PH faces risks from return of ‘strong man’ rule

While the country’s economic and fiscal fundamentals remain sound and sustainable in the long term, Hong Kong and Shanghai Banking Corp. Ltd. (HSBC) fears a decline in the quality of governance when President Aquino steps down and turns over the leadership of the land by midyear.

While “there appears to be little risk to the Philippine’s economic outlook over the next year emanating from the elections—either positive or negative,” HSBC said the overall impact of this year’s national polls on the economy would be “more relevant” over a longer-term horizon.

“As long as candidates stick to the policy platforms and infrastructure spending continues, the outlook should remain positive. After all, the Philippines still has significant fiscal room and this should persist throughout the next presidential term barring any reversals in policy,” HSBC Global Research said in a report titled “Philippine Elections 2016: Beyond the Campaign Noise.”

For HSBC, one long-term risk was that the quality and level of governance might deteriorate after Aquino.

“This is not to suggest that corruption is the only risk—instead, we think any return to the type of strong-man rule the Philippines witnessed in the past, which reduces the strength of the country’s institutions, is a long-term growth risk,” HSBC warned, citing the “steady rise” of presidential aspirant Rodrigo Duterte.

“The most interesting development from the campaign has been the more or less steady rise of Mayor Duterte. At first an outside candidate who declared his candidacy relatively late, the mayor has broadened his support outside of his home region of Mindanao, where he is mayor of Davao City, the Philippines’ third largest. His rise has been surprising to many due to his unconventional rhetoric and controversial comments. The candidate’s popularity is partly explained by a firm stance against crime and corruption—two salient issues resonating with many Filipinos,” HSBC noted.

“While Duterte lacks policy experience in national-level politics, his record as mayor over 22 years does shed some light on the type of policies he might pursue. His most notable accomplishment in Davao was tackling high crime, partly a residue of a communist insurgency in the 1980s. This paved the way for Davao to undergo an impressive economic rehabilitation—attracting significant foreign investment, particularly in the outsourcing and business processing sectors. In recent years, the growth of southern Mindanao (or Davao Region), of which Davao City constitutes most of the GDP [gross domestic product], has outpaced national GDP by a small margin,” it added.

According to HSBC, while the upcoming elections only have “little short-term impact,” the business sector has “expressed a preference for continuity,” citing that “Grace Poe and Mar Roxas are generally perceived to be the ‘continuity candidates.’”

“However, the split between ‘continuity candidates’ and the rest is not so straightforward. Roxas deviates from the administration on key policies, citing concerns over constitutional reforms to attract FDI [foreign direct investment] and has opposed moves to join the TPP [Trans-Pacific Partnership free trade agreement]. Incidentally, these are measures that both Duterte and Vice President [Jejomar] Binay seem to support,” it noted.