Business confidence so far

When the then candidate Rodrigo Duterte spoke before a group of Makati businessmen, he outlined his economic program by talking about the war on drugs he will wage once elected. He impressed upon the Makati group that making sure there is peace and order will boost the economy.

He then said that he will cut red tape and corruption and build infrastructure. The Makati folks who were expecting something more substantial were disappointed. But in Duterte’s experience as Davao mayor for 20 years he thought he said all that was needed by way of helping the business sector thrive.

Duterte never imagined that on a national scale, there was more to it for business than facilitating issuance of a mayor’s permit. There are regional economic groups, international rating agencies, multilateral lending institutions, trade groups and even world power politics that impact on a country’s business environment. And analysts decipher every word he says.

Our president is probably bewildered why his political tirades against the United States, the United Nations and the European Union are causing prospective investors to hold back.

According to John Forbes of the American Chamber, some investors looking to set up shop in the Philippines, specifically in the BPO sector, have decided not to push through with their plans at this point. That’s so many jobs lost in a vital industry.

It looked like a short honeymoon between business and President Duterte. The euphoria reflected in a bullish stock market and a strengthening peso appears to have evaporated in the midst of political uncertainty.

It was a roller coaster ride with the new president over the last hundred days, essentially powered by his coarse and unpredictable utterances. Not even his Cabinet members are sure if some remark made during the witching hours meant a change in foreign or national policy.

It didn’t help that Duterte himself says his words should not be taken at face value. His spokesman urged media to make creative interpretations. Former President Fidel V Ramos is not happy. A Duterte ally, Ramos observed that Team Philippines is losing badly.

“Duterte became stuck in unending controversies about extrajudicial killings of drug suspects and in his ability at using cuss-words and insults…This is a huge disappointment and let-down to many of us.”

Luckily the country’s economic fundamentals are still stronger than ever. But even the determination of Finance Secretary Sonny Dominguez to push through his economic reform agenda could barely assuage the fears of risk analysts of potential trouble ahead.

An economist of Japanese financial giant Nomura wondered “whether a sustained pickup in political risk premium could ultimately outweigh the growth prospects.”

Bloomberg quotes another analyst saying “The market is just pricing in the risk and ignoring the fact that the government has a sound economic plan and a promising fiscal program on the table.”

Why is everyone so worried about Duterte? For one thing, uncertainty in the rule of law is a big deal in business. And it all points to the manner by which the president’s war on drugs is being implemented.

“We believe this could undermine respect for the rule of law and human rights, through the direct challenges it presents to the legitimacy of the judiciary, media, and other democratic institutions,” Standard & Poors said.

The global focus on death squads and threats of major shifts in foreign policy are making foreign investors nervous. While a crackdown on crime is very important, foreign investors are concerned about the lack of judicial process and risks to the democratic system, another economist observed.

The first 100 days also did not reassure analysts and investors that the Duterte administration will be able to carry out its ambitious infrastructure program. The promised Golden Age of Infrastructure is slow to take off.

Boosting infrastructure spending is considered essential for improving competitiveness. The Philippines has under spent on infrastructure for decades, while other Asean countries have developed high quality infrastructure.

Apparently, the confusion arising from presidential utterances on foreign policy is giving potential investors second thoughts. Investors, who want a more stable, predictable investment environment have a lot of other choices in the region other than the Philippines.

“Duterte is unpredictable and anything that’s unpredictable is negative,” Hans Goetti, the Dubai-based chief strategist for the Middle East and Asia at Banque Internationale à Luxembourg told Bloomberg. “The worst thing for the markets is they don’t know what they’re dealing with.”

Some local business leaders were harnessed by the Palace communications team to help blunt the feeling that Duterte is harming the economy. But even they could only say the analysts and investors must ignore the political noise and focus on the determination of the Duterte team to boost economic growth.

Tuning out Mr. Duterte’s noise is not easy. He is President, after all. Some of his statements seem not too welcoming of foreign investors. Indeed, some statements suggest Duterte has isolationist tendencies and that sounds so strange in today’s globalized world. “We can do it alone,” as Duterte once uttered, no longer hacks it.

The pivot to China and Russia doesn’t seem too realistic even to locals. While an independent foreign policy is welcome, it is doubtful that the two communist countries can quickly replace the West as the nation’s principal trade and economic partners.

Bilateral trade with both countries is small. In the case of China, investment in this country is largely limited to their 40 percent equity in the National Grid. That investment pays handsome dividends to China that is almost like printing money. There is more investment pouring into China from the Philippines, courtesy of the Filipino-Chinese taipans.

Finance Secretary Dominguez talks of getting Chinese investments in some of our infra projects. There are plans to revive the broadband project initiated by former President Arroyo that was scuttled in the midst of corruption charges. A government run telco is said to be in the works.

Duterte may just be able to increase trade with China and bring home significant Chinese assistance in infrastructure development from his visit to Beijing next week. But two failed Chinese projects, the NBN and North Rail do not inspire confidence.

Still, the local business community is more sanguine about our future with Duterte than foreign analysts and journalists. For one thing, the first 100 days seem to have shown a determination to cut corruption and vastly improve front line government services.

The serious drive to cut red tape is a fountain of hope for locals. Extending validity of driver’s licenses and passports are long overdue reforms past administrations neglected.

Even the drug war gets mixed reviews but generally positive to local businesses. If it can deliver better peace and order, it may be worth their support.

Groups within the entrenched elite have been jolted by such things as a moratorium on agrarian land re-classification and the end to job outsource contracting or endo. But they know they are not threatened that much.

For one thing, the elite still have their minions in top positions in key agencies to protect their interests. Duterte doesn’t seem to mind the obvious conflict of interest of a DICT Secretary or a DOTr Usec, for instance.

If the infra agencies are able to bid out and implement the list of projects they have promised, the local business community will be too busy making money to complain about other policies of Duterte they may not normally agree with.

But it would tremendously help remove the tension and uncertainty in the air for both local and foreign investors if Duterte learns to enunciate policy clearly and thoughtfully. Cleaning his language would clear the air too.

The PNP should speed up resolution of cases known as extrajudicial killings, specially because those involved are members of the police force… so called “ninja cops.” That will reassure everybody that the rule of law still prevails. Investors like that.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco