Bears

Over the past few days, it did seem that the prices of stocks and the price of oil have fallen off the cliff.

A few analysts are expecting some recovery over the next few days. The collapse of stock markets across the globe and the historic low prices for oil do seem overdone. But in this time of panic over the virus epidemic, we seem assured of market volatility and nothing else.

All risk is ultimately measured in financial terms. Over the past few days, trillions in market capitalization was wiped off the board. It will likely take many years for the global economy to recover the market capital that dissipated so quickly as the world reeled in panic because of the virus.

If there is really such a thing as the law of unintended consequences, we saw that in flagrant display the last few days.

When Saudi Arabia called for a meeting of oil producers to agree on production cuts to shore up prices, Russia balked. Moscow apparently wanted to keep oil prices under the recovery costs of American shale oil producers to shake them off the market.

Once the oil producers failed to agree on production cuts, prices began falling. Saudi Arabia, interested in keeping her market share, pushed down her oil prices. Like one domino falling after another, world petroleum prices just fell through the floor.

China is among the world’s major consumers of oil. The forecast for China’s economic performance this year is becoming increasingly dire. One forecast sees China’s economy actually contracting this year for the first time in the post-Mao era.

When the US Fed cut benchmark interest rates last week, this is normally a tool for stimulating market activity. But the reverse happened. The market interpreted the move as a signal the sky was falling. A massive selloff of stocks followed.

Recession is now expected for Japan and much of the Eurozone. Contracting economies consume less oil. The expected glut will keep prices at abnormal lows for a while.

The slowdown due to the epidemic will affect the viability of many businesses. In many countries, governments are pursuing two-pronged strategies to deal with the epidemic and its economic fallout. On one hand, governments are devoting resources to beef up their health care systems. On the other hand, they are taking measures to help contain the volume of business failures.

It is good that we get regular briefings on the state of the epidemic within our shores. With the epidemic reaching this scale, it is important for government to unveil a package of measures that will keep our enterprises robust.

Our OFWs are likely to lose jobs because of this epidemic. Every effort must be exerted to prevent this from being compounded by a string of local business closures.

Preferential

There is a sense among our businessmen that the shady gambling operations run by Chinese networks are getting preferential treatment from government. Meanwhile, legitimate local enterprises are being badgered, harassed and squeezed.

The Philippine Online Gaming Operations (POGOs) have been linked to various crimes including kidnapping and prostitution. The BIR recently discovered that hundreds of POGO employees share the same tax identification number.

A surge of foreign currency, believed to be illicitly sourced, flowed into the country in suitcases of cold cash. In just a few months, as much as $633 million of suspicious money was hand-carried in the country. This puts us at risk of penalty from the Financial Action Task Force that is coordinating anti-money laundering efforts globally.

Any serious finding of negligence could put our hard-won credit rating at risk. If we lose our excellent credit ratings, all Filipinos will suffer the consequences of higher financing charges for our borrowing.

The Department of Finance estimates that there are more than 230 POGOs operating in the country. Of this number, only 60 are licensed. Of this smaller number, only 10 were properly paying taxes due them.

The BIR estimated it could raise P50 billion from these online gambling operations. For 2019, the agency was able to raise only P5 billion despite their best efforts. 

Of the estimated 200,000 Chinese workers now in the country working for the online gaming outfits, only a fraction are properly documented for taxation. While some outfits flagrantly flouting our tax laws have been shut down with much fanfare, a great number are mysteriously left alone.

For some reason, President Duterte does not seem interested in shutting down POGOs – or at least the most notorious ones. He continues to coddle these gambling syndicates despite Beijing’s pressure to crack down on them.

By contrast, the President bore down hard on properly documented Filipino enterprises that are creating jobs and paying taxes. We are familiar with these enterprises providing quality jobs for Filipinos but subjected to intense political pressure. Among them are Manila Water, Maynilad, PLDT, Globe and, over the past few weeks, ABS-CBN.

Even before the virus found its way to our shores and into our communities, the local companies have been weakened by presidential rants translating into business uncertainty and weakened stock prices. Now, as the epidemic begins to take its economic toll on us, with panic buying in the supermarkets and empty tourist facilities, our businessmen as pleading for government support.

Biological persons with underlying health issues are more prone to being attacked by the virus. Likewise, businesses with weakened balance sheets are vulnerable to the economic consequences of the epidemic. Some of them could be pushed to bankruptcy if the economic crisis deepens.