DUTERTE’S ‘Build, Build, Build’
Plans hit Philippine peso
Philippine construction firm Teravera Corp is planning to raise a fourth dollar loan in a year, after borrowing around $2.5 million to buy dozens of excavators, road rollers and dump trucks from China, South Korea and Japan. Teravera is one of hundreds of local builders contributing to a surge in capital goods imports that has turned the country’s current account surplus into a deficit and knocked the peso down to 11-year lows against the dollar last month.
While the peso’s dip is raising eyebrows in a region where the Thai baht and the Malaysian ringgit are flirting with multiyear highs, it’s come mainly because the Philippines, one of the world’s fastest growing economies, has been enjoying a construction boom.
Besides private construction, companies like Teravera are confident of more contracts coming from the government’s drive to upgrade its dilapidated roads, railways, ports and airports, which have been a drag on the economy.
“We have seen the government’s list of projects and they are bidding them out early, that is why we have been procuring equipment,” said Teravera vice-president Aldrin Cabrera.
He said the company is confident of getting subcontracted to build a longdelayed four-lane toll road project on the southern part of Luzon island later this year, as it is one of bigger players in the area.
Foreign and local businesses have been frustrated with former president Benigno Aquino’s Public Private Partnership (PPP) projects, which often took a long time to kick off because of red tape.
The game changer is that President Rodrigo Duterte, who took office just over a year ago, has decided that all projects will be entirely funded by the government, which his economic managers say should simplify the dollar, down 0.9 per cent in 2017.
Policymakers are often reminded of the Asian financial crisis 20 years ago whenever external balances weaken, and most economies in the region have built solid surpluses to avoid a similar episode.
In the Philippines, Duterte’s administration dismisses such warnings.
“We are importing equipment because we are a developing country trying to make up for past neglect on infrastructure,” Budget Secretary Benjamin Diokno said last month.
Central bank deputy governor Diwa Guinigundo says the weak peso boosts the purchasing power of Filipinos receiving $2 billion a month in remittances and, longerterm, will improve export demand. But foreign investors are more cautious. “Until investors feel the imports work through the economy and push it to a higher growth path, the market’s focus would be on a deterioration in the balance of trade,” said Joey Cuyegkeng, senior economist at ING. “We expect gradual (peso) weakening.” Near term, around $40 billion in yearly inflows from outsourcing contracts and from millions of citizens working overseas mean the trade gap is covered. But Cuyegkeng says in two years time those inflows would barely cover the gap.
Duterte has promised to usher in a “golden age of infrastructure” by raising annual spending to 7 per cent of GDP from less than 3 per cent previously and above the 5 per cent average of neighbouring countries.
Encouraged by better budget planning and a crackdown on red tape, Nomura’s economists estimate 90 per cent of the money lined up for infrastructure would be spent. On the ground, builders share the view.
“Some of the projects may sound ambitious, but they are needed. They will happen and it is just a question of time,” said Edgar Saavedra, president and chief operating officer of building company Megawide Construction Corp.