Some quiet time, please

We attempt to tackle today two political issues that Moody’s, one of the world’s most reputable credit rating agencies, raised in its latest periodic assessment of the Philippines’ economic standing.

Together with Fitch, both had flagged risks to the country’s credit standing – currently a grade above minimum investment with stable outlook – that if left unresolved, could lead to potential downgrades.

Fitch warned of “overheating” dangers because of rising inflation, rapid credit growth, and a widening trade deficit, but acknowledged the dangers were being adequately dealt with by the appropriate government agencies.

Moody’s, on the other hand, raised two concerns that could lead to an investment downgrade if not immediately addressed. A downgrade by Moody’s would likely be adopted also by Fitch and Standard & Poor’s, the third of the industry’s Big Three, and create a big psychological disadvantage to our economic takeoff.

The first issue Moody’s mentioned was President Duterte’s “contentious policies on law and order over the past two years, as well as other political controversies,” which could “have a negative impact on the Philippines’ attractiveness to financial and physical asset investors.”

Contentious policies

There is now increasing controversy on how the country’s chief executive pursues his war against drugs, corrupt politicians, criminality, and lately, on “tambays” or people who loiter in public places in the absence of due process in carrying out his objectives.

Duterte has also created a degree of anxiety with his recent foreign diplomacy pronouncements denouncing the United States in favor of China, and even Russia. The latter two countries have never been considered as allies by previous administrations, whereas the US has more than a century of direct economic and political ties.

The war in Marawi, however, tested Duterte’s provocative statements when China and Russia failed to come up with the support that the Philippine Army badly needed to contain the superior firepower of the radical Islamic State-inspired Maute renegades.

In the end, US intervention in the besieged Mindanao Muslim city helped win the war for Duterte’s military men, exposing the President’s pivot to China as fundamentally naïve of the strength of US ties with the Philippines.

Decrease in popularity

The latest episode, one that pollster Social Weather Station attributed to a recent dramatic decrease in the President’s popularity rating, was the alienation of a predominantly Christian nation when the self-professed atheist Duterte dunned God as stupid.

The public reaction that ensued was one of the bigger reasons for the drop to 45 percent from a high of 66 percent the previous year. It did not help that inflation was at five-year high of 5.2 percent, triggered by high oil prices and aggravated by higher taxes on oil products.

Perhaps, the profanity on religious beliefs capped two years of blustering assaults by the President on almost everything that Filipinos still culturally and morally valued – disrespect for women, harassment of critical media and government officials, anti-US statements, vulgar language, to name some.

Shift in governance balance

Moody’s had also raised concern about a recent Supreme Court ruling that granted local government units (LGUs) the right to a “just share” of “all” national taxes, and not just from the national internal revenue taxes as is currently done.

The credit rating agency also expressed trepidation over the President’s campaign to change the government’s presidential system to federalism, where a new layer of bureaucratic leadership would reduce the national government’s control over tax earnings.

This would imperil financing for the ambitious P8-to-9 trillion Build Build Build infrastructure program, one of the pillars that would support the continued economic growth of the country moving to the next decades.

Strong national government

Duterte is still credible among the business sector, mainly because of his continued reliance on a well-respected economic team and his take-action stance on many governance matters. These will play an important role in averting a future downgrade in credit rating.

The President must be convinced that now is not the time to devolve political power in favor of local government and federal states. The national government must remain strong if massive infrastructure, which will fuel future growth, is to be completed during the remainder of this administration’s term.

The proposed sweeping structural change in the Philippines’ political system would definitely disrupt any momentum that had been initiated during the first two years of the Duterte government to keep economic growth at current levels.

Initial computations of the President’s economic team have shown that both the high court’s decision in favor of local governments and the shift to a federal system would be too costly – and in the end, the whole country would suffer.

Tough call

President Duterte will need to make a tough call. First, the Executive branch will have to put up its best fight to revert the Supreme Court’s ruling. And second, the President himself will have to ease up on the push to adopt a federal government.

Some creative work needs to be done by the Office of the Solicitor General to “re-interpret” the Supreme Court’s decision. And with initial surveys showing that there is a low awareness and acceptance of a federal government, bowing to the expressed will of the Filipino people from a plebiscite would be a most convenient way to put on hold the planned constitutional change.

We sure could do with some peace and quiet while all of those much-delayed roads, bridges, airports, and wharfs are started and completed.

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