It’s the politics, stupid!

SAN FRANCISCO – It had been talked about and was much anticipated so that investors were well positioned for it when the Fed rate hike finally happened. It was almost with a sigh of relief and seemed like just another day in a world beset by uncertainties.

Talk to ordinary people in the world’s only superpower country and you will hear a lot of worries about the economy. People in the know are also worried about the economy, but more because of the impact of politics on it.

In a recent interview with a foreign business journalist, BSP Governor Amando Tetangco observed that “politics is a major consideration right now because it is causing some uncertainty with this potential rise in populist policies.” The Governor explained that the uncertainty rises “because it is going to be difficult to frame economic policy when something isn’t clear.”

Other than populist policies, Gov. Tetangco is also worried about talk of protectionism. “These are scary developments, it’s scary stuff,” the internationally acclaimed central bank governor confessed.

The retreat from multilateralism is a big concern for BSP’s Tetangco. He wonders if the newly emerging world leaders who rose on anti globalization rhetoric can sustain an inward shift of economic policies. He doesn’t think they can promote economic growth by making good on their election promises. Populist sound bites may have won them the election, but will not create the jobs they have promised.

Other economic observers agree. Many see US president-elect Donald Trump as having failed to properly diagnose the root causes of unemployment in America. Technology, and not China and the free trade pacts, is more to blame for the loss of jobs. Modern day manufacturing simply requires less manpower with the increasing use of computers and industrial robots among other innovations.

Imposing punitive tariffs on imported manufactured goods from China and elsewhere will end up punishing the American underclass even more. The marked decrease in the consumer buying power of poor Americans was made somewhat more bearable by cheap imports from China through very American companies like Walmart.

Trump will not be able to make the lives of ordinary Americans better by cutting taxes for the rich and gutting social benefits to help those temporarily out of work or facing medical issues. Trump voters will not have to wait long to realize their lives won’t be made better under Trump. But the crazy thing is, they probably don’t care. They are happy to deliver a strong message of hate to the educated class who voted for Clinton.

Back at home the impact of political uncertainties on the investment climate is also being blamed on the new Duterte administration. But there is a difference from the American case. President Duterte has not espoused radically different economic policies. Indeed, his very competent economic team has provided the continuity business investors want.

The uncertainty arises from President Duterte’s outbursts of anti-American rhetoric. I was told by those with direct knowledge of particular cases that potential American investors have backed out because they do not want to be in a country where their President is cursed by our president. It makes them feel unwelcome. They are also worried about the increasingly lawless image of the war on drugs. Investors always look for a country where rule of law is strongly upheld.

The negative impact of the depreciating peso on the local prices of imported products like petroleum and flour used to make pandesal is yet to kick in. While the peso depreciation was caused more by external factors like the Fed rate  hike, Duterte’s volatile and dirty mouth has also contributed somehow to an atmosphere hostile to investors other than those from China. It doesn’t help that OFW remittances this year have started to soften.

In both America and the Philippines, politics is also being blamed for the lack of quality in some high level appointments. Some of Trump’s key Cabinet appointments are seen as unqualified. But in Manila, there is general approval of Duterte’s appointments in his economic team.

There is, however,  deep worry about rumors Foreign Secretary Perfecto Yasay is being considered to replace Tetangco as BSP Governor. Yasay is seen as lacking the academic training and job experience required by the country’s second most important job.

Additionally, Yasay is also facing criminal charges filed by the BSP for violation of banking laws in connection with the bank failure of Banco Filipino where Yasay was legal counsel and a key official. It would be so odd if someone facing criminal charges filed by an important institution is named to head it. That goes way beyond conflict of interest. The independence of the BSP from politics is an important consideration for business confidence.

Also being closely watched is how partisan politics will impact on the proposed changes to the Constitution as well as on the landmark tax reform program. The continuing attempt of Congress to railroad a change in the tobacco tax law is being negatively received. After all, the railroaded bill is opposed by government implementing agencies and all tobacco companies except one.

It is a scary economic future, BSP Governor Tetangco observed. That’s all the more reason why our politicians should be on their best behavior. For now, the scary economic future can’t be fixed by economics. The problem is politics, stupid!

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