(In the last few days we have witnessed panic as Government announced an unprecedented series of directives that have upended life as we know it. The purpose of this article is to recover my bearings. I need a baseline of where we are and where we are headed. It will hopefully guide me, wrongly or rightly, on what and when to expect and how to behave accordingly. I also hope to identify the critical issues and concerns and the drivers that could positively or negatively affect future outcomes).
CV19: What is next?
The answer: Nobody knows. There are no precedents. Neither SARS, MERS or H1Ni come close in terms of scale, number of moving parts and the health, economic, social and political impact. We are back to the Medieval Ages.
I. Quo Vadis?
The Philippines’ CV19 crisis is just beginning. The actual number of infections is almost certainly higher than reported because of lack of testing and under reporting. All we know is that we do not know. The combination of ignorance, fear and the sense that Government is overwhelmed; is what triggers the panic.
The good news is the mortality rate (the ratio of deaths to infections) is probably lower than the consensus number of 2-3% because of the under reporting of actual infections. Thus S. Korea has the lowest mortality rate (less than 1%) in the world because it has the largest number of tests/capita. In contrast, Italy has a high mortality rate because it has a low number of tests/capita. It is just arithmetic.
Where is CV19 headed depends on the virulence of transmission, the policy responses, the quality of available healthcare, the funds for economic safety nets and the discipline of the population. I worry how we score on these.
The current transmission is reportedly 2-3/person (an infected person will infect 2-3 others).
The policy responses range between the Wuhan model (extreme compulsory lockdown) and the S. Korean and Singapore models ( voluntary quarantines, data and policy transparency, responsible messaging, and public/private co-operation). Our Sinophile Government has chosen the Wuhan model which prioritizes health over jobs without the accompanying economic safety nets that China provided. It is a tough call. The Government could impose further restrictions.
South Korea, Singapore and Taiwan have the best CV19 results because of the speed and quality of their policy responses, the availability of test data, the discipline of their people, their economic resources and healthcare systems. Theirs is the best balance between social and economic disruption and health initiatives.
II. Issues and Concerns
A. The Trade-Offs- The dilemma for policy makers is the trade-off between the health concerns and the economic and social impact of any remedies: For example, how many jobs should we sacrifice in a quarantine to save a given number of lives? It is physical lives vs economic lives, who should carry the burden, a very hard choice.
B. A healthcare meltdown- Our healthcare infrastructure will be overwhelmed by the speed and scale of the epidemic. With limited resources, health givers have to decide between sacrificing the more vulnerable cases for those with greater hope of life. Somebody has to play God: Who should that be? Are we talking of unattended bodies in hallways left to die?
C. Policy responses- Should the Philippines adopt the Wuhan or the South Korean/Singaporean model? Which is more effective given our culture, economic and health resources, and geography?
Italy tried a localized quarantine system in Lombardy like our Manila lockdown; but abandoned it for a national program.
D. Social order- As the health and economic pain deepens social unrest becomes an issue.
E. Lack of data- The solution to the crisis depends on testing, knowing the extent and, very important, the locations of the problem. S. Korea is testing upto 15,000 cases/day, has tested over 250,000 people in a population of 60 million.. The Philippines has 2,000 test kits, ramping to 6,000/week for a population of 100 million.
III. Timeline
In the Philippines the timeline of the crisis will depend the virulence of the epidemic, our policy responses, our healthcare system, the availability of a vaccine and our economic resources. I expect the virus numbers to rise at least until third quarter, hopefully plateau in the 6 -12 months thereafter as we learn more and execute better. A vaccine is expected in 12-18 months which should cap the crisis.
IV. Economic impact
The Government’s prediction for a mid-single digit growth rate even in this crisis is optimistic. Highly impacted are retail and manufacturing, travel/tourism; and small and medium (SME) businesses. Retail sales in M.Manila are down 30-70% even at this nascent stage; manufacturing middle double digits; and travel/tourism much worse with more to come. Financial institutions which have overweighted consumer credit and small business lending; will be impacted. Highly indebted companies and projects may not survive.
Airline companies are in trouble. The ban on China, Hong Kong and S. Korean travel; tourist cancellations and now the domestic travel ban has put them on their heels. Should the epidemic worsen and the Philippines be classified by the U.S./Canada as a no-entry country, the profitable trans-Pacific traffic will disappear. it is difficult to see how PAL can survive on its current financials. Short of a Government takeover or a painful bankruptcy proceeding, we could lose a national carrier..
Filipino overseas workers will be highly impacted by PH classification as a high-risk health nation.
Fiscally, the Government will see lower tax revenues at a time when it most needs it. Current plans to lower corporate income taxes may be deferred.
The PHP peso has remained remarkably stable in the crisis. The positive interest rate differential vs the USD, the reduced Import bill from lower oil prices and depressed economic activity; may explain the peso strength. The BSP is likely to cut interest rates which will narrow the interest rate differential. Combined with investor panic, lower exports and OFW remittances, and a possible credit downgrade; this could weaken the peso.
Financial markets worldwide will exhibit a W shaped behavior with high volatility. April is earnings season: Expect Q1 corporate profits to surprise on the downside. Even with the recent downturn which erased all the 2019 gains, the U.S.market is still trading at levels of 12-15 months ago. Coupled with rising CV19 numbers I expect a further leg down. On the other hand the vast liquidity, low interest rates, a 2008-style TARP bailout for, say, the airlines; fiscal stimulus and the anticipation of a vaccine in 12-18 months could propel a sharp market recovery in Q2 or Q3.
V. What could change my baseline?
- Earlier prospect of a vaccine.
- Extreme and rapid surge of CV19 cases.
- Government policy panic.
- Social unrest.
VI. What To Do?
- Accept we are in a new world. Do not panic. We can have fear but fear should not have us.
- Stay positive. The Purrell bottle is half full, not half empty. The air is cleaner. Time at home will force us to reflect on our personal ethos, the value of our human relationships and prayer.
3. Follow orders but speak up constructively.
4. Save and stay healthy.
VII. In short
The Philippines’ CV19 crisis will get worse before it gets better but there is, I think, an end with a vaccine.
Our challenge is how to bridge the next 12-18 months. Will our Government panic and over-react when overwhelmed? What will the carnage look like? Will those at the margin of society survive? Hopefully, the Government will address the economic impact of its CV19 measures and provide a safety net.
If we succeed we shall as a nation be stronger from the experience.
Wired 
Very comprehensive analysis. But scary. Tests are the key. Then when we KNOW or can extrapolate the extent of the problem, what to do. Wuhan can’t work here but we don’t have the discipline for the Singapore nor the Korea model. Although you only alluded to it in passing, prayer may have to play a bigger role here. That and a vaccine which is miraculously developed within a year. One hopefully leads to the other.