Philippines into economic sweet spot

Misgivings seen under Duterte

MANILA, Dec 30, (RTRS): After six months at the helm in the Philippines, Rodrigo Duterte has been touting just two achievements of his presidency — a vicious war on drugs and a surprise alliance with his country’s bitter rival, China.

Yet behind the curse-laden bluster and populist demagoguery that has defined Duterte’s rule, he presides over one of the world’s fastest growing economies, and has put cabinet colleagues to work on drafting reforms and legislation to tackle the economy’s most stubborn structural problems.

Advisers say Duterte’s economic successes come from using a strategy he honed as the long-time mayor of Davao City at a national level.

He concentrates on busting crime and deliberately delegates the handling of the economy to others. By his own admission, Duterte says he is no expert on the economy and leaves it to “the bright guys” in his cabinet.

Crime

Economic Planning Secretary Ernesto Pernia sees the president only twice monthly and rarely hears feedback. He said Duterte was focused almost entirely on crime and drugs.

“That has been his obsession,” he told Reuters. “He essentially leaves other issues and concerns to the cabinet.”

The strategy seems to have worked so far although economists are beginning to question how long it can last.

“That’s what we’re hoping for, that his core economic team can prevail,” said Bank of the Philippine Islands (BPI) economist Emilio S. Neri.

“The fundamentals are there but we are leaning towards deficit spending and stimulus-driven growth and some unsustainable populist policies are worrisome.”

At the national level, Duterte’s signature campaigns have included his tilt toward China while turning his back on long-term ally the United States in addition to the war on drugs. He rarely mentions it, but the economy has boomed under his watch, although some of the gains have been ascribed to the previous administration’s policies and Duterte’s decision to retain them.

Growth reached an annual 7.1 percent in the third quarter of the year, Asia’s second highest and the country’s strongest quarter in three years. The government expects full-year growth around 7 percent.

The economy is expected to grow 6.5-7.5 percent in 2017, but there are worries that Duterte’s erratic behaviour could impact policy, with political risk over his drugs crackdown and foulmouthed outbursts at some big donors and investors.

Markets have signalled their concern. In the six months since Duterte took over, the main stock index has lost nearly 20 percent in dollar terms and is among the worst performers in Asia.

Region

Over the same period, the peso currency is down around 5 percent to the dollar, but other currencies in the region are also depressed.

But Duterte has plenty of supporters, who say his decisive leadership and intolerance of bad governance will be a long-term boon for the economy. In Davao City, he helped lure investors, dramatically cut red tape and fired inept officials. In 2014, Davao saw growth of a 9.3 percent, compared to 6.1 percent nationwide.

Analaysts at Nomura have said his populist, development-centred approach suggests he is “strongly motivated” to address the Philippines’ biggest weakness — infrastructure.

Expenditure on infrastructure, including on flood management schemes, ports, a rapid-transit bus system and a rail line, makes up a quarter of next year’s record $67 billion budget.

Consumer spending is strong, helped by $22 billion of remittances in the first 10 months from Filipinos overseas, a 4 percent rise. Unemployment was a record low 4.7 percent in the third quarter, from 5.7 percent a year earlier.

“He should deserve credit,” Finance Secretary Carlos Dominguez told Reuters. “Unfortunately, people are always looking at the controversial statements. But if you judge it, he has done an excellent job ... the important thing is the trust and confidence of businesses in him is very high.”