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Business

Distracted leadership

DEMAND AND SUPPLY - Boo Chanco - The Philippine Star

Fitch Solutions issued a brief analysis last September 10 expressing concern Duterte’s administration will be distracted by politics as we approach our presidential election season. Fitch thinks political distraction is a threat to policymaking in the near term.

Fitch is being kind. Duterte has always been distracted since the start of his term. There has been little decent policymaking on matters other than the economy, but that is thanks to Finance Sec Sonny Dominguez.

Credit Duterte for just going along with Sec. Sonny. However, economic gains have been obliterated by incompetent pandemic response management.

Fitch has lowered their Short-Term Political Risk Index (STPRI) score of the country.

“We at Fitch Solutions view the ongoing dispute within the governing PDP-Laban party as weakening the prospect of a straightforward contest between the pro-Duterte and anti-Duterte camps for the presidency and vice presidency ahead of the May 2022 elections… uncertainty remains high over who will run.”

Fitch Solutions thinks “the infighting could provide an opportunity for opposition candidates…”

Hopefully it does, but I don’t think so. The opposition is still not united, and it is difficult to call the PDP-Laban as the governing party. Simply put, there is no party system in the country today.

I share the fear of Fitch Solutions that the political drama these days is bad for economic recovery.

“Political distractions and infighting within the governing coalition could hamper efforts to reopen and support the economy. Focus will likely shift away from the need to boost the Philippines’ vaccine uptake rates and address supply issues, while we highlight the potential for delays to the passing of the 2022 budget before year-end.

“Longer-term reforms that would benefit the next president could also stall. These include proposed reforms to ease restrictions on foreign ownership in the utilities and retail sectors, as well domestic hiring requirements, which could be key to reinvigorating investor interest in the Philippines.”

I agree with Fitch that we need to speed up the Philippines’ economic recovery from the COVID-19 pandemic and start moving towards longer-term reforms. Their lower STPRI score rightly reflects higher near-term risks of political instability.

“Within the STPRI sub-components, we lowered the policy-continuity score to reflect our expectations for disruptions. Indeed, signs of significant disruptions to policy making, such as delays to the passing of the 2022 budget, could prompt us to revise our score even lower.”

Fitch is right to say there is uncertainty. But the biggest political risk is whether we can have an election at all. The pandemic can be a convenient excuse to postpone the election.

The Duterte faction of PDP-Laban has formally nominated Sen. Bong Go for president, and the President will run for vice president. A weird development for those who are not used to Duterte’s Davao politics.

Davao City Mayor Sara Duterte, who is not a PDP-Laban member, said she would no longer run for president. But that sounds like a typical Duterte drama script. That’s what President Duterte kept on saying in 2016.

Sen. Manny Pacquiao seems determined to run for president based on how he is talking now. PacMan will form his own party if he has to.

PacMan running for president will split the portion of the electorate predisposed to vote for the Duterte faction. It will even split the Mindanao vote, which is largely in the bag for Duterte.

However, the split will not make it easy for an opposition candidate to win. It is even difficult to say who is really “opposition”. Sen. Ping Lacson and Senate President Tito Sotto, who are running for president and vice president as a team, have been pro-Duterte from the start. Lacson had been supportive of the more draconian national security measures of Duterte.

There have been reports that Pacquiao has met several times with Vice-President Leni Robredo. That raises the possibility of a broad coalition between Pacquiao’s faction and Robredo’s more liberal supporters to challenge the Duterte faction.

The other presidential hopeful who could benefit from a split in the Duterte support is Manila Mayor Isko Moreno. Surveys show strong support for Isko and he seems to be the only one who talks the language understood by the Duterte mass base.

Alliances can switch ahead of the Oct. 8 deadline for candidates’ nominations. Even that deadline is stretchable… candidates for president have up to Nov. 15 to withdraw and substitute. Duterte was a substitute candidate in 2016.

But yes, Fitch Solutions is right to worry about infighting and potential switching of allegiances in the coming months disrupting policymaking at a time when the Philippine economy remains hampered by COVID-19.

“The confusion over the easing of containment measures in Metro Manila on Sept. 8, highlights the uncertainty facing the economy in the near term. Cases have been surging domestically as the more infectious Delta variant has become prevalent and leading economic readings point to continued economic weakness.

“The Philippines’ Manufacturing Purchasing Managers’ Index sank from 50.4 in July to 46.4 in August, reflecting a contraction in activity. Similarly, Google mobility data suggests that retail and recreation, transit, and workplace activity remain significantly below pre-pandemic levels.

“Households are also being squeezed by high inflation, with the consumer price index up 4.9 percent y-o-y in August and food prices rising 6.5 percent y-o-y. The prospects of easing social restriction measures also remain relatively low, due to the country’s low vaccination rate; 17.3 percent of the population have received one vaccine dose and 14.6 percent are fully vaccinated as of Sept. 8…”

Moody’s, another credit rating agency, has again cut its economic growth forecast for the Philippines to 4.8 percent this year. It cited the impact of more severe lockdowns and sluggish vaccine rollout for the cutback.

How Duterte is bullying business is also one major factor investors will stay away. There seems to be no rule of law to protect investors and no sanctity of contracts. Duterte’s cronies also pose an unfair competitive advantage as the Pharmally case showed.

At the rate we are going, even domestic capitalists will go abroad amidst the uncertainty in our country. They would be justified to do so.

 

 

Boo Chanco’s email address is bchanco@gmail.com. Follow him on Twitter @boochanco

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