COVID-19 Uncertainty: 8 Political Risks to Watch in the Philippines

The community quarantine measures imposed to slow the spread of COVID-19 have taken a toll on the Philippine economy which suffered its first contraction since the Asian financial crisis in 1998. The pandemic has also revealed the Philippines’ weak healthcare system, governance gaps, and has amplified its socio-economic inequalities, forcing us to reassess our relationship with technology and the environment. 

The uncertainty that these developments bring can produce risk that may shape, not only the Philippines’ response to the pandemic, but its economic, political, and social landscapes for years to come. Risk is uncertainty about the outcome. The less data you have, the more uncertainty you have about the outcome.

As part of its research program, Stratbase Research Institute (SRI) will launch a series of briefs that will evaluate these risks. Given the uncertainty, it is crucial that we analyze and understand these risks in order to know the impacts they will have on the country and to identify ways of turning these into opportunity.

In this brief we introduce eight (8) risks to watch in the Philippines:

Public Health Challenges

Continuing public health challenges due to the Wuhan virus pandemic, economic consequences of failures and the second wave

Latest figures show that the Duterte Administration’s efforts to combat COVID-19 have not flattened the curve. Instead, the number of cases continues to climb. As of writing, there are over 35,000 cases. This is despite implementing one of the longest and toughest lockdowns in the world.

The virus has shown that the country’s healthcare system is ill-equipped to handle a pandemic. From the beginning of the pandemic, masks and alcohol were in short supply in public hospitals, forcing healthcare workers to ask for donations. The government promised to meet its target of 30,000 tests per day by May 31, but a month later, this target has still not been met.

This slow pace is characteristic of DOH policy implementation. The Universal Healthcare act and the National Integrated Cancer Control Act (NICCA), two milestone health policies of the Duterte administration have still not yet been fully implemented. 

Slow reaction time on the part of Philippine government is the key reason behind the continuing growth in cases. If it continues at this pace, the number of cases is sure to spike as has been seen in Cebu. A second wave will only compound the stress that our healthcare system and economy is already experiencing.

COVID-19 Corruption

A key risk to Philippine democracy and the National Election of 2022

The multi-faceted pandemic crisis poses a clear threat to democracy. Many governments around the world have taken the crisis as an opportunity to tighten control.

Here in the Philippines, so far, a total of P352.2 billion in government funds has already been released by the Duterte Administration’s to respond to the crisis, this year’s gross foreign borrowing has also increased to P282.5 billion. Despite these funds, the Duterte administration has no clear plan. Financial aid distribution, testing capacity, and contact tracing efforts all lag behind. Instead of increasing transparency on the use of funds, the Duterte Administration set its sights on suppressing legitimate dissent. These moves include the shutdown of the nation’s largest broadcast network, ABS-CBN, and the passage of the Anti-Terrorism Bill that is being criticized for targeting legitimate dissenters, in particular, by allowing warrantless arrests of individual deemed “suspicious” by a government-run council.

The effective use of government funds is a key factor in the country’s ongoing battle with COVID-19. Despite this, some, including members of the minority bloc in the senate, are concerned that government aid is being exploited by some to advance their political aspirations. Addressed to “presidential wannabees”, the senators said, "It saddens us that there are people who could be so heartless and power-hungry as to take advantage of this crisis to advance their political ambition."

Moves of the administration to silence critics may have implications come the 2022 national elections. The forced shutdown of ABS CBN and the imminent passage of the Anti-Terrorism bill is likely to have a chilling effect on journalists, activists, and other of legitimate dissenters, paving the way for Duterte and his allies to gloss over COVID-19 failures and dictate a rosier narrative when voters head to the polls.

The Long Emergency

The W Shaped Economic Recovery and the need for investment-driven growth and stakeholder capitalism

The eruption of Taal Volcano and the pandemic have led to disruptions in economic activity in the agriculture, services, and manufacturing sectors. According to government data, Agriculture, Forestry, and Fishing; and Industry contracted by 0.4 percent and 3 percent in the first quarter, respectively. The former makes up 10 percent of the economy while the latter is 30 percent. Meanwhile, Services, which is 60 percent of the economy, posted a meager growth of 1.4 percent during the period[i] from 8.1 percent the previous quarter.

As a result, Philippine gross domestic product (GDP) declined by 0.2% in the first quarter of 2020, the first contraction since the fourth quarter of 1998 Asian financial crisis. The Agriculture, Forestry and Fishing sector contracted by 0.4%, while the Industry sector likewise contracted by 3.0%. On the other hand, the Services sector grew by 1.4%. A steep decline in remittances sent home by Filipinos abroad is also expected, as overseas Filipino workers (OFWs) have repatriated. The Philippine economy is widely regarded as consumption-led; however, due to this crisis, consumption only grew by 0.2% during the first quarter of 2020.

On a worst-case scenario, a W-shaped economic recovery has been projected by the country’s economic managers for 2020. A quick recovery is seen to commence starting in July 2020, followed by a second wave of COVID-19 infections. This would trigger another round of demand- and supply-side shocks at a time when the unemployment is at a record high (17.7 % as of April 2020) and the economy still reeling from the first wave.

Trade Issues

The Post-Pandemic Future of Trade, Investments and Supply Chain Issues

Foreign direct investment (FDI) net inflows in February 2020 reached USD 505 million, which is 31.5 percent lower than the USD 737 million net inflows recorded in the same month last year. In the first two months of 2020, FDI net inflows cumulatively totalled to USD 1.2 billion, a 12.2 percent decrease from the USD 1.3 billion net inflows recorded in the same period in 2019.  According to the BSP, the decline reflects dampened investor sentiment, which might have been brought by uncertainties on the impact of the COVID-19 outbreak.

A bulk of the equity capital placements during for February 2020 were sourced from Singapore, Japan, and the United States. These investments were channeled mainly to 1) manufacturing, 2) real estate, and 3) wholesale and retail trade industries, all sectors facing serious challenges due to the lockdown measures.

Nevertheless, there is hope with that with equity capital and investment flights, some capital will find its way to the Philippines. However, the country faces stiff competition, with many choosing to relocate to Vietnam. The chief reason is needed improvements in our policy environment. There have been delays in the passage and deliberation of investment-driven legislation such as the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, and amendments necessary in the Public Service Act due to the prioritization of COVID-19 response measure. There is also the factor of Vietnam’s successful campaign against COVID-19.

The Challenge of Inequality

Compounding generational disparities in Income, Jobs and Opportunities

Inequality is a constant risk that cuts across political, economic, social and cultural divides. The pandemic has exacerbated the effects of inequality in the Philippines. When the government imposed a Luzon-wide lockdown, it was daily wage earners from marginalized sectors that first took the hit. A recent Social Weather Stations (SWS) survey found that 16.7 percent or an estimated 4.2 million Filipino families experienced involuntary hunger, the highest from recent surveys. Even when lockdown measures were relaxed, it was still those from marginalized sectors that were left stranded, with all forms of public transport on hold.

Inequality in terms of income, jobs, and opportunities has worsened and may further worsen as OFWs return home due to the global economic recession. Personal remittances from overseas Filipinos amounted to USD 2.652 billion in March 2020, lower by 5.2 percent from March 2019. However, since then, more Filipinos have come home after losing their jobs abroad. Over 55,000 were reported to have returned in early June

We now face the risk of generational inequality becoming inter-generational under due to the pandemic.

Technology

Access to Digital Services, Accelerated Technological Change and Adoption is key to Economic Recovery

The pandemic has accelerated the need for digital transformation and has exposed the country’s digital divide. A clear indicator of this divide is a Pew Research Center study which surveyed the disparity of internet users by educational attainment. While 86% of those with higher education use the internet, at least occasionally, or have a smartphone, only 44% of those in the lower education bracket have access. The 42-point difference puts the country on the 5th largest gap of the countries surveyed.

This gap is rooted in a lack of digital infrastructure. Barriers to development include cumbersome and inconsistent local government and regulatory policies, and a lack of public sector investment. These have led to a deficit of fifty-thousand cell towers needed to increase internet coverage nationwide.

This wide gap means that as the world increasingly goes digital, poor and less educated Filipinos risk being left behind. The pitfalls are most apparent when it comes to education, especially now that the Department of Education has announced that it is shifting to online classes and distance learning for the next school year.

Global Weirding

The need for climate action, environmental stewardship and a green economic recovery program

The exact origins of COVID-19 are unclear. We know it began in Wuhan, China, in a wet market selling exotic animals, but theories abound on which combination of animals passed it onto humans. However, the zoonotic origins of the virus cannot be denied. For this reason, it’s important to understand that human activity, such as deforestation narrows the distance between wildlife and humans. Furthermore, a study by the WHO shows that the changes in infectious disease transmission patterns are also a likely consequence of climate change. Illustrating how human health in vulnerable to climate change.

However, the interconnectedness of the environment, human activity, and human health may fall to the wayside as governments and people focus on slowing the spread of the virus and jumpstarting the economy. Safety concerns have led to an increase in the use of single-use plastics, masks, and PPEs which risk filling up landfills. As it is, the Philippines only has 6% of the total required number of sanitary landfills.

Demand for jobs may lead irresponsible companies to cut corners, or for regulators to turn a blind eye to environmental standards. This is why instead of restricting investment the country must create regulatory and policy environment that attracts economically viable investments while addressing environmental concerns.

The New World Order

Asymmetric Warfare: How the Pandemic Crisis will shape the New World Order

China continues its strategic opportunism by utilizing the COVID-19 pandemic for its maritime expansionist agenda over the South China Sea. It has unilaterally declared administrative districts over the Paracel and Spratly Islands, launched two research stations on the reclaimed islands in the West Philippine Sea (WPS) and challenged the BRP Conrado Yap (PS39) within the Philippine exclusive economic zone (EEZ). The Philippine government continues to downplay these events due to China’s diplomatic and economic concessions to address the consequences of the pandemic.

Through its comprehensive use of national power and political instruments, China’s asymmetric warfare in the region is a result of normalizing tolerance towards their hard power projection and instigating a defeatist attitude towards their sharp power capabilities which cuts across both traditional and non-traditional security.

How the Philippines postures its security and defense concerning China’s maneuvering will have implication both domestically and regionally. At a regional level, if the Philippine government continues to tolerate and normalize China’s aggressions, the country stands to lose, not only maritime zones but its national sovereignty. Furthermore, given the nexus of domestic and foreign policies, this will also have an equal effect on regional stability.

Domestically, the Duterte Administration’s move to suspend the abrogation of the Visiting Forces Agreement and his accommodation of China may also be magnified as we move closer to the 2022 national elections. In 2016, the Duterte administration’s "independent foreign policy" saw the Philippines pivot away from long-time allies such as the United States to countries like China and Russia. However, according to a survey conducted by the Social Weather Station just last year, Filipinos trust China the least (with a-33 net trust rating), among the countries included in the survey.