Sabal: Covid-19 and the economy

ON MARCH 11, 2020, the World Health Organization officially declared Covid-19 as the first pandemic sparked by a coronavirus.

Many experts have projected that we will experience the tipping point of this contagion at around May or June. As the number of cases of affected individuals have continued to show a rapid inclination, the immediate yet sensible response from the government was to impose a community lockdown and encourage social distancing. Work from home schemes were suggested to minimize the gathering of individuals. The purpose is to contain the spread of Covid-19. However, this maybe a necessary but not the most sufficient response.

We have shutdown economic activities, for the time being, while long-term solutions for the stoppage of this virus are being organized. Our government should act quickly in seeking and acquiring vaccines and/or alternative medicines against Covid-19. If the absence of economic activity will continue for months, without finding a long-term response against this pandemic, then the results are worse than we could imagine - loss of lives and jobs.

Japan and South Korea have significantly reduced the new cases of Covid-19 contagion without implementing a total community lockdown. Their governments were able to swiftly handle and manage the containment of the virus, based on their recent experiences from bird flu and SARS pandemic in 2003, and have communicated little sense of crisis. They were able to maintain a sense of normalcy in their society through an immediate [and efficient] response to the pandemic, coupled with a highly compliant population.

The United States and Germany, on the other hand, have already introduced their respective stimulus packages [2 trillion dollars and 819 billion dollars, respectively] to support their economy in the absence of private sector activities. A stimulus package is a government's detailed plan on how it intends to revive and bolster the economy.

The clear economic consequence of a lockdown is a weaker performance of the private sector, as both the supply and demand are being altered. In our history of recessions, different governments took most of the economic activities whilst the paralysis of the private sector. In simpler sense, the state should spend more to compensate the lack of individual consumer and producer activities.

In the context of the Philippine's crisis management, a whopping 1.1 trillion pesos unused national budget in 2019 can be used by our government in funding its response and recovery efforts against this pandemic and its consequential economic and community lockdowns. Economists from Ateneo de Manila University have suggested social protection schemes that our government can do, to name a few is the embarking of large-scale procurement of personal protective equipment (PPE), incentives for local production of PPE, 50 million pesos appropriation for each of the 69 DOH hospitals to fund medical supplies and infrastructure, establishing a common fund with the private sector in delivering health services, accelerating the fund for Universal Health Care program, empowerment of the local government units in undertaking specific economic and social assistance, doubling of the 4Ps from 36.5 billion to 76 billion pesos as income support to non-beneficiaries, and hiring of local providers affected by the lockdown, such as motorcycle drivers, riders and taxis to transport frontliners.

Former Economic Chief Cielito Habito suggested that the state must prioritize a massive social protection to the most vulnerable sectors of the population and must abandon its growth targets for the meantime. It would be best for the Philippine Government to hire the stagnant labor force (those affected by the lockdown) for the delivery of health and basic services. For instance in Alaminos City, led by 23-year old Mayor Arth Bryan Celeste, purchased the unsold agricultural produce of its farmers and gave it as ration to the poorest households in the city. In this sense, no private outputs are put to waste since the government is willing to consume for its relief and recovery efforts.

Another worth noting recommendation from Ateneo Economics is for the state to assume utilities payments up to 500 pesos per month per household for the period of March to June 2020, roughly amounting to 50 billion pesos. If implemented, this will be a big relief to most Filipino families as our power rates is the second most expensive in Asia. In Mindanao alone, Northern Mindanao has the highest electric prices among the six regions. This policy helps in alleviating the suffering of the poorest households from their lack of daily income and higher regular fix costs.

Dr. Noel De Guzman, my Microeconomics Professor in Ateneo, wrote in his game-theory inspired policy brief [titled "Strategic Dimensions of Social Assistance in Response to Covid-19"] that in the early phase of the epidemic, the population seems to be participating with the government until a considerable amount of time. However, if the crisis lingers on and things seem to be out-of-control, there is a possibility of social unrest. This is the point, according to the article, where people take the risky actions -as "there is nothing to lose but a potential gain".

This can only be avoided when the government establishes its credibility in handling this crisis (along with its potential social and economic consequences). In other words, the government must assure the public that social protection initiatives will be sustained in the entire duration of the crisis. There must be a will to defeat the crisis through concrete and detailed economic and social strategies to maintain a compliant population.

De Guzman adds that "government credibility is a much valued resource in this uncertain time, which means that those who have the political power must demonstrate large personal sacrifices to convince an increasingly skeptical public".

Sure indeed that there are efforts already initiated by the Philippine Government but it needs to go further. The approval of the Republic Act 11469 otherwise known as the "Bayanihan to Heal as One Act" gives the President a step forward in arresting the impacts of Covid-19 through an approximately 200 billion pesos worth of social protection and recovery programs. People need to see what are these specific policies and programs, which will give them the suffice assurance that the government is in control of this situation. There are many best practices from other countries, and even in our LGUs, that we can emulate.

In this unprecedented times, we need leaders that will rise above the demands of this crisis. Leaders that lead people to hope and believe in the capacity of the government to address our problems. One that removes our anxiety and encourages us to participate in the collective effort against this pandemic.


Jhon Louie B. Sabal is a Faculty of the Department of Economics and the Research Coordinator of the Social Sciences of Xavier University-Ateneo de Cagayan. Mr. Sabal is a graduate of MA in Economics at Ateneo de Manila University.


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