Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies—Ernest Benn
With the Shift to GCQ, Has the World’s Longest and Toughest Lockdown Experiment Worked?
I. GCQ: Reopening in Name Only (RINO)
II. The Longest and Toughest Lockdown Experiment in the World is Failing!
III. PhiSYx: Two Record Mark-the-Close Pumps! How Sustainable is Constant Price Rigging?
IV. Rent Payments and MSME Losses: Real Life Examples on Capital Consumption, Say’s Law and Regime Uncertainty
With the Shift to GCQ, Has the World’s Longest and Toughest Lockdown Experiment Worked?
The Philippine Government declared an easing of its 2-months and a half lockdown policy. Has it been designed for the reopening of the economy?
The Philippine lockdown policy earns its mark in the world as the toughest, strictest and longest lockdown, has it worked anyway?
Like last week’s spike in the epidemic curve, the main benchmark index appears to follow? Why so? And how did that happen? Why the two record pumps?
The public is being assured that the economy will recover strongly next year, but anecdotes or the grassroots narrative tells us of the massive destruction of savings and disruption of production from the political and economic repression.
This week's outlook deals with them.
I. GCQ: Reopening in Name Only (RINO)
After 78-days of shutdown from the Enhanced Community Quarantine (ECQ), commercial activities in the National Capital Region will be ‘reopened’ under the General Community Quarantine (GCQ) starting in June.
But while operations in some industries will remain restricted, the reopening of the much of the economy will be subjected to strict health protocols. For instance, to limit social movements, only some of the public transports will be allowed.
Bizarrely, because trains will be operating under a 10-12% capacity due to physical distancing measures, to augment the shortages, only about 300 buses will be allowed to operate in EDSA!
From the central planner's viewpoint, not only are all the workers in the Metropolis commuters of the MRT-LRT but more importantly, non-MRT public transport riding workers are inexistent! Furthermore, what will be the criteria used for deciding which buses among the many bus companies will be allowed? By political connections or by grease money?
In effect, under GCQ, economic activities will still operate significantly below their normal capacity. And because public transports will remain largely inaccessible, not only will commercial interactions favor those with owned vehicles, disruptions in production and services remain a significant factor.
Even more, to compound on the plight of the lowly workers, lengthy curfews established by the local government units (LGU) will remain.
While the GCQ should stand for the supposed gradual loosening up of the economy, with the bulwark of regulations and restrictions designed to control (or strangle) businesses, it is reopening in name only (RINO).
And in the name of saving lives from COVID-19, which has a mortality rate of .4% according to the latest data of the US Centers for Disease Control (CDC), the economy becomes a guinea pig for this historic experimentation of social engineering.
Sadly, there seems to be little appreciation of the mounting risks from it.
II. The Longest and Toughest Lockdown Experiment in the World is Failing!
The public can’t even seem to even ascertain the efficiency and effectiveness of this experimentation relative to its goal.
In terms of timeframe, the Philippines’ 78-day ECQ lockdown has outclassed the 76-day equivalent of Covid-19 China’s epicenter, Wuhan, Hubei. That is to say, the diadem of the longest lockdown in the world, as of this writing, belongs to the Philippines! Colombia may probably take leadership soon.
The thing is, the Philippines should have been the role model of pandemic containment had the strictest and longest lockdown been effective.
Figure 1
As of this writing, the Philippines win hands down as the country that has rigidly observed the social distancing measures.
The Philippines has not only the lowest mobility data for driving but also topped the Government Stringency Index, to even surpass China! (COVID charts from Our World in Data)
The current administration has successfully implemented a repressive system of community house arrests quarantines predicated on a medical emergency. Or seen from the citizenry, the most submissive to authoritarian repression has been the Philippines.
Should we not be proud, the Philippines just outmatched a communist state??!!
Figure 2
But as a means to an end, has this toughest and longest lockdown fulfilled its goal?
The incubation period for the virus is about two weeks, that is, give or take 3-weeks to a month as margins for implementation, the full lockdown should have done its job. SHOULD.
But because of belated testing and the bureaucratic red tape hindering the release of such tests, COVID-19 cases has surprised to the upside, upending the previous bending the curve, a few days before the GCQ!
Without tests, we won’t know. So the infected person, whether pre-symptomatic or asymptomatic, may go around spreading the disease even when confined at home. Households have been a main channel for infections in China, says a study. That’s obviously because of the lockdown. Lockdowns shift the transmission channel from public places to households.
Besides, the flattening of the curve is about the public health system. It proposes to “slow down the spread of the SARS-CoV-2 virus during the COVID-19 pandemic”, according to Wikipedia, “so that the peak number of people requiring care at a time is reduced, and the health care system does not exceed its capacity.”
Flattening the curve, thus, is about managing the rates of infections between now versus tomorrow. By slowing its reproduction rate, the goal is to acquire immunity against the pathogen via a discovery of a working vaccine, or from the natural herd immunity.
Herd immunity, according to healthline.com, happens when so many people in a community become immune to an infectious disease that it stops the disease from spreading. The Herd Immunity has reportedly been a crucial factor in the containment of the Spanish Flu, as well as other influenza pandemics. Sweden has taken the herd community approach in managing the COVID-19 outbreak without a lockdown.
Nonetheless, fresh cases have been rationalized by the Department of Health for the sudden spike in its daily statistics, even when the same methodology have been used since, and even when infections existed regardless of time dimensions.
Unlike China, which bent the curve as it opened its economy, the Philippines projects a reopening of the economy as COVID-19 cases continue to soar!
Has the lockdown policy, the ECQ to GCQ, been effective in attaining the goal of flattening of the curve?
Countries like Taiwan, South Korea, Hong Kong and Japan hadn’t enforced a full lockdown, yet managed to curtail their respective COVID-19 domestic outbreak.
Here’s another political-economic angle to assess the policy.
The poor had been promised two months of subsidies via the Php 200 billion Social Amelioration Program, which I view as indemnification allowance.
It took over a month or in mid-May for the DSWD to reach a 95% completion rate for its distribution to 18-million households. By then, the NG promised to distribute the second tranche only to areas covered by the MECQ, even as the President approved of the extension of such financial assistance to reach another 5-million families.
With the declaration of the GCQ, Malacañang has been sending mixed signals. The NG proposed ending payments to areas under GCQ as 6 million families won’t be in the receiving end of the second tranche. On the other hand, the NG has ordered the DSWD to facilitate its distribution by going first through the bureaucratic process of liquidation, which delays the entire process. So rules before easing hunger.
Aside from collapsing revenues, has the declaration of the GCQ been a pretext for the NG to scrimp on providing payments, thereby reneging to its constituency promises of assistance?
III. PhiSYx: Two Record Mark-the-Close Pumps! How Sustainable is Constant Price Rigging?
The more interesting part has been that the domestic stock market index appears to act in consonance with the Philippine epidemic curve. First, both were seemingly bending, but last week, both reversed upwards.
Businesses and the economy would easily suffocate from the ramming down their throats, by the National Government, the incredible, ludicrous, and massive health protocols, or regulations. Yet the public is being programmed to believe that such anti-market interventions that incite structural imbalances can only lead to good payoffs.
Add to this signaling channel the massive gaming of the prices of financial markets. The likely goal of the current actions is to rekindle the animal spirits that would inspire an avalanche of investments into the economy.
The establishment has little respect for the capitalists and entrepreneurs. So despite being smothered by political, economic, and financial repression, investments would pour in from them, not because of the profit or loss incentives, but by political abstracts or by simply chasing prices.
Figure 3
Yes, two records were broken this week.
One, Friday’s incredible 2.27% has signified the largest marking the close pump in the PSEi’s history, topping last December 20, 2019’s 2.25%.
Heavy pumping on SM, Ayala Corp, PLDT, GT Capital, and BDO boosted their prices, and therefore the index by 2.27%! For instance, the table above reveals that SM’s 5.35% mark-the-close constituted 56.7% of the day’s 9.45% jump! And so forth.
That said, SM’s free-float market cap has now captured 17.43% of the index, pushing the market cap share of the top 5 companies to over 51%! Do you see why the index is not representative of the general markets? SM’s market cap has even topped the combined market cap share of the last 16 issues which totaled 16.75%!
The limited volume and the increasing amassment of pumping activities on a few issues exhibit why the index can be easily gamed. Furthermore, with retail accounts account for a smidgen of the total, a small number of financial institutions dominate trades. So cartelization of the main index is easily achieved.
Importantly, two, 84.3% of this week’s 5.41% advance, the third-largest in 2020, have been due to the same end session pumps, a 3-day aggregate, likewise an unprecedented event!
So the combined pumps have not only rescued the PSEi from a resistance breakdown last Tuesday, but it also pushed the index to test the immediate resistance.
A huge volume accompanied Friday’s feat, which masked has its declining trend.
Also, the end-session and last Friday’s total gains pushed up the May’s returns to 2.42%, the second-biggest advance since 2010!
The pricing system is designed to coordinate and communicate demand and supply conditions towards a dynamic equilibrium. For a system that artificially sets prices that skews the economic balance or prevents prices from clearing, wouldn’t imbalances, such as shortages or surpluses, be its product? Isn’t this why we have a credit financed race-to-build supply, which COVID-19 threatens to undermine?
And while distortions from such activities may continue, which would only compound on the state of mispricing and economic maladjustments, ultimately, imbalances collapse on its weight from some unknown catalyst. In the recent case, the catalyst is the virus and the political response to it.
Importantly, the recent crash shows that despite the massive scheming of prices, markets ultimately prevail.
And does this not reveal the state of desperation by the mainstream institutions to frantically push prices up for reasons other than profits, such as keeping afloat collateral/asset values?
If institutions have brazenly been manipulating prices, why shouldn’t these reflect on the state of their balance sheets?
IV. Rent Payments and MSME Losses: Real Life Examples on Capital Consumption, Say’s Law and Regime Uncertainty
From the ABS (May 29): The President said that if delay in payments won't "spell bankruptcy" for landlords and lessors, they can use their savings for the meantime for their needs. "Tiisin na lang ninyo with nothing except your savings to tide you over," he said. The President earlier had a tougher tone, warning landlords and lessors that they should not pressure their renters and lessees for payment since the lockdown in parts of the country has affected work and businesses.
Ironically, even the President understands the importance of savings except that in this case, the President chooses who absorbs the losses of income, savings, and capital as a consequence of his policies.
Forbearance would not be a problem had these signified a voluntary arrangement between individuals. However, the President seems to see it differently. Rent payments are a symptom of a class struggle between renters (working-class proletariat) and the property owners (capitalists). And the role of property owners as employers and as consumers are likewise forgotten.
Additionally, with the use of the political pulpit and machinery to override and erode property rights, one can expect a deluge of non-payments and defaults, citing the pandemic as a force majeure to justify the violation of contractual agreements.
And even entrepreneurs recognize that deferring rent payments will have minor effects compared to allowing businesses to operate.
From GMA/MSN (May 30): “There are even some who are just willing to give up their restaurant at no cost because they are bleeding heavily. They are just turning over the keys to us. That is how critical the industry is. A lot of restaurants won’t be able to survive this crisis so we have to move fast to be able to survive,” Stelton said. Dee agreed, saying that waiver or discounts on rental fees would hardly make a dent without customers being allowed to dine inside restaurants. “We need to push for safe dine in because it is not just about the rental, but there are no people coming in [the restaurants]. As it is, we have to look at optimizing our operation, and we are looking at closing 30% of our stores,”Dee said.
And this is supposed to usher in a new era of glory?
And speaking of a bureaucratic nightmare, even some in media recognize its baneful effects.
Inquirer May 28: But the situation is even more dire for over a million micro, small and medium-size businesses (MSMEs). By one estimate, most have just two to three months worth of cash left. Even after curbs are eased, they will likely be operating at a loss. Social distancing rules will still be in place. This means foot traffic at malls will continue to be very lean. …. “People are spending less because they are not sure whether they will still have jobs by year’s end,” said one researcher at the National Economic and Development Authority (Neda). According to a Neda survey, seven in 10 of some 390,000 respondents lost their jobs during the lockdown, which has lasted for more than two months.
Everything I wrote about last week, from the importance of savings and capital goods to Say’s Law on consumption and production, and to regime uncertainty, all encapsulated in that quote.
Figure 4
As to the significance of MSMEs, according to the DTI, Micro-Small-Medium Enterprises (MSME) constitute 99.52% of overall businesses, 63.2% of employment as of 2018 and 35.7% of the economic value added or the GDP. But large firms are interconnected with and interact with MSMEs. For instance, food services like Jollibee cater to the masses, while electricity distributors also service the lower-income households. Large firms also get some of their inputs from MSMEs.
Disruptions on production and service providers will have lasting effects. Will throwing money to offset such structural dislocations?
