China and Russia: Wrong picks?

Recently, President Duterte is in his usual self again. His recent tirade was against the European Union (EU), in general, and the United Kingdom, in particular. Interestingly, a country that is on its way out of the EU. Seemingly, this is in response to the EU’s stand against the alleged extra-judicial killings obtaining in the country today.

Indeed, never in the history of this country has any Filipino jolted the entire world the way President Duterte did. Due to his bravado, the country has either caught the fancy or ire of the global community. Whether it is for the better, we do not know. The fact remains that some countries where we had long standing alliances have been so critical of our president’s posturing.

Curiously, the country is warming relations with countries where our existing alliances seemed to be at odds. Whether it is just a bluff, we do not know. However, if he really would cut ties with our existing alliances like the USA and some countries in Europe, and go for Russia and China, then, that will be worth delving in.

Russia, for one, is quite intriguing. In terms of the size of their economies, the USA ranks first with US$17.95 trillion or approximately 24.5 percent of the gross world product while Russia ranks twelfth with just US$1.32 trillion. This is quite sad because Russia used to be among the top ten economies of the world.

Worse, Russia is in a big mess right now. Unless oil prices improve, Russia will never be any better the next couple of years. According to Investopedia, “in 2015, 43 percent of Russia’s revenue stemmed from oil and gas.” With oil prices now just hovering around US$50 per barrel, Russia’s economy will go further down.

To recall, in 2008, Deutche Bank calculated how high oil prices have to be for Organization of Petroleum Exporting Countries (OPEC) to maintain their budgets and sustain their economies. Iran and Venezuela, two of the most vocal and seemingly arrogant countries who are often the first to call for production cuts, need the highest price per barrel of US$95.  Russia needs about US$70, while Saudi Arabia, OPEC's largest producer and de facto ruler, needs about US$55 a barrel. So that, obviously, as we can observe, Russia, Venezuela and Iran are really in bad shape.

Consequently, Russia’s ruble declined by about 50 percent since 2014 against the US dollar.  Simply put, this makes imports in Russia very expensive. Worse, according to the World Bank last year, “the poverty rate in Russia could hit 14.2 percent” in 2016.  With Russia’s population just a little over 143 million, with a weak currency and with such poverty rate, to whom should we sell our products?

On the other hand, President Duterte wishes to improve ties with China. If it is pure addition, there is certainly nothing wrong with that. However, if we wish to have China and lose another one, that would be highly questionable.  For one, the USA is the number one economy in the world. USA is where more than 50 percent of the monthly remittances of over US$2 billion from OFWs come from.

Yes, China is the second largest economy of the world. Yes, it is awash with money but is lacking in credibility. To recall, several countries have accused China of manipulating its currency to make its products cheap in importing countries.  Also, we are living witnesses of how unethical some of its citizens do business. For one, the country is flooded with counterfeit products.  Most of these counterfeit designer brand garments and accessories usually originate from China.

Unfortunately, some of these items find their way to the Philippine market. Often undocumented, these are sneaked into the country through the backdoor, thus, killing legitimate and taxpaying institutions along the way.

Moreover, Transparency International’s 2011 Bribe Payers Index survey (the latest available survey) can be utilized for further scrutiny. In this survey, TI ranked “28 of the world’s largest economies according to the perceived likelihood of companies from these countries to pay bribes abroad”. Representing 80 percent of the world’s outflow of goods, services and investments, the report “examines different types of bribery across sectors – including, for the first time, bribery among companies (‘private-to-private’ bribery)”.

Among the 28 countries, Netherlands (an EU member) and Switzerland (with strong relations with EU) were seen as least likely to bribe. Curiously, the bottom two or 27th and 28th places were China and Russia, respectively. Incidentally, these cellar dwellers are countries President Duterte would prefer to have strong and long economic ties with.