Covid Takes Toll on Philippine Economy

Duterte’s strong-man approach remains popular but ineffective

The Philippines is in danger of regaining its decades-old title as the sick man of Asia after more than a decade of stellar growth as President Rodrigo Duterte’s draconian handling of the Covid-19 coronavirus takes its toll.

According to recent statistics published by the Philippine Statistics Authority, and other sources, third-quarter gross domestic product contracted by 11.5 percent following a 16.5 percent fall in the second quarter. Third-quarter GDP underperformed all of the Philippines’ regional peers including China, which grew at a 4.9 percent rate, as well as Taiwan, Vietnam, Indonesia, and Singapore, most of which have made significant progress – besides Indonesia – in combating the virus.

“Real economic growth…has been challenged by the Covid-19 (coronavirus) outbreak and the strict community quarantine measures imposed in the country,” according to the World Bank’s most recent Philippines Overview, which casts a more optimistic view of 2021. “Growth is now projected to contract in 2020, driven by significant declines in consumption and investment growth, and exacerbated by the sharp slowdown in exports, tourism, and remittances.”

As with his murderous drug war, which so far has taken an estimated 6,000 lives as police and vigilante gangs murder alleged drug addicts, Duterte set out to solve the country’s Covid-19 crisis with brute force. Although the first case showed up in January with an arriving Chinese tourist, the Philippines’ response didn’t begin in earnest in March with the confirmation of the first local transmission of the virus.

The response largely has been run by military officials and civil servants rather than health care professionals, critics say. Francisco Duque III, the health secretary, has been widely criticized as incompetent and a Duterte crony although the president has continued to defend him.

Nonetheless, the 75-year-old Duterte remains extraordinarily popular, his tough-guy image apparently resonating with a predominantly poor population. The crackdown, which continues in various forms, has been described as the harshest quarantine regimen in Asia and almost certainly in the world before it was cut back after 88 days earlier this year. Protesters against job losses and food shortages – and occasionally even illegal beer drinkers -- were arrested. Duterte famously was quoted as telling police to shoot quarantine violators dead.

Barangay captains – the smallest administrative division in the country – were given extraordinary power to shut down their communities. Citizens weren’t allowed to cross barangay lines. All public transport ceased. Schools and public institutions were closed and largely remain so. The country’s chaotic traffic suddenly became manageable because there were so few vehicles on the streets.

In addition, the President has been accused of using the pandemic to expand his powers in areas that have nothing to do with the virus, engineering a far-reaching Anti-Terror measure passed by his supine Legislature that gives authorities power to make warrantless arrests and detain individuals indefinitely. It allows for the conduct of widespread surveillance, expands the designation of terrorists, and aims at critics who attack the government online, among other abuses. He has also engineered the removal of the license of the ABS-CBN media network, the country’s biggest and most popular, because it had offended him.

Despite his draconian measures, health officials have fallen far behind in implementing what is regarded as the most effective weapon against the virus – widespread testing and tracking. Consequently, the virus broke loose despite the efforts of the authorities to corral it. Today, with 402,000 cases and more than 7,700 deaths, the Philippines ranks second only behind Indonesia, which is more than twice the Philippines’ size, in Southeast Asia for infections.

By August, Philippine health authorities were conducting only 14,736 tests per million people by when the barest effective minimum should have been 250,000. Even today, the Philippines is testing only 46,000 people per million, against major nations that have tested 10 times that many.

Dr. Jose Santiago, president of the Philippine Medical Association, told a web conference in August that the country must urgently refine its pandemic control strategies, addressing hospital workforce efficiency, failure of case finding and isolation, the failure of contact tracing and quarantine, and other issues.

The result is that the crackdown has devastated the economy while having a less-than-optimum effect on the virus. After sustaining 2010-2019 average annual growth of 6.4 percent according to the World Bank, the consensus for 2020 is expected to be a 7.5 percent contraction. Although some forecasts predict 7.0 percent 2021 growth, that appears unlikely at this stage, given diminished global expectations for exports growth, especially as the pandemic ravages EU and American economies.

According to the Statistics Authority, external trade fell by 9.2 percent in September year-on-year, with the balance of trade showing a deficit of US$1.71 billion, a 49 percent contraction from the September 2019 deficit as consumer demand fell sharply. Imports fell by 16.50 percent to US$7.92 billion although exports grew anemically by 2.2 percent, to US$ 6.22 billion. Telecoms and electrical equipment and electronics products imports rose by 2.6 percent and 2.4 percent annually respectively.

Revenues from the vital outsourcing sector, which employs 1.15 million workers and is one of the top two foreign exchange earners along with inward remittances from overseas workers, have fallen by US$2.49 billion year on year according to the Information Technology and Business Process Association of the Philippines. According to the association, 95 percent of all offshore business processing employees are now working from home, increasing costs on shuttle services and work-from-home requirements, with the knock-on effects against the transportation and other industries.

Inward remittances from the 10.2 million-strong Filipino diaspora have declined by a relatively modest 2.2 percent although they dropped by 4.2 percent year-on-year in August, according to an October 15 report by Banco Sentral ng Pilipinas, the country’s central bank, to US$2.76 billion US$2.885 billion.

Inward remittances from overseas workers, who make up 10 percent of the population, are the country’s second-biggest foreign exchange earner and they provide a vital shot in the arm to the economy because they are mainly sent to support Filipino families, so their support, or lack of it, is immediate. The nearly 230,000 Filipinos who work in shipping, both cruise lines and freight, have seen their livelihoods nearly disappear.

As a result of budget shortfalls, the government plans to borrow PHP 3 trillion (US$ 62.30 billion) this year and another PHP3 trillion in 2021 in the face of a forecast 2020 deficit of 9.6 percent after borrowing PHP 2.56 trillion, leaving outstanding debt is at a relatively manageable PHP 9.37 trillion as at the end of September. The Asian Development Bank has so far provided US$2.3 billion in loans and grants to the Philippines, including social protection and livelihood support and to further scale up the government’s health response.

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