PH economy makes news amid Duterte zingers

The Duterte administration inherited an economy that has made a major comeback after years of being saddled by financial woes.

During the first five years of its predecessor, the Aquino administration, the economy expanded at an average of 6.2 percent, the fastest pace since the late 1970s.

Acknowledging that previous administrations had worked hard to establish solid macroeconomic fundamentals being enjoyed today, President Duterte’s economic managers swiftly moved to ensure that good policies were kept while introducing new approaches to address remaining socioeconomic problems such as high rates of joblessness, poverty and aging infrastructure.

“In June this year, President Rodrigo Duterte ushered in a new administration, ready to build on the gains that were initiated by the previous administration, so we want to carry them on because they are good gains. As you know, the Philippines has been a high-performing economy with record-breaking GDP [gross domestic product] growth rates, declining poverty rates, and improving employment numbers,” Socioeconomic Planning Secretary Ernesto M. Pernia said during state planning agency National Economic and Development Authority’s yearend media briefing.

Before Mr. Duterte assumed office on June 30, his economic managers unveiled the administration’s 10-point socioeconomic agenda, ultimately aimed at slashing the poverty incidence to about 14 percent by the end of his term in 2022.

The socioeconomic agenda, which serves as the blueprint for all programs and projects being pursued by the government, aims to, among others, strengthen the financial muscle of the government, beat poverty and restore peace and order.

Pernia, who is also the country’s chief economist and head of Neda, said the economic blueprint would serve as the country’s “Alpha and Omega of development, with peace and order as the bedrock.”

For Pernia, 2016 was a banner year for the economy.

Noting that the country even surpassed China, Vietnam, Indonesia and Malaysia, he said the country was set to achieve or even go beyond the 6-7 percent target growth for 2016.

“On the demand side, household consumption as well as investments in construction, public infrastructure and durable equipment drove economic growth. This was supported by low inflation, low interest rates, better labor market conditions and the steady growth in the remittances of our overseas Filipino workers. Government assistance such as the Pantawid Pamilyang Pilipino Program, or 4Ps, also provided additional boost to consumer demand,” he said.

The supply side also made a comeback, in particular the agriculture sector that overturned five consecutive quarters of decline, he added.

He said 2017 could well be another banner year for the country.

“Together with a low inflation environment, sustained strong growth will pave the way for continued and faster poverty reduction. We see this momentum continuing next year and hopefully in the years to come,” he said.

The Duterte formula

While much lauded, the economic plan’s targets could as well be diminished no thanks to one factor: Mr. Duterte himself. The President’s war against illegal drugs and consequent rhetoric have set off a flurry of criticisms, affecting even the country’s relationship with long-time economic ally, the United States.

In November, the influential Washington-based Institute of International Finance (IIF) said that while the Philippines was poised to sustain robust economic growth in the near term, Mr. Duterte’s “aggressive foreign policy moves” as well as the negative perception on the war being waged against illegal drugs may deter investors.

In a report titled “Philippines: Navigating Troubled Waters,” IIF economists Bejoy Das Gupta and Kevin Sanker said that among the Duterte administration’s positive policy actions so far include the plan “to use fiscal space to increase spending in key areas, such as infrastructure and social programs, after several years of undershooting the deficit target.”

However, “despite the positive factors, President Duterte’s aggressive response to criticism of his antidrug and anticrime campaign has antagonized key Western allies, while his controversial mixed messages on the South China Sea territorial dispute in an apparent effort to reach out to China has also rattled financial markets,” the IIF noted.

“Downside risks stem largely from political distractions slowing the implementation of economic reforms needed to sustain the strong economic performance,” it added.

China pivot

President Duterte linked arms with top Chinese officials in a state visit in October even as analysts back home were still celebrating a recent Philippine win over ownership issues in the West Philippine Sea. An arbitral tribunal based in The Hague decided there “was no legal basis for China to claim historic rights to resources within the sea areas falling within the ‘nine-dash line.’”

Mr. Duterte’s Cabinet later explained the country’s Asian pivot and less dependence on Western allies were part of the government’s independent foreign policy.

“The President’s seemingly closer relationship with China and bilateral approach to resolving conflicting South China Sea claims could potentially exacerbate tensions with other neighboring claimant countries besides resulting in a backlash at home. Given the large amount of cargo that passes through those waters, an escalated conflict at sea could disrupt marine traffic and adversely affect trade more broadly. Sluggish global trade, including shipments to China, are already weighing down exports and are a drag on growth, but somewhat mitigated by domestic demand,” the IIF said.

The consequent statements from the rough-talking President, albeit given new meaning by his spokespersons, “may well negatively impact foreign capital inflows,” according to the IIF, citing that FDI inflows were “at risk of slackening” alongside a weaker peso, falling stock market as well as rising bond yields.

“More broadly, there is a danger that the antidrug and anticrime campaign and controversial foreign policy initiatives could prove to be a bigger impediment if authorities have to continually reassure investors and creditors rather than focus on improving economic policy making and implementation,” the IIF said.

Still, the IIF was optimistic about the country’s growth prospects.

Economic win

“While the administration has to navigate these troubled waters, strong expansion in domestic demand should help generate real GDP [gross domestic product] growth of 6.3 percent in 2016 and 6.1 percent in 2017, up from 5.9 percent in 2015,” it said. The government is targeting 6-7 percent GDP growth this year and 6.5-7.5 percent growth next year.

Other multilateral lenders were likewise bullish.

This month, the Asian Development Bank raised its 2016 and 2017 growth forecasts for the Philippines due to expectations that economic reforms and infrastructure buildup would be sustained in the near term. The Manila-based lender hiked to 6.8 percent from 6.4 percent previously its GDP growth projection for the Philippines for this year.