Duterte del­e­gates into eco­nomic sweet spot

Kuwait Times - - BUSINESS -


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 curse­laden 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. 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 longterm 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 be­hav­ior could im­pact pol­icy, with po­lit­i­cal risk over his drugs crack­down and foul-mouthed out­bursts at some big donors and in­vestors. Mar­kets have sig­naled 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. Over the same pe­riod, the peso cur­rency is down around 5 per­cent to the dol­lar, but other cur­ren­cies in the re­gion are also de­pressed.

De­ci­sive lead­er­ship

But Duterte has plenty of sup­port­ers, who say his de­ci­sive lead­er­ship and in­tol­er­ance of bad gov­er­nance will be a longterm 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, de­vel­op­ment­cen­tred 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.”

Duterte’s volatil­ity and seem­ingly uni­lat­eral for­eign pol­icy has caused jit­ters and con­fu­sion, es­pe­cially when he turned hos­tile to­wards the United States and then started cosy­ing up to China, with which the Philip­pines has a his­tory of mis­trust over the South China Sea. Duterte an­nounced his “sep­a­ra­tion” from the United States in Bei­jing in Oc­to­ber, shock­ing even his own ministers, who scram­bled to as­sure in­vestors - with­out his con­sent - that his pol­icy was to di­ver­sify, not sever ties. It’s a gam­bit that could pay off, with an in­tractable dis­pute with Bei­jing now on the back burner and China pledg­ing to pro­vide the Philip­pines with bil­lions of dol­lars in in­fra­struc­ture loans and ramp up farm and fish­eries im­ports.—Reuters

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