The worst is over, but proceed with caution

This is the last of two columns on pandemic policy trends as discussed by former president Gloria M. Arroyo in a webinar on Jan. 29 sponsored by the Center for Strategy, Enterprise and Intelligence (CenSEI) with Microsoft Philippines Inc.

Predicting the rise of China, Arroyo expressed optimism that the Philippines as part of the Association of Southeast Asian Nations will benefit from the expected $1-trillion annual imports of a resurging China. More excerpts from her speech:

On Day 1, Biden recommitted the US to the Paris Climate Accord and international agencies that Trump withdrew from. This bodes well for a revival of America’s participation, if not leadership, in the multilateralist framework for dealings among nations. We should seek opportunities in this more positive atmosphere.

Trump sought to enlist allies in the World Trade Organization in a rules-based system directed mainly at China regarding the special and differential treatment rules. Harvard professor Joseph Nye thinks that much of the Biden approach to trade and the WTO will be driven by strategic positioning vis-à-vis China.

Biden’s choice of Antony Blinken as Secretary of State and Katherine Tai as US Trade Representative points to a continuation of Trump’s China policy. There remains a strong bipartisan consensus in the US Congress to close ranks against China across the board.

Another Harvard professor, Graham Allison, believes that President Biden will be even more effective in continuing to execute the China strategy carried over from his predecessor by that bipartisan consensus.

As I described early in my presidency, it is this ongoing dance between the two superstars that will frame the economic and security directions that our region will take into the foreseeable future.

Allison recognizes that other world leaders will continue to give top priority to what is best for their peoples. That will limit their capacity to actually cooperate with US demands. The Philippines would be wise to stay in that category.

No matter what skills or experience Biden brings to his presidency, he will be constrained by his need for congressional support, continuing domestic problems and the different agendas of his counterparts abroad.

There is always strength in numbers, so as the Philippines navigates its way ahead, it should strengthen its involvement with the ASEAN, particularly since the pandemic has created many areas of common concern, such as vaccine management.

When I was president, we designed Philippine foreign policy in the context of ASEAN, which was the most tested viable and mature entity at our disposal so that our relatively smaller individual countries could increase our collective leverage versus bigger powers.

Let me close with some forecasts on the Philippine economy distilled by my former student Rep. Joey Salceda (2nd Dist., Albay), who has become a much better economist than his teacher.

There is cautious optimism: the worst is over, but we are not yet out of the woods. World Bank estimates of GDP growth in the East Asia-Pacific Region are all positive, with a high of 7.9 percent for China, a low 2 percent for Myanmar and 5.9 percent for the Philippines.

Although the Philippines will be among the fastest growing economies in 2021, at 6 percent annual growth for 2021 and 2022, the Philippines will have achieved a GDP growth rate of only 3 percent compared to 2019 levels.

The Philippine stimulus package is not large even by ASEAN standards, but Joey finds a history lesson in stimulus packages from my administration:

Timing, not size, matters. My economic recovery plan for the 2008 global crisis was even smaller than the current stimulus package, but we acted quickly, hence we had better results than the rest of the world. We had a V-shaped economic recovery.

Joey reasons that for pandemic control, early action prevents a virus’ exponential tendencies from materializing. In an economic crisis, early recognition and correspondingly decisive action prevent the vicious cycles of the market from ruling.

But vaccine rollout is critical because a stimulus during lockdowns has limited impact due to low velocity of money. People are not spending due to restrictions in mobility.

Joey Salceda lists our good news for recovery prospects:

• Philippine debt resilience. Philippine aggregate debt levels are among the lowest in the region. This hedges risk of bankruptcies and long-term structural damage. We can bounce back very quickly, with no lasting “financial wounds.”

• Investor confidence remains strong. The stock market dip has been very mild compared to the 1997 Asian financial crisis. This indicates that the market sees the pandemic as a short-term “hiccup” rather than a structural problem.

• Fiscal strength. The Philippines has suffered no credit rating downgrade despite the pandemic. This strengthens our negotiating position for cheap capital for recovery, and for vaccines. To put this in perspective, in 2020, Fitch issued 51 downgrades for 33 countries. Debt-to-GDP may have ticked up to 49.0 in 2020, but still not as high as previous peaks in the country’s history. I might add that just before I became president it was over 100 – our debt was bigger than GDP.

• Financial strength resilience. The Philippines has smaller non-performing loans to loans ratio than Indonesia, Thailand and Vietnam and almost the same as Malaysia. Singapore has the lowest. The Philippine financial sector is the 6th strongest among 66 emerging markets, behind only Botswana, Taiwan, South Korea, Peru and Russia, according to The Economist Intelligence Unit. The six weakest are Venezuela, Lebanon, Zambia, Bahrain, Angola and Sri Lanka.

• Demographic strength. Philippine median age is about 25, younger than the Southeast Asia average. Higher median age plagues Singapore at above 40, Thailand at almost 40 and Vietnam at more than 30.

• A largely compliant public. Behaviorally, we were better than many countries, almost at similar levels as Vietnam, in complying with wearing face masks in public and using hand sanitizers. The public will probably comply with vaccine mandates, if communications are robust.

Salceda suggests: Because of the preponderance of sources, hedge procurement risks. Diversify procurement. Leverage our financial strength. Even China bought foreign vaccines. As for Sinovac, efficacy floor at around 50 percent is similar to flu vaccine. This is not bad.

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NB: All Postscripts are also archived at <ManilaMail.com>. Author is on Twitter as @FDPascual. Email: [email protected]