Citi: Gov’t diplomatic blunders won’t trip PH economic liftoff

Beyond the government rhetoric currently gnawing on investor sentiment, an economist from Citigroup sees actual economic and policy performance under the regime of President Duterte eventually gaining ground.

“Broadly, we believe the recent backdrop of political concerns, amid key reforms underway, offers an opportunity to reinstate exposures on what we see as oversold equities and bonds,” Citi Philippines economist Jun Trinidad said in a research note dated Sept. 15.

Foreign investors have pared down their equity holdings in the last 17 trading days at the Philippine stock exchange. In addition, political jitters have also intensified investor caution ahead of the Sept. 20-21 US Federal Open Market Committee meeting while investors mull about how soon the US central bank would next raise interest rates.

In a research note titled “Substance versus Rhetoric,” Trinidad said Duterte’s language use could “unsettle investor sentiment at a time when the new government faces the challenge of sustaining investment momentum started under former President Aquino.”

The economist was referring to recent presidential actions and comments that have drawn investor scrutiny, such as Duterte’s controversial comments directed at US President Barack Obama during the recent Association of Southeast Asian Nations (Asean) summit in connection with the country’s war against drugs.  These were followed by hints of buying weapons systems from Russia or China and statements raising doubts about certain future military cooperation with the US.

But Trinidad said rhetoric and aggressive diplomatic positioning would not always lead to commensurate policy change, noting that many of Duterte’s comments had been subsequently clarified or modified by aides.

“And strong comments can often be intended simply to influence negotiating parameters. Without actual political or economic policy changes enacted with Congressional approval or via other relevant legal authorities, presidential statements (no matter how extreme or colorful) do not create lasting change,” Trinidad said.

The economist acknowledged that Duterte’s comments as elected leader could easily be interpreted as a preview of his government’s policy bias, or of policy developments to come.

“Yet our focus remains on policy formulation and initiatives where actual spade work is taking place and where tangible efforts at driving change are being pursued,” Trinidad said.

He cited three examples that were worth scrutinizing: a tax reform package to address inequities; efforts to revive public-private partnership to boost infrastructure, including the recent consensus reached for a common station linking urban transit systems; and work being done on constitutional amendments and other reform initiatives.

The economist suggested political concerns would eventually be offset by actual economic and policy performance of both the executive and legislative institutions.

“We continue to focus on the progress of key legislation, consistent with the pledged 10-point reform agenda to plug infrastructure gaps and address poverty, including fiscal spending for growth and investment. President Duterte will likely continue to focus strongly on his war on illegal drugs, and risks persist of potential violence related to those efforts,” Trinidad said.