Duterte win ‘elevated investor uncertainty’
The incoming Duterte administration would bring some uncertainty among investors, but it stands to gain from the economic reforms introduced by President Aquino, according to Washington-based Institute of International Finance (IIF).
“Duterte’s victory elevates uncertainty, but the overall positive Philippines growth story is likely to continue despite possible bumps along the way,” said IIF, which claims to be “the global association of the financial industry” with close to 500 members from 70 countries, in its latest “IIF Dispatch: Update on the Philippines” report dated May 10.
“Notwithstanding Duterte’s criticism of the current administration’s performance in certain areas, there is no denying that policies enacted over the past six years have improved economic growth and investor sentiment. It is unlikely that he would risk derailing this progress by dismantling successful reforms,” said IIF Asia-Pacific associate economist Kevin Sanker and director Jean-Charles Sambor in the report, a copy of which was obtained by the Inquirer.
“A very strong balance of payments and a relatively insulated capital account should help to buffer nervousness over policies,” according to the IIF, which projected Philippine economic growth at 5.8 percent this year and next, the same rate as the gross domestic product (GDP) expansion posted last year.
The IIF expressed concern that Duterte “has been less vocal about his plans for the economy, even noting that he is not an economic expert.”
“This lack of clarity has initially created some wariness among foreign investors, who have poured increasing amounts of FDI [foreign direct investments] into the country and would broadly like policy continuity, especially given his seemingly unpredictable nature, which could negatively impact business and market sentiments,” the IIF said.
“Most likely, however, since his business and foreign policy experience is limited, he will likely rely heavily on appointed cabinet members and policymakers,” it added.
It helped that the Davao City mayor had pledged to address crime and poverty, the IIF said.
“He emphasized inclusive growth and focused on areas where he believes the current administration of President Aquino has fallen short. This message resonated with a large part of the electorate that believes it has not benefited from the strong economic growth achieved under Aquino, while feeling the negative impact of things like rising crime and traffic congestion,” it pointed out.
Separately, debt watchers Fitch Ratings and Standard and Poor’s said late Tuesday that the elections would not impact on the investment grade credit ratings that the country currently enjoys.
“The agency does not expect the outcome of the Philippines election to have any immediate impact on the rating or outlook. However, when the rating agency affirmed the rating at ‘BBB-’ with a positive outlook in April, the agency had pointed out that it would wait and see whether the improvement in governance standards achieved under the administration of Aquino can be sustained after the 2016 elections, in line with its rating sensitivities. If that were to occur it could be positive for ratings,” Fitch said.
“Fitch, however, continues to view the Philippines’ underlying economic fundamentals as a strength, given its strong net external creditor position, declining general government debt and deficit levels, and positive growth momentum and these were key factors that drove the agency to reaffirm” the Philippines’ credit rating, it added.
As for S&P, it said they “expect the incoming administration to continue with policies that had contributed to sovereign rating improvements in the past few years” even as Duterte “has given few details regarding the shape of economic policies to come under his presidency.”
“Duterte’s track record of more than 20 years in Davao gives few indications that he would embark on economic policies significantly different from the Arroyo and Aquino administrations,” S&P noted.
