‘Duterte’s erratic, crass leadership putting off investors’

MANILA, Philippines — The erratic and crass leadership style of President Duterte is putting off investors as poor leadership and political uncertainty could derail the country’s economic growth momentum, according to Capital Economics, a London-based independent macroeconomic research, analysis and forecasts firm.

“The much bigger concern for the economy over the long term… is a string of inflammatory comments and policy changes by Duterte that have raised concerns in the minds of investors over the President’s judgment and commitment to the rule of law,” Gareth Leather, senior economist at Capital Economics, said in its latest emerging Asia economics focus titled “Philippines: A two-year progress report on President Duterte.”

Leather added that the country’s own history shows how poor leadership and political uncertainty can hold back an economy.

“The biggest risk for the Philippines is that history now repeats itself. There are already signs that things are taking a turn for the worse. Since Duterte came to power, the stock market has underperformed, inflows into the country’s equity market have dropped, while pledges of foreign direct investment have fallen,” he said.

The Philippines booked 77 quarters of uninterrupted growth as the country’s gross domestic product (GDP) expansion picked up to 6.8 percent in the first quarter of the year from the revised 6.5 percent in the fourth quarter of last year.

Economic managers, through the Cabinet-level Development Budget Coordination Committee (DBCC), penciled a GDP growth of seven to eight percent this year from 6.7 percent last year.

“Two years after coming to power, President Duterte of the Philippines has not been the disaster for the economy that some feared. Growth has remained strong, while economic policy has been left in the hands of technocrats, who have pushed through a number of sensible reforms,” he said.

The economists, however, pointed out Duterte’s abrasive rhetoric and dictatorial tendencies are starting to undermine the country’s long-term prospects.

The Duterte administration has committed to ramp up infrastructure spending to seven percent of the country’s GDP by 2022 from the projected 5.3 percent of this year’s GDP through the “Build Build Build” program, where it earmarked P8.4 trillion for the massive infrastructure buildup.

The administration is also pursuing a comprehensive tax reform program through Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law to raise much-needed revenues.

Leather, however, said the infrastructure drive and the tax reform are creating some problems for the economy in the short term as inflation kicked up to a fresh five-year high of 4.6 percent in May from 4.5 percent in April. This also led to higher imports translating to wider trade and current account deficits, prompting the peso to hit a fresh 12-year low after breaching the P53 to $1 level.

“While higher inflation and the shift in the current account to the red will weigh on the country’s prospects, the much bigger concern for the economy over the long term is the string of inflammatory comments and policy changes which have raised concerns in the minds of investors over Duterte’s judgment and commitment to the rule of law,” Leather said.

Capital Economics cited the ongoing war on drugs that has claimed an estimated 20,000 lives, the shift in the country’s foreign policy by opening an alliance with China and threats to declare martial law.