Jaime Miguel N.

Janairo ​MAC1ECO Reflection Paper 2

Entering the first quarter of the new year 2021, albeit not much has changed with regards

to the economic state of the country and its people, almost every person could simply hope for

the better in this coming year. Hopes and dreams however are to occur, only if a properly

planned plan of action was put into place; and unfortunately, this may not be the case for the

welfare state of the country’s economy.

In an article by Dumlao-Abadilla (2020), Bank of the Philippine Islands lead economist

Emilio Neri Jr. states that the country has been experiencing a prolonged recession, one which

may be deemed unnecessarily detrimental to the economy and the people of the country. This is

described by Neri as a W-shaped rebound in which the economy would be recovering at a rapid

state but would then fall into a double-dip recession, then followed by another sharp rise. This

W-shaped rebound may be attributed to the imposition of strict lockdown measures followed by

an easing for a certain period of time. Due to the lack of proper preventive and regulatory

measures in curbing the spread of the virus, a surge of infections soon follow the easing of

lockdowns which then brings the economy back to a sharp fall. For the duration of being in

quarantine, this has been a noticeable pattern all throughout the period as announcements from

the authorities state that quarantine measures would be eased. Give it a couple of weeks and

news comes from neighbors and friends that “the city has been once again placed into lockdown

due to a surge in infections…” and so on and so forth. Thus leading to a seemingly endless loop

in which cities within the country never seem to make any winning progress in its conflict with

the virus consequently leading to the demand for accountability from the national government.

Unfortunately, the national government has been handling the pandemic poorly; although words

of confidence and assurance are declared all over the media, their policies and courses of action

state otherwise as local governments are seemingly left to handle the pandemic on their own.
Jaime Miguel N. Janairo ​MAC1ECO Reflection Paper 2

Correspondingly, as stated by Neri, the recovery of the country has been hindered by the

slow reopening of the economy along with the excessively conservative fiscal response of the

government. Such consequences may be observed during the third quarter of the year as the

economy contracted by 11.5 percent with consumption falling by 9.3 percent and investment

dropping by 41.1 percent. With consumption and investment down, we know that output too has

gone down, which leads it all to the sole responsibility of the government to compensate for the

losses in output. This however gives light to the issue in which the government refuses to

increase government expenditure for economic recovery.

Having had the opportunity to attend a convention in which U.P. Professor Dr. Toby

Monsod discusses optimizing fiscal policies in response to COVID-19, during the convention,

she discusses how the frugal attitude of the government with regards to fiscal policies will not

lead to a sustainable recovery in the medium-long run. Accordingly, this frugality has been

reasoned and justified on the attempt of the government to retain its credit rating; which

according to Dr. Monsod would be useless if the economy would be found in a poor state as she

cites a scenario where, if an investor was allowed to choose between two countries, for the first,

one who preferred to retain its positive credit rating amidst the pandemic, leading to a neglect on

the needs of the economy and its people; or the second, a country who has sacrificed its credit

rating to give utmost importance to the needs and wellbeing of its people and economy. Of

course, the investor would most likely choose to invest and do business in the country with a

government that recognizes the value of its people and economy.

Subsequently, the country is in a dire need of change, a change that gives priority to the

primary needs of the people and sets aside the prospect of keeping up a good image, and as Neri

states, that is exactly what the country needs; an aggressive well allocated fiscal stimulus
Jaime Miguel N. Janairo ​MAC1ECO Reflection Paper 2

package. With the country on the road to recovery, by spending large amounts in stimulus

packages, this could have the most potential in reversing the unemployment brought by the

lockdowns. Consequently with more people having jobs, through these increases in employment

and decreases in unemployment, real wage gradually increases, thus bringing about a potential in

which demand for goods output would gradually return to their normal levels. This would be

further complemented by the monetary policies by the Central Bank as they continue to

implement “unconventional” policies such as the low interest rates that aim to assist economic

recovery in the country through prompts in investments.

Be that as it may however, such significant decisions concerning expenditure are still up

to the national government. Without proper fiscal policies, albeit an ample amount of fiscal

space, bare minimum expenditures and policies from the fiscal side would not suffice for a

proper economic recovery. Although optimists believe that the worst has past, the preventive and

regulatory healthcare measures of the government are still lacking and crucial decisions such as

the “cheapest” choice from the available vaccine deals have all been but well thought out. If they

were to respond to the needed fiscal stimuli, there must first be a recognition of the much needed

priority of improving healthcare measures as a means of curbing the spread of the virus. From

there however, by allocating sufficient amounts of the budget to stimulus programs, economic

recovery would most likely be off to a good start. However, if the government were to still

pursue the impractical idea of a good credit image for future investors amidst this pandemic, both

the people and the economy would most likely have to endure an unnecessarily longer and

painful duration of economic recession.

Jaime Miguel N. Janairo ​MAC1ECO Reflection Paper 2

Article Reference

Dumlao-Abadilla, D. (2020, December 26). Aggressive fiscal stimulus needed for quick

recovery. Recovered January 3, 2021 from

https://business.inquirer.net/314763/aggressive-fiscal-stimulus-needed-for-quick-recover

y
Jaime Miguel N. Janairo ​MAC1ECO Reflection Paper 2

Aggressive fiscal stimulus

needed for quick recovery
By: ​Doris Dumlao-Abadilla​ - Reporter / ​@philbizwatcher

Philippine Daily Inquirer​ / 04:26 AM December 26, 2020

A more aggressive fiscal stimulus program is needed for the Philippines to recover
quickly from the economic recession caused by the COVID-19 pandemic this year, a
top economist said.

In an online forum on global prospects for 2021, Bank of the Philippine Islands (BPI)
lead economist Emilio Neri Jr. said that instead of a V-shaped recovery, the country
was facing a prolonged recession and a W-shaped rebound wherein the economy
would begin to recover rapidly, fall into a double-dip recession, but end with another
sharp rise.

In the third quarter of 2020, the Philippine economy contracted by 11.5 percent
year-on-year, with household consumption falling by 9.3 percent and investment
dropping 41.1 percent.

“Production is responding positively to easing of quarantine measures. But the

country’s recovery may continue to fall behind our Asean (Association of Southeast
Asian Nations) neighbors if reopening remains slow and fiscal response remains too
conservative,” Neri said.
Jaime Miguel N. Janairo ​MAC1ECO Reflection Paper 2

Global economist Thierry Apoteker said during the forum that the road to global
recovery would not be smooth given the likelihood of surges or waves of infection
that have prompted some countries to revert to strict lockdown measures.

“Several economies will likely experience an asymmetric V-shaped recovery, which

will last for at least two years,” said the chair of France-based TAC Economics, a
leading provider of global economic, financial and risk advisory services.

Apoteker said that the pace of recovery would be different for each developed
economy.

The global economist remains optimistic nonetheless. “It looks like the worst is
behind us since governments are more hesitant to implement strict lockdowns,” he
added.

While TAC Economics projects that economic output in countries heavily affected by
the pandemic would not return to pre-COVID levels in 2021, Apoteker noted that
several economies were already seeing significant changes in consumption patterns.
“Unconventional” monetary policies will likely continue into the next year given the
gradual pace of recovery, he added.

“As a result, liquidity will remain substantial in 2021. Low returns in the bond market
might force investors to seek returns in high-risk assets like equities. The abundance
of liquidity is expected to cause volatility in the stock market,” he said.

Locally, Neri said the Philippine peso and interest rates would likely show
manageable, gradual increases. “Inflation risk is low but supply disruptions need to be
watched closely,” he added. INQ
Jaime Miguel N. Janairo ​MAC1ECO Reflection Paper 2

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