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Duterte Locks Down 60 Million, Halting Philippines’ Engine

Duterte Locks Down 60 Million and Halts 70% of Philippine Engine

(Bloomberg) -- Philippine President Rodrigo Duterte widened a monthlong quarantine in the Manila region to cover all of the country’s main island, a move that risks stalling one of Asia’s fastest-growing economies to prevent coronavirus from spreading.

The “enhanced quarantine” of Luzon, which has 60 million people and is responsible for 70% of the Philippines’ economic output, will place tens of thousands of daily wage earners at risk of penury. Hours after the announcement, the country’s central bank governor said policy makers are “inclined” to cut the key interest rate by 50 basis points when they meet Thursday.

“We still have a lot of monetary space” to support the economy, Bangko Sentral ng Pilipinas Governor Benjamin Diokno told Bloomberg Television’s David Ingles and Yvonne Man on Tuesday morning. “We recognize at this point that a coordinated move by monetary authorities and national government will be more effective. In other words, we expect the national government to also use their fiscal space.”

The government late Monday unveiled a 27.1 billion peso ($527 million) package of fiscal measures. The bulk of the money will go to funding tourism projects, aiding affected workers and acquiring virus test kits and health equipment.

“That’s the initial package, assuming that the contagion will end shortly after mid-year,” Finance Secretary Carlos Dominguez said Tuesday in a mobile-phone message to reporters. “Other measures will be considered together with the private sector as the effects of the contagion become more evident.”

Lockdown

The virus so far has infected at least 140 people in the Philippines and killed a dozen. Duterte said Luzon will remain under lockdown until April 12 and that people should leave the house only to buy food, medicine and basic survival items.

The escalation prompted the suspension of Philippine stock, bond and currency trading from Tuesday. The head of the country’s stock exchange said he plans to reopen by Thursday.

The fiscal package comes as governments across Asia and globally enact stimulus to blunt the blow from coronavirus. Analysts said Manila’s move likely won’t be enough.

“The lockdown expanded to the whole of Luzon will clearly place greater downside risks to growth, as the economic contribution of the island is larger and the fear factor could be magnified,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “The fiscal package looks small at just 0.1% of GDP to offset these risks, even if one assumes these are all new spending rather than budget re-allocations.”

Duterte Locks Down 60 Million, Halting Philippines’ Engine

Duterte said the government would take care of workers’ needs such as food and rent during the lockdown, but didn’t say how. He encouraged businesses to advance year-end bonus payments and urged big companies to help small enterprises.

Only some 30% of businesses can afford to pay the year-end bonus in advance, according to Sergio Ortiz-Luis, who heads the Employers Confederation of the Philippines.

“They’re doing extreme measures to the point that people get confused,” said Ortiz-Luis, who is also president of the Exporters Confederation of the Philippines and chairman of the Philippine Chamber of Commerce and Industry. “Many businesses will close, and after a month there’d be no more jobs for workers to return to.”

Philippine National Bank, which has more than 500 branches in Luzon, said it plans to operate as usual but that staff “are encountering challenges as police checkpoints are turning them away.”

“Growth will likely take a hit, that much is certain,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. Ltd. in Singapore. “But BSP still has a lot of monetary policy room and the consolation is that the Philippines has a lower reliance on exports than other regional peers.”

Fluid and Uncertain

Diokno, who said he is awaiting the results of his own virus test but feels fine, said that in the worst case the crisis could shave a full percentage point off this year’s economic growth, but gross domestic product could still expand 6%.

“This could be our medium-term target. We can grow at this rate given our fundamentals this year and for the next three years,” he said.

The Philippines is “not really part of the supply chain. We’re not an export-oriented country. Tourism is not a big part of our GDP,” Diokno said. “So we’re one of the least affected of this coronavirus concern.”

In any case, he said, “with a very low debt-to-GDP ratio around 40% and falling, we can really fund a supplemental budget in light of the coronavirus incident.”

Others thought the blow from the virus could be more significant.

GDP growth may slip to 5% this quarter and to 5.4% for the year, said Carlo Asuncion, an economist at Union Bank of the Philippines.

Even that forecast may have to be revised again, he said, “because everything is very fluid and uncertain.”

--With assistance from Clarissa Batino, Ditas Lopez, Siegfrid Alegado, Ian Sayson and Cecilia Yap.

To contact the reporters on this story: Claire Jiao in Manila at cjiao5@bloomberg.net;Andreo Calonzo in Manila at acalonzo1@bloomberg.net

To contact the editors responsible for this story: Cecilia Yap at cyap19@bloomberg.net, ;Nasreen Seria at nseria@bloomberg.net, Clarissa Batino, Michael S. Arnold

©2020 Bloomberg L.P.