Fear factor

I never thought that coursing my way through Edsa traffic would bring a smile to my face. But it did, since in recent days I was struggling through heavier traffic than I had experienced since the pandemic and its related lockdowns insinuated themselves as the so-called new normal. The heavier traffic gave the impression of a gradual return to normalcy and engendered feelings of optimism.

Sadly, one of those Edsa sorties had me visiting a mall, resulting in dark clouds and pessimism once again setting in. Where once, not too long ago, malls were characterized by large crowds, endless shopping and eating, family gatherings, people-watching and live entertainment, now they are ghost towns by comparison. The majority of shops and restaurants are closed, such that the number of people one encounters on any given day in a mall could probably fit into a three-classroom barangay schoolhouse.

So are we about to see light at the end of this tunnel? And if so, when? The sure answer is: definitely not this year. The variants of quarantine (ECQ, GCQ, etc.) are likely to extend through Christmas, and GDP is highly likely to contract by not less than 7 percent. The year 2020 will be memorable for its misery, for its being the first time in living memory (or more) when normal contact with our fellow human beings—including among others family members, friends, neighbors, classmates, office and work mates, fellow churchgoers, etc.—would be at about the top of the list of life-threatening activities one could undertake. This year will be remembered for being the time when the law of supply and demand was supplanted by supply and demand by law, as the calibration of almost every aspect of economic and social activity has become pervasive.

It is true that health imperatives have made this level of control voluntarily accepted by the public, but it may have resulted in an unquantifiable fear factor that could impede the recovery of the economy. This dire situation is reflected in the serious declines in just about every sector of the economy as of the end of the second quarter of this year, ranging from a whopping 60-plus percent in transport, hotel, and food services activities to a “milder” 21 percent in manufacturing.

The government is optimistic about a rapid recovery, citing the continuing strength of the peso, the adequacy of foreign reserves, the effective containment of inflation and debt, plus the infusion of stimulus packages to weather the storm and strategic programs such as corporate tax reform and the acceleration of Build, build, build infrastructure projects. Would these be enough to result in the hoped-for rapid (V-shaped) recovery of the economy?

These are no doubt helpful, but much may depend on whether the current environment has so altered the mindset of the entrepreneurial community—both current business operators and potential investors—as to make risk aversion the paramount consideration of decisions to continue an existing business or launch new ones. To put it more simply and by way of example, could a restaurant survive on a 25-percent customer capacity constraint, and would anyone go into such a business with that constraint determining revenue, a stimulus package and ample credit sources notwithstanding? Maybe not.

And this decision tree could apply to many other business sectors. Would anyone enter into business while facing a stacked deck? This is probably one reason why the latest survey by the National Association for Business Economics resulted in a more pessimistic outlook for recovery not taking place till the second quarter of 2022 or later.

Continuing moves to flatten the curve, more carefully considered promulgation of quarantine levels and related guidelines, and tweaking of the government’s messaging from that of protecting the people from themselves via draconian measures toward a more encouraging and forward-looking one, are needed. Otherwise, to paraphrase a quotable quote, the main thing to fear would be fear itself.

—————-

Roberto F. de Ocampo, OBE, is a former finance secretary and was Finance Minister of the Year in 1995, 1996, and 1997.