Minority presidency worries investors

The prospects of having a new President who only received a plurality of votes, the perceived risks of reversals in governance reforms and candidates’ promises of populist but revenue-eroding measures have escalated jitters over the upcoming May 2016 elections, an economist from Dutch financial giant ING said.

But ING Philippines economist Joey Cuyegkeng said in a briefing to bank clients yesterday that, despite a gloomy global economic outlook, the Philippine economy remained in a “sweet spot,” likely sustaining a high-growth and moderate inflation climate.

The economist said he was hoping that the trend growth rate during the six-year term of the next administration could improve to 6.2 percent from close to 6 percent at present, thus outperforming all previous post-Edsa Revolution administrations.

However, Cuyegkeng noted that “leadership uncertainties” have intensified this year and beyond. Citing the result of latest surveys, Cuyegkeng said the Philippines would likely have a new president receiving only a minority mandate from the electorate. Based on December 2015 survey results of Pulse Asia, Vice President Jejomar Binay has regained the lead in this race with a 33 percent share versus Davao City Mayor Rodrigo Duterte’s 23 percent and Senator Grace Poe’s 21 percent.

This raises the risks that the results of the actual elections could be questioned by losing parties.  This early, the economist cited pronouncements from some candidates that they would be ready to protest “cheating” if results would be far from the survey.

For a minority president, Cuyegkeng said it would be difficult to get priority legislation through Congress. And even before the next president assumes office, Cuyegkeng cited risks of the results being subjected to protests, creating a “less stable,”     political environment.

Secondly, he said issues on governance were cropping up. “A lot of people are worried that governance gains of this [Aquino] administration will slip under a different candidate or president. I think you know whom I am referring to,” Cuyegkeng said.

The outgoing President’s preferred successor is Mar Roxas, who is, however, performing poorly relative to other candidates in pre-election surveys. While Roxas’ key message is to sustain the current administration’s “Daang Matuwid” (righteous path), Cuyegkeng said some problems and key issues of dissatisfaction with the administration were now hitting the headlines. As such, he said Roxas camp may have to  “change the message to have even a chance for the government machinery to have an advantage.”

Meanwhile, the ING economist is also worried about the propensity of presidential candidates to promise populist reforms. This creates uncertainties on the government’s fiscal outlook, although he noted that there would likely be no risk on the sovereign investment grade status until 2017.

“The new administration must take holistic view of all these tax and revenue-eroding measures. Otherwise, our [sovereign] credit ratings could be at risk and the impact on the economy will be high interest rates, potential outflows and that creates a lot of problems,” he said. Even if the winning candidate eventually takes reality check once in office, Cuyegkeng noted that “unfulfilled expectations can become a political issue.”

Meanwhile, he said the vice presidential race was important for the country in case the next President would be subjected to impeachment proceedings or in the case of Sen. Grace Poe, if she would be disqualified after the voting exercise.

“Hopefully, the Supreme Court decides on issue before the actual vote, hopefully by March,” he said.

On the vice presidential race, he noted that the leading contenders—Senators Francis Escudero and Ferdinand Marcos Jr.—seemed practically tied.

“Unfortunately, the young voters have forgotten or didn’t experience the Martial Law years and the excesses and the corruption that marked that period in our history,” Cuyegkeng said, referring to the two-decade rule of Marcos’ father and namesake, who was ousted during the Edsa Revolution in 1986.

But whoever becomes the next President, Cuyegkeng said the Philippine economy would likely remain in that sweet spot at least in the next 1.5 years. He also noted that next president would have a lot of leeway in spending as government debt as a ratio of gross domestic product has drastically gone down with fiscal reforms in recent years.

“We have to wait and see what they will try to implement in second half of this year or in 2017,” he said.

All candidates are talking about infrastructure and that’s a crucial element of the growth outlook that we have for the rest of the decade,” Cuyegkeng added.