PH growth and pandemic management: Our anchoring bias

Published April 15, 2021, 12:12 AM

by Diwa C. Guinigundo

OF SUBSTANCE AND SPIRIT

Diwa C. Guinigundo

We have a circular strategy of managing the pandemic by imposing community quarantines (CQs) and re-opening the economy with very little done during time outs. Increment is marginal; it is bound to be never ending. We cause economic scars and uncertainty, and undermine our prospects for recovery.

Recent policy shifts are perfectly consistent.

The numbers support the IATF’s decision to move from General CQ to Enhanced CQ from March 29 through April 11. New cases rose fast until we hit a high of 15,310 on April 2. The likely scenario was a sustained surge. WHO warned on April 8 that the Philippines’ surge was moving toward the so-called red line — the number of cases exceeds the capacity of healthcare.

Nonetheless, the government announced the downgrade on April 11 effective the following day, April 12 through April 30. Ironically, we hit an all-time high daily death toll of 401 on the same day. The day before, we chalked up daily confirmed cases of 12,674. In the next two days, the numbers remained high at 11,681 and 11,378.

What was behind this decision?

Before the announcement, business leaders called for the re-opening of the economy. They expressed the belief that “we already finished the two weeks…” and “the number of cases may have gone down…” For the employers’ group, extending the ECQ for another week will bring the economy to that point where recovery is impossible.

We have no quarrel with the decision of the IATF but it appears devoid of both   science and evidence. What we also find disappointing is that business opinion is rather cavalier. The duration of the ECQ is critical to ensure public health is not compromised. We need data, not feeling or hunch, to confirm it.

For what is at stake here is human life.

We need to listen to science. The independent OCTA Research Group announced that the lockdown helped reduce the growth of the virus. While they observed that “the trend was ‘very encouraging’ it was still too early” to conclude a downtrend. Testing was lower by 20 percent during the Holy Week. Another week of extension was necessary “to continue to slow down the surge, decongest our hospitals and relieve the pressure on our health-care workers.”

Very few understand the whole ballgame. We are hats off to the spokesperson of the National Task Force Against COVID-19 (NTF) Gen. Restituto Padilla who admitted that Metro Manila hospitals are overwhelmed because of the failure of the government to build new healthcare infrastructure in previous years. Business’ solution assumes time is on our side. But then, tens of thousands are infected daily and the whole public health system is simply maxed out. Doing lockdown, while not exactly excellent, is absolute necessary.

This policy weakness has invariably flattened the economic momentum we gained in quarter four of 2020. The official target of 6.5-7.5 percent now seems untenable.

In fact, our economic managers were reported to be planning a possible lowering of the 2021 growth targets to a range of 6.0-7.0 percent. BSP and NEDA share the view that the two-week lockdown could translate into a 0.8 percentage-point drop in output growth. DoF believes the reduction could be lower at 0.5 percentage point.

This view is not unique to the Philippine Government.

The Japan Center for Economic Research (JCER) downgraded its forecast of Philippine growth from 5.9 to 5.2 percent in 2021. Vaccination is falling behind the rising infection and the new variants. Although the IMF slightly elevated its growth forecast from 6.6 percent to 6.9 percent, its resident representative clarified it was “subject to uncertainty amid the rising number of COVID-19 infections over the past few weeks.”

It is difficult to be bullish about the latest indicators released recently.

FDI growth of over 40 percent in January 2021 reflects renewed confidence following the easing of CQ and news of initial vaccine rollout in early 2021. But these factors seem to have dissipated when the virus acted up again with negative boost from the delays in vaccine rollout and the news about the more transmissible variant.

Even the BSP’s business expectations survey results are dated. Business sentiment was positive because the survey was conducted between February 4-March 12 before the ECQ was instituted on March 29 through April 11. Some of the reasons for business optimism no longer holds. Easing of community quarantine gave way to ECQ. Adaptation to the new normal was disrupted by the more restrictive lockdown. Vaccine rollout was significantly delayed because there are not simply enough of them.

The Fund’s Financial System Stability Assessment of the Philippines issued March 9 is foreboding. The possibility exists for a severe slump triggering what the Fund described as “systemic solvency distress” in the banking system. Economic recession could dampen corporate earnings with spillover effects on bank performance, then credit squeeze and on to economic weakness.

Stronger health management would not have required the DBM to consider austerity measures to fund the supplemental budget for subsidies and the Bayanihan 3 package. No lockdown, no ayuda. But we have to bite the bullet without abetting the downcycle. Repurposing is a better option — from those allocations subject to abuse to funding social amelioration and small business.

Indeed, assessing our public health management and prospects for economic recovery can be uncharitable because of some anchoring biases. Somebody thought we were excellent in viral control. And somebody else hitched our growth target to a star.

 
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