Geopolitical tension could destabilize Philippine economy – Fitch

MANILA, Philippines - Fitch Ratings has warned geopolitical tensions in Asia Pacific, including the recent decision of the Permanent Court of Arbitration at The Hague on the maritime dispute between the Philippines and China, could cause significant economic and political instability.

In a report, Fitch said maritime disputes in the West Philippine Sea underscore the growing importance of geopolitics in shaping the international policy agenda of countries in the region.

It said shifts in the regional and global balance of power mean geopolitical risks would remain prevalent in the long term.

“These risks have the potential to cause significant economic and political instability, though are not currently a direct ratings driver for sovereigns in the region,” Fitch warned.

It pointed out the diminishing US geopolitical influence and strength in Asia in the past decade, concurrent with China’s efforts to expand its presence are fundamentally changing the region’s security paradigm.

“Recurring frictions among states are likely to be a consequence of the changing geopolitical dynamics. Recent territorial disputes involving China, the Philippines and Vietnam in the South China Sea are a case in point,” it said.

Fitch pointed out the decision of the Permanent Court of Arbitration (PCA) awarding the sovereign rights over several disputed islands to the Philippines instead of China last July 12 highlights the ongoing tensions.

It said more longstanding issues, including from North Korea, territorial disputes over uninhabited islands in the East China Sea between Japan and China, and cross-strait relations between Taiwan and the mainland remain have the potential to flare up.

“Major geopolitical risks have largely been contained in Asia in recent years, but the potential economic implications could be severe in the event of a sudden escalation,” it said.

The rating agency added tensions between states could lead to impaired bilateral trade and investment and, depending on the severity, could affect investor confidence.

It said recent events in Europe related to the Brexit referendum results demonstrate political events could have global repercussions for markets and economies.

Moody’s Investors Service senior vice president Marie Diron earlier said the decision of the UN-backed tribunal based in the Hague on claims to maritime rights over much of the South China Sea has no immediate sovereign credit implications for the Philippines or China.