The country opened the decade with two difficult situations, both of which are beyond its control. First, the US-Iran conflict that threatened to blow into a shooting war, exposing to danger millions of overseas Filipino workers (OFW) in the Middle East. Second, the sudden eruption of the Taal Volcano after almost 40 years. Both further exposed the country’s capabilities to address shocks and vulnerabilities that could derail the otherwise improving and strengthening domestic economy.
In recent history, the Philippines has faced enormous shocks caused by both external and internal factors that have one way or another stymied and even pulled down growth. In 1990 and 1991, successive major natural disasters known as the July 1990 earthquake and the June 1991 massive eruption of Mount Pinatubo shook the main economic producing island of Luzon. The 1990 earthquake brought significant damage to Baguio City, and many urban centers in Central Luzon. The 1991 eruption of Mount Pinatubo changed the landscape of Central Luzon, displacing thousands of people, taking away livelihoods and means of living. These two major shocks have been recorded to have cost the country about P60 billion in 1990 (ODI, 1997). It would be interesting to note that during the same period, Iraq occupied Kuwait leading to what is known as the Desert Storm. This Middle East conflict was the first test of how the country was to rescue its OFW and at the same time face rising oil prices. The combined effects of the massive natural disasters and the Middle East conflict were reflected in the economy through a growth slowdown from 6 percent in 1989, to 3 percent in 1990, and a contraction in 1991 by 0.5 percent.
The economic performance was relatively commendable considering that bulk of the economic activity is in the island of Luzon. The country took the opportunity to rebuild and recover immediately from the shocks. This, notwithstanding the regularity of typhoons that visit the country, which often also lead to massive damages to crops and industries. Various studies have listed the country as either third or fourth disaster prone country in the world. Yet, it can be noted that the Philippines is able to get through and even improve its economic performance. The combination shocks that happened in 1990 and 1991 almost occurred in 2013, when Central Visayas was shaken by a 7-magnitude earthquake followed a month after by the most destructive Supertyphoon Yolanda (international code name Haiyan) hitting most of the Visayas. The combined effects of these two shocks failed to pull down economic growth momentum. In fact, it was the year the country posted a 7- percent growth rate. More recently, the confluence of earthquakes were in the vicinity of Mindanao, again destructively shifting away commerce, and 2019 ended the year with a Christmas typhoon damaging the Visayas once again.
With the regular occurrence of shocks and disasters, the country’s economic fundamentals are being exposed to significant vulnerabilities. Resources that could have been reserved to facilitate infrastructure expansion will have to be shifted now to restoration and rehabilitation. The most critical need of responding to the social aspects of health, shelter and nutrition must be given utmost priority. Suffice it to say that in these string of disasters, the country’s economic machinery centers, which are Region 4 and the National Capital Region, are relatively minimally affected. The combined GDP of these two mega regions account for 52 percent of total economic output (PSA, 2018). Although the external shock, such as the latest Middle East crisis could cause a much broader negative impact in the form of higher oil prices and, therefore, higher inflation and a possible loss of jobs of OFWs.
It is, therefore, urgent for government not only to have contingency plans, but to ensure that people, assets and resources are insured. In the 2015 BSP National Financial Inclusion Survey, the results showed that about 70 percent are aware of life insurance but only 16 percent are actually covered. Some 80 percent are aware of health insurance, but only 25 percent have coverage. Worse, about 60 percent know that natural disasters could affect their income and livelihood negatively, but only 9 percent are willing or wanting to have coverage. In both the external and internal shocks, people can actually get insured one way or another. For OFWs, it is already mandatory to get insurance coverage for repatriation and medical cases. This is, however, limited only to those who were hired through an agency. It is therefore necessary for OFWs to get insurance that covers life and work-related shocks that are portable and not agency-based. For the rest of us, it may be necessary for government and private insurance providers to work together to address the huge insurance gap especially relating to disasters. It is inefficient to be always responding to emergencies on a case to case basis, when there are already mechanisms that can be designed, tapped and utilized so that we get through these vulnerabilities efficiently.
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The Eagle Watch Economic Briefing Scheduled on January 16, 2020, has been rescheduled to February 7, 2020, at the same venue.