnitude of this contraction was not at all expected by those monitoring us, as well as by our economic managers. In April this year (well into the pandemic), the IMF and the ADB projected that the Philippines would grow by 0.6 percent (IMF) and 2 percent (ADB). Of course, these projections are based on certain assumptions, but it is important to note that they both projected positive growth. Two months later, the World Bank’s June 2020 Global Economic Prospects placed our growth at -1.9 percent, nowhere near our first-semester contraction.
Given our performance in the first half of 2020, if we are to grow at the IMF’s estimate of 0.6 percent for the year, we will have to post a positive growth rate of something like +10 percent for the second semester. Clearly impossible. And if that is impossible, think of what our growth rate should be to achieve a growth rate of +2.0 percent.
What went wrong? Clearly, we (I mean, the government) took their eye off the ball. Instead of getting together and everyone “healing as one,” they ignored the signs, and spent precious time and attention on things like the Anti-Terrorism Act of 2020 and the franchise of ABS-CBN. True, they increased the budget for anti-COVID-19 measures, like the social amelioration program, which called for two tranches of from P5,000 to P8,000 each to be given to 18 million families. This was on April 25. Alas, as of July 31, this has not even all been disbursed. Too little, too late. A lockdown and opening up, which was neither well-planned nor well-thought-out, did the rest. That is clearly the government’s fault.
Eleven million families unemployed, or employed but not working, who were given P10,000 to P16,000 over more than a three-month period to tide them over, is obviously not going to do the trick. And one doesn’t know when this is going to be added to, because the President said, “wala na tayong pera” (where he got this information, I don’t know).
Thailand was projected to contract by anywhere from 4.8 percent to 6 percent this year by the ADB and IMF. Their performance is close to this estimate. Malaysia was expected to contract by 1.7 percent, but in Q1, it grew by +0.7. Indonesia was expected to grow by 0.5-2.5 percent, but contracted by 5.3 percent in Q1. Disappointing, but not as bad as the negative 16.5-percent performance that the Philippines turned in. Their governments seem to be better tuned.
Can we still stem the tide? It will be very difficult for this year. But if we work together, we can head off the humanitarian crisis that the health and economic crises are pushing us into. And there is one piece of good news: The most ignored sector of the economy—agriculture—turned in a positive performance (1.6 percent growth), in contrast to industry (-23 percent) and services (-16 percent, of which transport -59 percent). Agriculture Secretary William Dar is neither a Davaoeño, nor from the military nor a political ally. That’s what we need. People in the right places who know what they are doing.
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