Duterte’s rants risk turning off investors

INCREASINGLY “erratic” statements of President Rodrigo R. Duterte could turn off foreign investors and put to risk growth over the medium term, an analyst at Capital Economics said.

While economic growth is assured at roughly 6.5% over the short term, Asia economist Gareth Leather said political uncertainty could drive foreign direct investments (FDI) away, which in turn could affect growth prospects over the longer term.

“The fundamentals are in place for growth at least [for] the short term, [ but] the risks are more over medium term. Some of the changes that Duterte makes — the erratic comments that he makes — will start to put off the foreign investors that the country needs to rebuild its infrastructure which the country is banking on,” Mr. Leather said in a webinar last week.

“If he [ Mr. Duterte] starts evidence of material damage in that respect, I think you could see trend growth in Philippines to slow over the medium term,” he added.

FDIs plunged by 69.3% last September to $469 million from $1.53 billion a year ago, marked by double-digit declines across all investment components as fewer investors opted to place their bets here. Still, the nine-month tally remained 25.3% higher at $5.875 billion from 2015’s comparable period, largely due to a record $ 2.244- billion inflow logged in April ahead of the May 9 presidential elections. The central bank expects FDI to reach $6.7 billion this year, which if realized would be about 15.5% more than 2015’s $5.8 billion.

Mr. Duterte has repeatedly cursed the United States and the European Union, as well as multilateral institutions like the United Nations after they expressed alarm over the spate of killings said linked to the President’s war on drugs. Over 5,000 have been killed in less than six months under the new government, both due to police operations and socalled vigilantes.

The brutal campaign has led to the suspension of further grants from the US Millennium Challenge Corp., to which Mr. Duterte responded with a threat to end the Philippine-US Visiting Forces Agreement.

Such events could dampen investor appetite towards the Philippines, Mr. Leather said, even as local conditions — rapid economic growth fueled partly by strong household consumption — remain generally favorable for businesses to thrive.

FDIs are a key source of capital for the economy, as continued operations and business expansion generate more jobs for Filipinos.

Foreign firms can also participate in big-ticket infrastructure projects under the Public-Private Partnership program by teaming up with local builders, imparting both capital and technical expertise.

The Duterte administration plans to ramp up public spending, particularly on infrastructure, in hopes of prodding the economy go growth faster, in turn, lifting more Filipinos out of poverty. The government has programmed spending on public infrastructure to rise 13.79% to P860.7 billion, equivalent to 5.4% of GDP, in 2017 from P756.4 billion, or 5.1% of GDP, this year.

Socioeconomic Planning Secretary Ernesto M. Pernia said in July that the government hopes to offer to investors 17 PPP projects by next year. Contracts for 14 PPP projects cumulatively worth P293.91 billion have been awarded since the infrastructure program was launched in 2010’s third quarter, right after former president Benigno S. C. Aquino III took office.

“I think, certainly in the shortterm, the Philippines is well-set for good growth. The fundamentals are good, it’s got a current account surplus and it’s got a good budget position. Government spending is going to remain quite strong,” Mr. Leather said, while pointing out that developments in the United States are seen largely affecting local prospects.

The Federal Reserve announced a 25- basis- point rate increase in the US after its Dec. 13-14 review last week, signalling three hikes for next year, up from a projection of just two made in September.

Adding to uncertainty is the assumption of office of US President-elect Donald J. Trump, who has displayed a protectionist streak since he won the Nov. 8 elections.

Mr. Leather said he considers the Philippines more “vulnerable” than Asian peers to Trump policies that could threaten two growth pillars of the local economy — remittances from Filipinos overseas and business process outsourcing sales — that could take a hit should the new US president fulfill his campaign promise to bring jobs home.

Remittances from overseas Filipino workers funded strong household consumption, which in turn accounted for about a tenth of the local economy in 2015, according to central bank data.