COVID-19 economy: What are we doing wrong?
How is it that a country like the Philippines, “which by all the usual metrics of having ‘strong macroeconomic fundamentals’ pre-COVID-19, both relative to its own past history and relative to its regional neighbors, would end up having the second-largest contraction in GDP in the second quarter of 2020 and the worst projected economic growth outcome in 2020 in ASEAN+3?” A paper jointly authored by Monsod (Toby Melissa C.) and Bautista (Ma. Socorro Gochoco) that will appear in the next issue of Asian Economic Papers, rather lengthily entitled “Rethinking ‘Economic Fundamentals’ in an Era of Global Physical Shocks: The Philippine Experience with COVID-19,” attempts to answer that question.
Before we go any further, Reader, I must disclose (proudly) that the Monsod referred to above is my daughter, and is a much better economist than I. The two authors are faculty members of the UP School of Economics.
Now, how do they go about answering the question? Well, they created a model for 21 countries in ASEAN+3, developing East Asia and South Asia, as well as Australia and New Zealand to explain the difference in actual 2019 and forecasted (as of October) 2020 GDP growth, and they relate the fall in real GDP growth to four factors: national capacities to detect and respond to acute public health events and emergencies, susceptibility to the disease, dependence on the foreign sector, and a country’s fiscal position.
What did they find? That, everything else remaining the same, stronger national capacities to detect and respond to emerging outbreaks, in particular laboratory capacity, are associated with better short-term economic outcomes. For the Philippines, in particular, better prepared laboratory systems coming into the crisis could have saved up to 3.6 percentage points in lost GDP growth forecasted in 2020.
They also find that “if COVID-19 is not first well-contained—by decisively addressing underlying physical causes of disease and transmission and progression—large fiscal spending aimed at other things could have perverse economic effects.”
Moving forward, their results suggest that a dearth in health system capacity should be prioritized over and above any other type of spending including traditional stimulus (e.g., large-scale infrastructure). Their results also underscore that given physical shocks (including those brought about by climate hazards), efficient and prepared institutions matter. “A macroeconomy is not resilient if these are not.”
The paper (I swear it is easy reading) points out that this is not what our government is doing, as shown by the National Expenditure Program for FY 2021 currently being renegotiated in the bicameral committee (I think). It has done the opposite of what is suggested by the results of the model. It has increased the infrastructure budget by 49 percent, while it has decreased the health sector budget by 28 percent (or P50 billion).
Moreover, I would like to point out that come 2021, our Social Amelioration Program will be no more—that’s P197 billion that was supposed to go to the poor, who have been left mostly to fend for themselves.
WTF? I hope our legislators make major changes in that budget. There is still time. If they had sliced the health budget as a way of showing their dislike of Health Secretary Francisco Duque III, that would be asinine, because they are punishing the Filipino people as well. If they cut it because the department doesn’t have the absorptive capacity, this is where the efficient and prepared institutions issue comes in. An efficient and competent bureaucracy is definitely possible in the Philippines, except for the fact of politics reaching even down to the assistant director level. Only consider the International Monetary Fund’s damning assessment of the Philippines’ fiscal stimulus program: it was “limited or inefficiently implemented.”
Reader, this is not just some academic issue from an ivory tower. I read where Gen. Carlito Galvez Jr. opined that the COVID-19 vaccine would be available to us only in late 2021 or early 2022. That means we have to gear up our national capacity to deal with COVID-19 until at least the end of next year. The MB paper points them out. Example: Our contact tracing system reaches only 4-5 people, where the international standard is 30-37 for urban areas, and 25-30 for rural areas. We don’t hear about contact tracing anymore from the government after the propaganda about adopting the Magalong example in Baguio.
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