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[Music] good morning everyone and welcome to the second security bank economic forum 2020 i am young business correspondent of the abs-cbn news channel and i will be your host for today as the covet 19th endemic continues to grip the world we are turning to science to look for solutions from drug companies that have launched an all-out drive to find a cure to hospital workers and public health experts on the front lines of this fierce battle eight months in for the philippines and the financial and human costs of the pandemic continue to mount 59.7 million cases globally the philippines right now in the 27th spot with over 421 000 cases more than twenty thousand cases of which are active with over eight thousand one hundred deaths so far this morning we're going to go beyond the headline numbers to share stories from the pit what's the reality on the ground for frontliners how does the future of the philippine healthcare industry look like what policy support can we count on from the government and how can you position for 2021 we've got an exciting conversation lined up for you but first to officially welcome us to the event i'd like to call on the president and ceo of security bank mr sanjiv vora [Music] good morning everyone it is my honor to welcome you to security bank's second economic forum for 2020. first and foremost i would like to acknowledge the distinguished speakers joining us today miss liang sukhmay asean head of global markets research global markets division for asia at mvfg bank security bank's strategic partner honorable stella kimbo representative of the second district of marikina city and our very own security bank's executive vice president and treasurer raul martin pedro to our clients business partners and friends from the media we appreciate you taking time off to be part of our online economic forum every year it is your active participation virtual or not that makes our economic forum even more meaningful you may recollect in august this year we held our first virtual economic forum our keynote speaker then department of finance secretary carlos g dominguez discussed the economic outlook impact of government 19 and the post kovate recovery plan of the philippine government he reiterated the need to find the balance between safety and the economy to ensure the country's continued growth as our own chairman albert belarosa said back then we are certainly facing something we have not faced before at least not in our lifetime this economic forum is our attempt to help our clients and business partners navigate these rough seas amidst this pandemic typhoon bringing people together like this is important to us sharing our knowledge and networks with one another is key towards ensuring the country's success during these challenging times we are going full throttle with building and strengthening partnerships with key stakeholders across different industries the pandemic has brought to light once again the importance of the healthcare industry and the medical community clearly conversation centered on healthcare will be and should be part of our future as you continue to be at the forefront of this global battle as part of our better banking promise we are bringing our economic forum to you our clients and partners from the healthcare sector the theme this morning which looks into the economy and how the healthcare industry is faring amidst the adversity faced due to the covet 19 pandemic will provide compelling insights on the present and future of the healthcare industry we hope that security banks formed today will equip leaders and key players like yourself with actionable insights to help you realign your business strategies to the economic realities brought about by this pandemic aside from staging exclusive information sessions we have also been redoubling our efforts to provide better banking solutions allow me to share with you some of our initiatives in the past couple of months geared towards empowering clients including those from the healthcare sector retail and business clients can open an account from the safety of their homes through our online account opening via skype customers can continue to transfer funds to other participating banks and e-money issuers for free until the end of the year through insta pay on our mobile app our e-gift cash features make sending and receiving cash easier even to those without bank accounts in order to keep up with the increasing demands for online banking we are implementing a series of upgrades and enhancements on our digital banking platforms to improve your overall banking experience on top of providing an enhanced banking experience we also launched our get better campaign to support medical institutions and frontliners our local businesses students and families in support of the philippine red cross we helped establish a molecular lab for covet 19 testing and donated three negative pressure ambulances as the bank partner of saint luke's medical center's convalescent plasma treatment we help fund the treatment of indigent covert patients we've partnered with institutions such as singapore's attuition and education dot ph to make e-learning more accessible to filipinos we've also partnered with sprout philippines to offer free hr and payroll solutions to help companies of all sizes manage their businesses at this critical time recently we've donated our mid-autumn festival gift fund for the benefit of the medical community and indian students as always we would like to thank you all for your continued trust our customers have always been the key driver and inspiration for our efforts and accomplishments this is precisely why we are motivated to be your partner in success we are certain that we will come out of this current price as stronger and better equipped to help the country get back on its feet security bank is with you and striving to overcome this pandemic and adapting to the new normal we are hopeful that it will get better together we can get better on behalf of security bank again welcome to our economic forum i hope that you will find the exchange of the ideas this morning insightful thank you very much mr vora for that very warm welcomes our next speaker is security bank's executive vice president and treasurer mr martin pedro martin pedro now prior to joining the bank in november of 2005 he was first vice president of equitable pci's treasury department serving as head of foreign fixed income trading and derivatives he also worked as a forward fx trader for deutsche bank ag manila mr pedro is also the chairman of sb forex inc since may 2016 in fact and the bank's representative to the bankers association of the philippines open market committee he holds a master's degree in business administration from rutgers the state university of new jersey usa and a bachelor of science degree in business administration from the university of the philippines dilemma ladies and gentlemen let's all give a virtual round of applause to mr martin pedro thank you very much michelle good morning everyone welcome to the economic forum and allow me to talk about what's happening in the local market i have a few points to tackle and i hope it will drive drive in a few key points what we have on screen is the balance sheet of the central bank what i wanted to highlight here is that the central bank has launched a massive direct monetization and quantitative easing operation what does that mean they have significantly raised the amount of assets they have by way of this area here which i boxed in red by purchasing domestic securities from the open market from what was previously running around 200 or so billion pesos each year since 20 2017 up until 2019 starting this year especially with a pandemic that domestic securities position of the central bank has grown to 1.2 trillion that means they have pumped in extra 1 trillion to the market they bought it from the open market and as a result what we've seen is that the total assets of the central bank has gone up 31 to 6.76 trillion pesos in the prior years under normal conditions if i if i can call it that way the balance sheet of the central bank would grow anywhere from 2.4 to 5 growing 31 clearly shows that the central bank is doing everything that they can to support this economy so on the next slide what we're showing here is a graphical representation of the balance sheet size this upward trajectory between um the on the last part really represents the the short shift in the balance sheet size of the central bank and if just to do a recap of what they've done since the start of the pandemic first they have cut their policy rate by 200 basis points to 2 and we are now at what we could call as negative real rates territory because the local inflation is at two and a half percent and many of you i suppose have noticed that your um time deposit rates have gone down significantly and it is mainly driven by these these actions of the central bank second they have cut reserve requirements for big banks up to 200 basis points and uh for rural and trip banks they cut it by 100 basis points for us big banks the reserve requirement is down to 12 that means um for every peso of deposit that we take we can now lend up to 88 centavos of that out to the market whereas before it was at 14 or just land out 86 centavos the other part or the other thing that they've done is that they've entered into a swap or a repo arrangement with the bureau of treasury of the philippines where in effect the central bank is able to lend directly to the national government 300 billion pesos so thereby easing the requirement or all the of the bureau of treasury from directly tapping the market by that amount fourth in as much as the peso has been appreciating significantly as what our previous speaker has described the central bank has actually purchased about 4.7 billion dollars from the market and this translated to extra pesos again in the system and lastly as i said um they purchased peso bonds from the open market and as a result um their total assets have grown 35 percent so clearly what we've seen is that the central bank is doing everything that they can to help the economy what does what have those actions been um able to do for us since a quantitative easing what we've seen is that peso interest rates that bar the lines here on screen shows the two-year which is the green line and the ten-year rate which is the red line from a peak of almost five percent in march just imagine at the onset of the the pandemic there was a knee jerk reaction where rates move up for the ten year close to around five percent while the two year rose around four and a half percent but since then given all the central back action what we've seen is that rates have gone down significantly the hope is as the central bank pumps in a lot of cash into the system interest rate will go down and it will encourage economic activity as backs are expected to lend more on the next slide so the next question is will interest rates move higher next year given the economic outlook next for next year let's take a look first we know that the national government needs to borrow more for the pandemic mitigation can can the system absorb more borrowings um just as a background the government has announced that they will need to borrow 3 trillion pesos for 2021 of which almost 2.6 trillion would have to be taken from the local market and if we look at what is maturing next year of around 1.2 trillion um you see that there is a net new supply a new borrowing of around 1.2 quarter trillion pesos from the local market so quite a significant amount on top of that what we expect is that they will need to borrow 400 or so billion pesos worth from the foreign market or equivalent to around eight and a quarter billion us so knowing what the government needs to do the question is can the markets can the system absorb it and the answer is yes the system can still absorb it if you recall in the previous i'm sorry the next question is given the size of the borrowing will they crowd out the private sector from all available funding sources will their borrowing costs move up and will they continue purchasing dollars in peso bonds from the market and continue cutting reserve requirements let's just take a look as mentioned earlier the balance sheet has grown 35 and all of that excess cash right now is back with the central bank um the last column here shows the reverse purchase facility basically this is the amount of cash that banks lend to the central bank on a reverse repurchase uh mode that's 300 billion and then on top of that this the local banks lend another 419 billion of overnight cash to the central bank and we also place up to 832 billion internal deposit facility window of the central bank what does that mean with all the cash the central bank has pumped in banks are actually sitting on a lot of excess cash and as a result we place them back with the central bank to the tune of 1.6 trillion just to give you some perspective back in 2013 when the most of the central banks around the world were still in quantitative easing the amount of excess cashes the system had was around this much 1.6 to 1.7 trillion pesos when rates started moving up beginning 2015 up until 2018 the amount of excess cash that sat with the central bank was only 300 billion pesos so we have grown almost six times since then that's the amount of excess cash in the system so taking this amount and the amount that we know that the sector the national government needs to borrow we believe that there is a significant amount of cash in the system and the market can actually fund the national government i mentioned that they will need to borrow eight and a quarter billion us dollars how will that pan out and whether um how high would their rates be and when they start borrowing what we know from the previous presentation and even our own house view that the federal reserve is expected to keep their policy rates on hold up until 2023 to 2024 but given the optimism towards the renewed economic growth in light of the possible vaccine heading into the economy uh second half of next year plus the joe biden win which is a more engaging u.s economy us government with regard to trade what we expect is that the yield curve will remain or will go steeper what does that mean with the fed remain keeping the rates at zero to a quarter percent up until 2023 what we would be seeing is that the longer and or the longer term rates the 10 and 30 year rates will start moving off by at least 25 to 30 basis points up until um end of next year as a result many of us trade the local market local so um rop bonds so what we've seen that given that outlook on long-term u.s rates we see that rop prices will remain stable and with the recovering economy we believe that the credit spreads will remain rather stable as well so the next question is if the vaccine becomes available in the second half of next year will rates move up let's see first how has the economy performed um clearly the third quarter gdp was at negative 11 and a half percent um and the way we see it heading into the fourth quarter um it will not be uh signif it will be better but not significantly better if we look at the nominal levels of economic activity we would be hovering around the 4.1 to 4.3 trillion in terms of gdp um under on this middle chart and i think many even under secretary carl chua and recently former dg gunigundo has spoken about this there is data from google and apple about the mobility index here in the philippines and what we've seen is that mobility in our economy by way of our of our mobile phone movement we are still about 40 of the the pre-pandemic level of activity so with that we believe there's still a lot of catching up to do as such we believe that um policy rates will be kept rather stable over the next couple of quarters and and and um economy will slowly recover such as our forecasts for philippine economic growth is that for full year 2020 we're still expecting a negative 9.9 but will improve significantly 2021 up until and beyond but one thing to note we will not be at pre-proven levels not until 2022 the the level of value if you will in 2019 was 19.37 trillion as otal gdp we won't get there until middle or second half of 2022. so with that what we see is that the central bank has done a lot of heavy lifting fiscal support is needed in order to spur further economic growth and the bsp action has been forcing investments and encouraging borrowing on the back of having real negative rates when in with inflation being higher than your savings rate and the only near-term concern perhaps the recent uptick in virus virus cases globally as we head into the holidays and the hope is that as the vaccine gets distributed there will be wider um inoculation and perhaps hurt immunity by late 2021 or early 2022. so what we could expect is that firmer market conditions will be present in the second half of 2021 we see that household consumption for 2021 represented by the echo bars here will further improve manufacturing projections um are likewise expected to improve currently if i'm not mistaken we are at the 65 to 75 capacity we would expect that to move up to around 1885 middle of next year and that would bring to a larger trade deficit as we expect our imports to start picking up um heading into late fourth quarter this year and early next year with that i end my presentation and thank you very much thank you very much mr pedro for that certainly some things to keep in mind when we chart our investment game plan for next year now our final speaker is a government official and a distinguished member of the academe she taught at the university of the philippines where she also became the department chair of the school of economics she also served as commissioner at the philippine competition commission before running as a representative of the second district of madikina city she has an extensive research portfolio in the fields of health economics industrial organization microeconomics education poverty public policy and regulation in june her stimulus bill titled philippine economic recovery act was passed in the house of representatives she obtained her bachelor of science master of arts and phd in economics from the university of the philippines she also spent a year at brown university in rhode island as a postdoctoral fellow back in 2002 at the population studies and training center ladies and gentlemen let's all welcome house deputy minority leader and representative of the second district of manikina city the honorable stella kimbo [Music] thanks michelle and uh good morning to everyone first of all thank you for inviting me um what i've done is to divide my talk into three parts first i'd like to talk about the kovid and the economic situation in the assay and and then second in the philippine context the need for economic stimulus and economic resilience and then finally some insights on healthcare market opportunities so first of all um this is the covid situation in the asean of course good news is that quite recently we moved down to number three in terms of active cases per population we were actually number one for a long time for many months until recently malaysia and myanmar had overtaken us of course this could be partly due to malaysia doing aggressive testing with 782 tests per 10 000 population for the philippines a cost for concern is that we have the highest deaths per population and this could also be because we have the fewest number of hospital beds per population in other words our health sector capacity is quite weak now looking at vietnam's numbers it's active cases per population and deaths per population are low and well they're not exactly the lowest but considering that vietnam is more open in terms of trade and tourism compared to cambodia and lao pdr we can consider vietnam's scope and performance as noteworthy so the next question to ask is have our coveted numbers plateaued this figure before you seems to suggest improvements um our curve here is that blue green or teal line which malaysia and myanmar crossed sometime in october while indonesia crossed the philippine line sometime in november so we are improving in this sense but we have to make sure that this is going to be a sustained improvement and perhaps another caveat is that this blue green line is really a function of testing as well as reporting so if all those who need to be tested gets actually tested and the results are faithfully reported then this is indeed a picture of hope now um our kovit performance seems to be related to overall government governance spending on health with the exception of malaysia the worst coveted performance performers in the asean including myanmar indonesia and the philippines also have the lowest government spending on health as a percentage of gdp now um moving on to gdp figures how has our economy been relative to our asset neighbors in terms of gdp growth from being number two next to vietnam before the pandemic we are now the worst performer with gdp contraction of 16.9 in the in the second quarter and 11.5 percent in the third quarter and uh the numbers beside those curves refer to ranking in terms of covet deaths per population going from lowest to highest so as you can see vietnam is the best performer in terms of avoiding kobe deaths and also in terms of gdp growth on the other hand the philippines we are the worst performer in terms of kovid deaths and gdp growth so roughly speaking they're related the countries that will have a better handle of the covid situation would obviously recover and grow quicker now when we think about the fourth quarter it doesn't help that we've had a series of um unfortunate events called quinta roli shawnee and then ulysses and my city marikina was actually very badly hit by ulysses i took this photo three days after the typhoon and this was taken in our hardest hit barangay and the neda estimates that total damages brought about by these typhoons would run to close to 100 billion pesos so given all of these numbers i believe that the time is ripe for a third economic stimulus package or a bayern iii if you may recall our economic managers or the dbcc they've predicted an overall gdp contraction of 5.5 for 2020 but as soon as the psa announced the third quarter gdp numbers it was clear to me and to many people that an overall 2020 gdp contraction of 5.5 percent is simply not going to be possible for us to hit that target that would that would mean that we need to grow 6.4 in the fourth quarter so it is mathematically possible but um clearly statistically impossible so from where i stand the biggest problem is really that the 2021 general appropriations bill or the national budget assumes a contraction of only 5.5 and a total proposed amount of 4.5 trillion pesos and that amount cannot be changed that's according to a constitutional provision that's according to article 6 section 5. so in short the 2021 proposed budget which supposedly is a coveted budget presumably includes a response that is proportional to unexpected contraction of only 5.5 percent so if actual contraction exceeds 5.5 then the required increment incremental response will not be found in the current proposed 4.5 trillion budget so in other words we would need an additional economic stimulus package and uh for that reason i filed a bayern iii bill and that contains a covert response for both health and the economy a disaster response and lastly a set of measures that would ensure that we finally first we finally take the first steps towards building economic resilience now some government officials as soon as we filed by an entry um salaam official said that that was going that is premature so that was how they described the bioneen tree bill and i suppose premature because the 2021 budget already provides economic stimulus that's their thinking of course i do agree that we must prioritize the passage of the budget i mean no one will disagree with that statement but uh i i keep my position that the proposed 2021 budget contains an insufficient covet response and uh this is understandable considering that the budget goal typically happens in the first quarter of every year and for this year the deadline for government agencies to submit their budgets to dbm was june 1. and uh of course at that time government agencies would not have expected the kovind situation to be what it is today and uh during the budget hearings in congress i repeatedly asked the question okay how much is the total covet response that is lodged in the 2021 budget and i unfortunately i did not get a categorical response during the hearings but i i gave a formal query to the dbm on this matter and subsequently they replied to me in writing and here's what they said so the summary is in the slide before you the total covet response according to the dbm is 838 billion pesos and there are three types of coverage responses first would be a health response amounting to 31.4 billion which is small it's it's too small first of all health spending under bayern won and bayern nehem2 if you put those two figures together that would be about 80 billion pesos so clearly 31.4 for an an entire year 2021 is too small relative to what we are currently spending and of course um our spending for 2021 must include a sufficient budget for the vaccine um the proposed amount actually for vaccines which is part of this 31.4 billion is only 2.5 billion pesos and that's only enough to to to inoculate 3.9 million filipinos and again 2.5 billion that's far too small relative to the 70 billion pesos that iatf said in the news today um which what they think was going to be needed for for an initial roll out of the vaccine program what i also find interesting in dbm's response to my query is this 589.8 billion which is uh the dbwh budget um my understanding is that this amount is already is should not be considered as part of the covet response because it had been pre-programmed even before the pandemic happened in other words 589.8 is already part of the build build build program which um the current administ administration had already planned um as early as uh as 2016. so um if you remove 589.8 from the 838 billion we are left with only 248 billion as a coveted response so again a 248 billion peso response is way too small for a potential 3.4 trillion peso economic damage right so if we expect if uh we are to believe mr pedro's uh estimates of of gdp contraction in 2020 which is about uh 10 contraction and uh if we also include the six percent growth that uh we would not we we should have achieved if covid did not happen then that would be roughly about uh 3.3 trillion and then if you throw in the additional 100 billion peso damage uh cost by the four typhoons so we're looking at a total of 3.4 trillion peso loss so 248 billion compared to that it's really too small and even if we include the 165 billion peso authorized spending under bayern ehan do so that would mean 413 billion still too small relative to 3.4 trillion peso economic damage so bottom line we need a biennial iii so next let me uh talk about resilience the recent parade of typhoons again is a reminder that we need to aspire for genuine economic resilience and uh simply put resilience it's just ability to cope and recover from shocks so that's the simple and uh in my in my mind true meaning of resilience um i think resilience should not be equated to just being brave enough and uh to accept your faith i think it has to be a more proactive concept than that so we need to take steps to ensure that we can bounce back and recover from this pandemic and from future pandemics and disasters so in the context of the current pandemic it is quite clear that we lack resilience in healthcare we don't have enough beds for one second our frontliners are not sufficiently cared for some of them even dying before receiving their hazard pay as we know phil health is not effective and not trustworthy with a doh i think we have a problem with planning we can't even properly plan for the covet vaccine we don't have sufficient cold storage facilities we worry that the government agency task to procure will not be effective then we also have trouble with data management particularly gov data no one fully believes the kobe data published by the government and i guess the bottom line is that doh lacks in-house technical capacity so in a nutshell that's the not so happy state of the health sector today in the context of the pandemic now moving on to the economy as a whole here are some issues with respect to economic resilience first there's a lack of social protection for workers we don't have a national unemployment insurance program like vietnam thailand and malaysia there's also a lack of support for business innovation to begin with our business environment is not very competitive and the cost of doing business is high and on top of that government support for msm east pivot in the time of kovind is also quite limited moving on to the education sector teachers and students are not equipped for online classes in social media there are countless stories about students not having gadgets or teachers and students not having adequate internet connection there's also a lack of financial inclusion 77 percent of filipinos remain unbanked so even if the government has increased funds in land bank development bank of the philippines and small business corporation for loans to msm ease an adb study would show that only 4.4 percent of micro 5.7 percent of small and 16 of medium-sized firms were able to successfully get bank credit at the height of the lockdown there's also poor digital connectivity a world bank study shows that our performance with respect to this is far below the asean average and finally i'd like to point out we have inadequate protection against floods so many have helped marikina thanks to all donors out there but to be honest we are quite tired of this cycle you know every time there's a heavy rainfall um people have to go up to their roofs to to uh to be safe we wait for the water to subside and then there's mud left all over um many of the personal belongings are are destroyed and people have to restart their lives and that happens every time we have heavy rainfall of course we know that donor fatigue can also um easily set in by now so what we need really is a permanent solution there is a master plan for flood control approved by nada and adopted by the government in 2012 but only two of 11 key infrastructure projects have been initiated the dam that will protect marikina and pasik is still waiting final approval um from the icc so in a nutshell the health sector and the economy as a whole are not resilient um our economic contraction will be worse than expected so ergo i think we need a bioneer free bill and this is my version of the biennial entry bill um some cons i think a number a handful have filed their own version of by any entry but this is my own version um it would have three elements first is a covert response which would include additional funds for the vaccine program could include more of the usual stuff so meaning ayuda for households as well as displaced workers we also have support for teachers and students particularly internet allowance and subsidies for for workers including testing for workers paid sec leaves and overtime pay for workers who are employed by companies that end up having multiple shifts because of having to comply with iatf guidelines so those are just examples of worker subsidies anyway so the total for these items is 330 billion now the second element would be a disaster response amounting to 70 billion pesos uh including 20 billion in iowa for households affected by recent typhoons and another 50 billion for rehabilitation finally this last set of measures would be all relating to improving resilience first i think that we need finally a long-term economic plan we actually don't have one um so this would be a step beyond nadas ambition 2040 if you've heard about it this was a large-scale study conducted by nada i think uh during pinoy's time and uh this really just determined the aspirations of the average filipino family but how to get there we still don't have a plan institutionalized so i think we should begin with that um for infrastructure obviously infrastructure has a lot has very huge multiplier effects so we need to invest in infrastructure and i would like to make a pitch not only for flood control but also for housing the pandemic taught us that because of inadequate housing families are unable to do self-isolation so that's the reason for why we had to put up a lot of these isolation facilities and then the typhoons came typhoons also reminded us that housing is inadequate in providing protection to families and if you think about the average housing space currently the average housing space per capita for the poorest families is only the size of a billiard table so if you have five in a family the average housing space would be five billion tables so i think housing should also be a priority i think monitoring is also important we also need monitoring um any economic stimulus package would would involve huge amounts of resources so we need to ensure that disbursements are not only timely but also proper and honest and uh last september 15th if uh you recall bayanihan ii became a law so this is our second stimulus package and authorizes a total spending of 165 billion pesos of which 40.5 billion is allotted to health so that could include front liners um ppe isolation standards as well as uh contact racers and uh by any and two also creates market opportunities in the supply of medical code medical goods as um the the law eased a lot of procurement uh rules there's also language in the law that gives preference to local manufacturers of medical goods and while incentives for imported medical goods have been granted by this law um the intent is really to supplement domestic supply in case local supply is not sufficient so there is a proviso in the law for the exemption from import duties taxes and other fees but the dti must certify of course that the goods are not locally available or would be insufficient in supply so so in short there's preference for local manufacturers but in case supply is lacking then incentives for imports would kick in and then moving forward what private healthcare providers must watch out for are reforms in phil health which is the largest third party payer for hospital care after a series of hearings in congress what was clear to us is that phil health has not been able to control fraud um they are they were unable to manage their funds properly and the technical leadership is poor so reforms should be forthcoming um and particularly in how they pay health care providers and one recommendation by congress is to review the case rates these are the fees that are specified for every type of illness and they're like 3 000 plus of them they will surely review those uh 3 000 plus case rates and um i think uh investors should watch out for those um as uh of course this will impact investment decisions in uh the private hospital market so finally um i i think i've given you enough of uh bad news i'd like to end on a high note there have been encouraging results from clinical trials on the kobit 19 vaccine so we are now seeing light at the end of the tunnel but of course we must be able to build that tunnel we must be vaccine ready which means government must set aside a sufficient amount of resources and must figure out the logistical requirements to roll out an immunization program government must be able to provide the vaccine for free to poor families in the proposed 2021 budget again i mentioned this earlier doh included a measly 2.5 billion what congress has been able to do uh upon uh final reading was to add another 5.5 billion so now it's 8 billion pesos right now the senate is deliberating the budget and hopefully they are also able to increase that budget but nonetheless again if there's still a budgetary shortfall then by any entry should be able to address that um in addition we need to make sure that the procurement laws would allow government to make advance payments for for the vaccine because of course all countries would line up and of course we have to make sure that we're able to to make proper advance payments finally government must be able to prove to provide for all logistical requirements including storage and transportation facilities so clearly that all of those requirements are not available within the public sector so private sector will definitely play um a large role here so that's where i am michelle thank you for that uh very insightful presentation congresswoman kimbo uh you sounded like a doctor i have to say um but the prognosis isn't looking too good but you know what that that's okay that's okay because that's the reality in the open forum we're gonna talk about the path forward so i think we're now ready to move to the open forum we're gonna try to take as many questions as we can from the audience members please don't forget to join the conversation for participants uh do type in your questions in the q a function of the webinar we'll try to get to them as many as we can for this morning so okay joining us again for the open forum our honorable stella kimbo and of course mr ol pedro they will be taking the questions live as for miss leong we actually sent her a set of questions and we're going to share her answers with you right now let's watch this [Music] that's a good question i think short term of course the promise of vaccines are positive for southeast asian economies but as i mentioned before the distribution of vaccines take time and develop economies will be the first to get orders of the vaccines at the same time we have weather changes now that seem to be bringing increased case numbers in some asian countries year on year economic numbers will look better for all the countries given the very low base of 2020 but sequential and momentum economic numbers will still be vulnerable to how fast the vaccines can be distributed to different countries and to the vulnerable segments of society [Music] i think asia is still the region at the forefront of the global economy notwithstanding covert 19 and even the u.s china trade war asia has outperformed all regions in covet-19 containment on the whole not withstanding increased case numbers in some countries if anything the u.s china trade war and covet 19 have opened up the possibility of new and shortened supply chains and the necessity to undertake digital reforms thank you so much for your insights ms leung again okay so let's now move on to our live open forum i wanted to start with congresswoman kimbo coming from the answer of miss leung clearly even before the pandemic the center of gravity economic gravity has been shifting from the west to the east and even with the pandemic asia will still emerge as one of the biggest if not the biggest economy uh economic block in the world in fact there was an estimate by bloomberg that says by 2050 already considering the pandemic impact by 2050 three of the world's biggest economies are going to be asian emerging economies china india and indonesia philippines is part of asia congresswoman do you think we're going to be a laggard in that group when you look at that group i mean when you you showed us the numbers earlier the numbers are looking pretty bad in comparison to our peers are we ready to take the back seat now we used to be the darling economy um i i i really think it depends on what we do in the short run so that the numbers the bad numbers that i just shared with you they're all about today right but then again all is not lost um there are still opportunities to correct the situation and so i'm saying i really do hope that the economic managers are more open this time to spending more um i think it has become quite clear uh today that uh there is uh a bigger need to spend um maybe uh we were a bit gun shy in uh in the earlier months and understandably so because it would there was a lot of uncertainty then but now um again we're seeing the light at the end of the tunnel with news of the vaccine so i think um there is scope for being more aggressive in spending and if we are able to spend enough i think um we can there's a greater chance that we can go back to our previous trajectory of growth the economic managers have always said they're trying to stay conservative because they want to save their ammunition they don't want to run out of ammunition before the war is over it's not a sprint it's a marathon but as you mentioned we are finally seeing the light at the end of the tunnel so more or less we can estimate speaking of the spending the aggressive spending this bayanihan iii proposal what are the chances congresswoman that these fiscal stimulus measures will be hijacked or sidetracked by politics i mean elections 2022 is just around the corner and if you talk to political reporters they'll tell you one year before the elections we're not really expecting much work done in the lower house or in the upper house anymore well in terms of like effort to get the uh a bill passed uh i think congressmen and senators would be more than willing to to to put in the required effort um as you know i'm if you recall uh when we passed by any one everybody stayed stayed up until about three a.m so we were there for like hours and hours until uh the bill was finally passed so um i think in terms of willingness and effort required i'm i think there's no problem with that i i think the problem really is with the executive right um as you know for a bill to be to become a law there has to be some willingness also on the part of the executive because we we of course expect the executive to implement laws passed right otherwise it's going to be an unfunded law so it's a useless law so as soon as we're able to convince the executive that this is the right way to go um that's going to be easy uh to pass into a law i mean it's really i think um the the hurdle here really is convincing our economic managers that uh this is the right way to go i mean we're all experiencing the pandemic congresswoman why do you think they need so much convincing for this what what seems to be stopping everyone what's holding everyone back i don't know you know i can only surmise i mean uh because i looking at the reports of the treasury the cash is available we've taken out uh a sufficient amount of loans as explained by mr pedro uh so the the cash is there we've taken enough loans um we're seeing the light at the end of the tunnel uh i don't know the only other factors that i can think of that can be making them a little bit more conservative is perhaps number one the absorptive capacity of of agencies um so meaning if you download a huge amount of months a particular agency are they able to spend that quick enough and of course um for a similar package to be effective it has to be spent quickly so maybe it's that but then that can be corrected they can choose an implementing agency that that uh that meets their standards of performance right and there are some of them right and uh number two uh maybe they're worried about leakages i mean you know um maybe corruption in in government maybe that's also an issue so but again which is why in bayern m3 i put in a provision for monitoring so we have to make sure that there is a monitoring system in place there is transparency i think transparency um that's a big uh that's a big mechanism against uh potential leakages and you mentioned absorptive capacity you know this proposal for buying hand three is being pushed despite the fact that by any one and two the funds have not been fully disbursed yet um i guess they wanted to do a follow-up here congresswoman what is your base case and best case scenario for how soon we can get out of this rut are you looking at a time period what sort of timetable are you looking at realistically speaking honestly i think it really depends on the vaccine so so if you know if the vaccine will come soon and we throw in an additional six months for the vaccine to be uh to arrive in the philippines in other words we need to procure and then be rolled out so we're looking at maybe one year that's uh that's the best case for me okay so by by the end of uh 2021 we should begin to pick up i'm not even going to ask you the worst case i think the numbers are not going to be good that's not going to be the worst case okay okay so i want to go now to rule to mr pedro talk to us about financial fire power i mean the banks have had to deal you know with unprecedented monetary policy cuts from the central bank demand destruction on one end and rising default risks how do you think honestly are philippine banks coping uh as a frontliner as well an economic recovery well um right from the very start or even before the the pandemic occurred the philippine central bank has already imposed certain regulations that mandated us to have a very strong capital position and to that we credit the central bank and when we when this pandemic came in all the philippine banks were pretty much well prepared uh for for events like this and clearly with with the additional support the central bank has provided by in terms of liquidity we are able to face the unfolding economic difficulty at this point we do realize that a number of our citizens and businesses have been affected by the pandemic and to a certain extent uh sme and certain businesses uh have suffered and to a certain extent some philippine banks have begun to absorb that as well but despite that given the very strong capital position of banks we are pretty much in a very strong position to support the economic recovery as it comes rule um i wanted to share this quote from jp morgan's jamie dimon who four months ago talked about the global recession and i wanted to share this he said quote this isn't a normal recession the recessionary part of this we're going to see eventually but we won't see them right away because of all the stimulus we haven't seen any of the recession yet that's what he says and would you agree that you know all the monetary injections the these stimulus packages are distorting the true condition perhaps of the industry as well and how will we know if the worst is over for the banking industry um well it's a bit different uh with the u.s as as their stimulus program has actually reached the businesses and as congressman kibo has described it appears that the fiscal side has to do more right now and as i have described the heavy lifting has been on the central back side the monetary stimulus is there we are all pumped up if you will uh we have the excess cash so going back to the recession in a way the numbers that we are seeing of a large drop in q1 gd uh q2 gdp which continued on to q3 clearly we're seeing it um unlike the us you saw a 33 percent drop in gdp in the second quarter they took it back in the third us we're still there so in effect the coat of jamie diamond is not applicable to us because we are feeling it at this point is the worst over here um i think we're we've seen it but the the the the recovery as congressman kim was described needs a lot of more push uh for us to clearly see it way behind us okay so from one frontliner the banking sector to the other frontliners in the healthcare sector congresswoman we're all trying to make sense of what's happening today where we headed what sort of policy we can expect over the next two years i imagine it's going to be a make or break recovery period for the philippine economy aside from the bills that you've authored and lobbied for are there other measures still related to covet recovery plans but that cater specifically to the health sector that we're pushing for i mean they take care of us we have to take care of them yeah so there's a health security act which creates a national action plan for health security and a philippine national health security council so this is some kind of an iatf uh that's attached to the doh so in other words it's institutionalizing that kind of decision-making process uh in times of pandemics so i think that that's a good step because right now remember we had to just all of a sudden create the iatf when the pandemic happened at least now there's something that's going to be more or less permanent so so that's uh the one that's being deliberated by the committee on health but there's a bunch of other bills um that had been filed to this one um that established as a free uh vaccination vaccination program that was filed by congressman olivar s of paranaque and there's one by uh congressman congresswoman brescius castello provide it's a bill providing for cold storage facilities for coveted vaccines so um those are some i also filed a social health insurance crisis act so uh this uh uh pertains to the necessary and urgent reforms uh uh for the field health because as as you know many things happen to phil health in the in the recent weeks so a social health insurance program is very very important because it protects um households from financial risks right remember every time you get hospitalized that can push a family into poverty so so so that's the importance really of an effective ill health program congresswoman i'm just gonna you know ask the question that's probably on everyone's minds but nobody wants to ask the white elephant the elephant in the room rather doh there seems to be a struggle among the public to trust the health department's capability and transparency and this is the worst time to have trust issues with the health department when we're in the middle of a deadly pandemic how do you imagine we can address it is there a bad aid solution in the meantime while we're here what can we do to you know get the doh up and running like a well-oiled machine a more efficient doh working for the country i think what is really needed is capacity building um so and particularly in in data collection and data analysis so right now um what's happening in the doh is because they don't have that in-house capacity they have to rely on experts but so it's not so bad if what the experts tell them are are all consistent so if you talk to let's say three groups of experts and they have consistent um recommendations it's fine right but in a situation where you have two groups of experts and they give you conflicting recommendations what will the doh do if they don't have the in-house capacity to that um all of those opinions like case in point remember for transportation there was a recommendation to reduce the social distancing um protocol from one meter to 0.75 and but there were two groups of doctors um recommending to the doh so one group said don't reduce one group said it's okay to reduce but both groups of doctors are actually well known in the field right so what which do you choose right so there's really a need to develop that in-house um technical capacity so that i think is it's a longer-run solution and i actually filed a bill for that i filed the bill creating a health economics unit within the doh so right now they don't have a chief health economist which i think they they really do need okay so so that's the long-term one short-term solution they gotta control the coping situation right i mean meaning um so if the covet curve seems to be plateauing now they've got to make sure that that is sustained so i think if they're able to do that in the next couple of weeks i think it's going to be easier for us to to trust the oh more but in the next couple of weeks we'll be christmas and we know how filipinos celebrate christmas we tend to gather so hopefully other words they have to be proactive meaning they expect behavior to be this way you know you have to like make sure that you communicate effectively to the public what is necessary um you know because of the typhoon as i would go around the district i noticed that many people don't have masks so it's as simple as that right um so uh one one reason for why vietnam was very successful was that they had a very good public health communication strategy i think this is something that we can do as a sort of band-aid solution not quite band-aid but something that you can do in the short run and speaking of hospitals and healthcare how long congresswoman do you think it will take to normalize you know the entry of non-cova 19 patients back into hospitals because a lot of people are scared uh to go to the hospitals uh with the fear that they will contract it there they'll get it there it's difficult to give you a date but i can give you like maybe three things uh that needed for for for that to happen well first again we have to um make sure that we're able to control that uh coving situation that's a first try to keep that line plateauing some more right um number two is and and that is related to confidence right as soon as people understand or realize that it is somehow plateauing then that's going to build confidence because right now the problem really is the fear factor and that's everywhere confidence is very low because people are afraid right so as soon as people see that the curve is somehow improving then that will certainly build confidence levels um but number two if you have hospitals being more proactive in ensuring that health standards are are in place um then again people will see that okay it's not so bad because if you go to the hospital you have to do this they're quite strict there's a qr code there are transparent separators were needed everyone's in ppe so i think um there's certain things that hospitals can do to actually build that confidence as well and then maybe lastly uh if if we are able to reduce infections among frontliners right if there are no more stories about frontliners getting sick or dying i think that's also going to um make people more confident to seek care when needed okay let's build confidence but not complacency there's a difference so we have to remember the difference okay um okay i want to go now to raul to mr pedro about banking consumer backing how has your view towards consumer and sme lending changed if at all during this pandemic were there any changes in risk assessments for any particular sector and how has it affected your lending well um thanks for that question clearly um a good part of our economy has been affected so in a sense it has changed our approach to it uh uh clearly there are stricter standards and trying to stay away or trying to reduce um exposure to those highly affected industries um and you've seen this i don't want to name a particular sector but it's quite obvious that travel tourism so on and so forth have been affected and a little more so in a sense um in a way we've we became a little stricter on our standards but nonetheless our as a bank our our mentality to it has not changed sme and consumer sector has been growing for us quite significantly over the past couple of years and once the economy normalizes i'm quite certain it is an area that we would want to be heavily involved with again just for context a lending growth in the philippines has slowed to its weakest in 13 years so definitely the hesitation we can sense the hesitation there um real i wanted to ask what has been the impact of the bayern ii package for example on the back on the banking industry in terms of asset quality i remember fitch ratings just came out this week with a report that said you know risks of asset quality deterioration and significant credit stress are likely to persist among until at least the first half of next year well by me and two per se it doesn't really have any additional impact because the payment extension that is being granted under that act is only applied to clients who are current in their loans so um therefore it has not really changed the equation for for the banks with respect to biennium okay and of course how can we not ask this the peso dollar outlook the peso has been comfortably perched on the 48 to the dollar handle uh from 52 at the start of this year uh is it it's it's it's sense i sense a little defensiveness in the currency do you think it's starting to be overvalued if at all well um a bit actually you have to credit central bank we believe that they are in the market uh trying to keep the exchange rate rather stable uh we do expect with some additional economic activity pickup especially this fourth and first in anticipation of pickup in the next year we do see the dollar peso move up a bit again uh nearing the 49 level by year end i know our colleagues from mufg she presented a 48.50 our numbers are at around 49. but the general direction is the same we expect a weaker peso as the global economy recovers and hopefully we get pulled along okay and i i guess i want to ask this you know does a strong peso necessarily reflect a strong underlying economy the fundamentals no not really it's a global story it's a double-edged sword um what especially for us a growing economy what you'd want to see is that what you would expect is that we would be importing a lot uh for for for infrastructure for domestic consumption for for capex clearly that's what we need a result of that importation should be a weaker currency and so in that sense a strong peso doesn't seem to point that we are really in a very strong position okay i think we've come to the end of the open forum but i wanted to leave uh you guys with one question each answerable by one word you know 2020 has been you know a crazy year for many of us what is your hope what is that one word hope that you have for 2021 you know next year we could be having this conversation again what is that one word that you hope will describe 2021 the philippine economy in 2021. i guess i'll start ladies first congresswoman kimball one word resilience resilience rule recovery okay we're going to expect that from this economy resilience and recovery thank you very much honorable kimbo and of course mr pedro for joining us this morning as well as to all of those who joined us and of course to ms leon for sending in her presentation we're extremely honored and grateful for the expert insights that you've shared with us i'm sure our audience will be walking away from this exclusive session with so many takeaways and lots of things to think about after uh this discussion for those who are still counting we are 257 days into quarantine today can you believe that 257 days truly this year one for the books but there is hope because it seems science and our governments are pushing back we're finally seeing that light at the end of the tunnel how long that tunnel is how we get from where we are to that light at the end of the tunnel let's not forget it's still on you and it's still on me and that concludes the security back economic forum 2020 a look into the economy and the future of the philippine healthcare industry on behalf of security back we would like to thank all of you for joining us today it's been a pleasure to connect with you all thank you and keep safe always [Music] you