Philippine Election Special: Don’t Fear the Reaper
Immediately before the vote, portrayals of the next president had been overwhelmingly negative, featuring pictures of a gun-toting Duterte and focusing on his un-statesmanlike delight in killing criminals. The narrative – shaped by Philippine tycoons who it turned out had mostly backed several wrong horses – was one of descending danger and doom. Those tycoons had plumped for candidates who could be depended on for high-level political access and generally preferential regulation, in contrast to the unknown quantity of Duterte. The Aquino administration and the business elite underestimated Duterte’s momentum. Too late they cried, how can a violent tyrant be fit to lead? Now he has won and there is business to be done, their doommongering has softened somewhat.
Duterte himself flicks between parodies, from eccentric uncle who says what he thinks and cares not of the consequences, to movie tough guy riding to the rescue to sweep the scourge of drugs and criminals from the streets. This self-depiction was, foremost, part of the campaign show, a highly effective vote- winner as well as a mask for his presumed lack of depth on policy issues. The electorate, with different views to foreign investors of the outgoing government and the country’s political trajectory in general, wanted a political wrecking ball. Duterte could yet satisfy both business and such voters. He could also, if things do not go to plan, please nobody, and, under pressure, lapse back into defiant caricature.
The unease at Duterte’s rise is understandable given the Philippines’ traditional vulnerability to political upheaval, and the broader trends of increasingly authoritarian and ineffective governance in South-east Asia of late. His term will no doubt be tainted by offensive comments and reckless diplomatic gaffes, but actual implementation of unregulated violent crime-suppression tactics nationally is unlikely. His government will not ‘kill 10,000 criminals’ and the fish in Manila Bay will not be fatter for having gorged on discarded corpses of drug dealers. But even if he does resort to vigilantism to tackle crime, this alone would not destabilise the country or impact heavily upon the economic and business spheres.
Where Duterte diverges from other regional leaders that have at time pursued such policies – Thailand’s former prime minister Thaksin Shinawatra’s 2003 war on ‘dark influences’ springs to mind – is that he is a pure politician, not a businessman leveraging his political status. His record in Davao shows that Duterte is not going to be interventionist in business sectors, and that he does not direct policies to indulge cronies and relatives. His municipal administration’s actions suggest a surprisingly tolerant and inclusive figure, and not a repressor of critics, despite the crude public ranting. Lastly, Duterte has shown signs of being measured when questioned on economic issues, asking for patience while his experts develop such policies. He has generally avoided populist promises, with the exception of the vow made by all candidates to end labour contractualisation.
Further, the actions of his predecessors stand him in good stead economically. Duterte stands to inherit a relatively healthy and growing economy. Over the last 5 years, economic growth in the Philippines has averaged a robust 5.9% per year, making it one of the
best performers in the region. Much of this recent success can be attributed to policies pursued by the outgoing Aquino administration, and before that, president Gloria Arroyo, who brought the country back from the brink of economic crisis in the early 2000s. Duterte’s lack of economic policy experience and propensity to ‘flipflop’ on his statements raised concerns that his presidency could see all this good work undone, especially following a rather drama-fuelled campaign which contained very little substance on the economy.
However, what we do know of his economic and business agenda is nothing to be afraid of, and what we know of his advisory team and likely future cabinet line-up indicates that he will get plenty of sound guidance. To mitigate concerns, Duterte has signalled a desire to hire experts and appears likely to defer to capable advisors to manage the economy, while the recent release of an 8-point economic agenda has assured people that the country’s short-term growth is safe by supporting the continuity of policies pursued under the Aquino administration. The business community and Team Duterte are aligned on almost every major issue. Duterte has repeatedly advocated amending the constitution to relax restrictions on foreign ownership of Philippine corporations (but not of land). He has promised to retain but accelerate the PPP-based infrastructure programmes under Aquino that were a central reason for the strong investor sentiment around his government. Duterte will likely get a higher number of such projects out the door by streamlining tender processes and allowing the deals to include more attractive financial incentives for bidders.
The longer term outlook appears contingent on the success of Duterte’s mission to rid the country of crime as well as his plans to shift towards a federalist form of government. A stable investment climate due to peace and order should ensue, though the manner in which this will be achieved is controversial and may have the opposite effect. However, the shift in the structure of government will provide greater uncertainty. Though constitutional changes can take many years to implement, any significant overhaul of the status quo can have significant repercussions for the economy. The change in the structure of the government will necessarily come at considerable cost, but if successful, will lead towards a more inclusive growth path in the future.
Another war – a war on red tape – will be gratefully received. Government approvals of permits and so on are handled within 72 hours in Davao City. If this model can be exported across the notoriously red tape-afflicted Philippines, the impacts would be significant. Agriculture development should open new investment opportunities, particularly if Duterte is able to rein in the security threat posed by the New People’s Army ( NPA) insurgency, not impossible given his relationships with prominent leftists. Adding his muscle to the new Competition Commission could also carve out ways into the largely sealed power and telecoms markets. Bureaucrats obstructive of reform or caught in corruption will be quickly removed, with much less tolerance than under Aquino. As a native of Mindanao, his victory may enable the leadership of the Moro Islamic Liberation Front (MILF) to hold its disenfranchised factions together long enough to allow one more round of back and forth with the new government on their precariously poised peace and autonomy arrangement, the Bangsomoro Basic Law (BBL). Keeping the MILF onside is an important part of containing terrorism risks and Islamic State (IS) influence.
Nonetheless, political risk analysts will have to factor in scenarios that feature significant instability or even military intervention in their analysis of a Duterte administration, scenarios that would not have been applicable to his presidential opponents. The route to such outcomes would include several key landmarks: failure to deliver on crime and corruption promises, and resultant loss in public support; angry battles with Congress over slow-moving legislation and Duterte’s federalism proposals; a heavy purge of senior figures within the military and police; snarling hostility to international criticism of his crime policies and human rights record; and repressive retaliation to an increasingly negative local media. All of this could see Duterte veer toward a populistauthoritarian style, leading in turn to calls for his impeachment in Congress and leaving him atop an unstable and ineffective government.
That is the meat of the doomsday predictions that were being touted before the election. They have – rightly, in our view – begun to recede, and are less likely than those involving the emergence of a pro-business administration along the lines set out above. President Duterte will be occasionally embarrassing and offensive but his rise is unlikely to signal the demise of the political stability and strong economic performance attributed to Aquino.