SHOULD business be bothered by President Rodrigo Duterte’s controversial remarks on America and China?
Visiting to clarify those statements, US Assistant Secretary of State Daniel Russel warned this week: “The succession of controversial statements and comments, and a real climate of uncertainty about the Philippines’ intentions have created consternation in a number of countries, not only in mine, and not only among governments, but also in other communties, in the expat Filipino community and in corporate boardrooms as well. This is not a positive trend.”
In response, President Duterte, as usual, bristled at the criticism of his tough talk, telling American companies worried by it: “Go ahead, pack your bags. We will sacrifice. We will recover, I assure you. We will live and survive. We have gone through the worst of times on this planet.”
For its part, the Makati Business Club, which groups the largest Philippine and foreign enterprises in the country, welcomed warming ties with China, but cautioned against downgrading relations with the United States.
And several weeks ago, even before the Beijing remarks, the local American Chamber of Commerce and other foreign business groups expressed concern over Duterte’s expletives against the West and the UN, and the thousands of suspects killed in his anti-drug campaign.
So, should AmCham members and other foreign executives and investors book their flights out? Let’s look beyond the headlines and soundbites at the real factors that should primarily shape business decisions.
Macroeconomic stability and growth will continue
The Philippines has achieved continuous annual growth in gross domestic product since 2000. That’s nearly 18 years of unbroken GDP expansion despite national and international crises.
We kept expanding despite the 2000-01 unrest against and ouster of then-President Joseph Estrada, the 9/11 terrorist attack and its fallout in 2001, the second Gulf War and SARS global epidemic in 2003, the global oil price hikes and political unrest against then-President Gloria Arroyo in 2005, the 2007 food cost spiral, and financial crises in America and Europe since 2008, triggering a world recession, during which the Philippines was among a handful of major economies that kept growing.
Thanks to fiscal reforms implemented in 2006, the Philippines has garnered successive credit rating upgrades to investment grade, and its last two finance secretaries were garnered international awards. And under Bangko Sentral Governor Amado Tetangco, who could be reappointed again when his repeat stint ends next year, international reserves, inflation, and the financial and banking system have enjoyed sustained health.
The economy was among the fastest-growing in the Association of Southeast Asian Nations since 2007, and became one of East Asia’s growth leaders starting 2012. Recently, private and multilateral institutions raised forecasts for GDP expansion this year and next, keeping the economy’s place among the region’s best-performing.
Is all that going to stop because Duterte told his American counterpart to “go to hell”? Really now.
Infrastructure development will accelerate
Two factors boosting growth prospects are the Duterte administration’s push to accelerate infrastructure development and bureaucratic reform — two perennial obstacles to investment growth.
Finance Secretary Sonny Dominguez and Budget Secretary Benjamin Diokno are committed to boost public spending, targeting a growth-lifting but still prudent deficit of 3 percent of GDP. And unlike the past government, which left P1 trillion in budgeted funds idle and huge public-private partnership plans not even bid out, the current regime aims to reduce infrastructure delays.
Improved ties with China are expected to further expand infrastructure, along with trade, tourism and investment. Public works will receive much of the $24 billion in aid and investment Duterte brought home from his state visit. A further boost to public works: the expected entry of the Philippines into the Beijing-led Asian Infrastructure Investment Bank.
Red tape will be slashed
On streamlining government procedures, this has already gained much from the Anti-Red Tape Act and the National Competitiveness Council, both in place since 2007. The ARTA is a major factor in the decline in bribe solitication since 2009, based on corporate surveys.
And the NCC, under successive trade secretaries and former MBC Executive Director and election watchdog head Guillermo Luz, have repeatedly raised the country’s competitiveness rankings almost every year. In the 2017 World Bank Ease of Doing Business report, we improved our ranking by four notches.
President Duterte will keep those gains going. After all, under his watch as mayor, Davao City ranked second in the country in speed of granting business permits, and first in building permits.
Among his ten-point development agenda is the reform of the Land Registration Authority. where inefficiency and corruption leads to long delays in titling — a major stumbling block to business creation and expansion.
Peace and order is improving
While the thousands of drug suspect killings are deeply disturbing here and abroad, the campaign against lawlessness is yielding subtantial results, with some 750,000 drug traffickers and users arrested or surrendered, and dozens of officials named for allegedly protecting narco-syndicates, including those in the national penitentiary.
With this nationwide crackdown on drug gangs and their protectors, the Philippine National Police estimates that crime is down 30 percent to 50 percent, depending the kind of offense. That means the PNP is reducing murders and rapes by 3,000 incidents each a year, robberies by 20,000, thefts by 50,000, and physical injuries by 80,000.
That’s a huge reversal from the Aquino years, when crime tripled from 324,083 incidents in 2010 to more than a million a year in 2013 and 2014. Data in the Philippine Statistics Authority’s yearbooks belie pro-Aquino media claims that lawlessness declined under him (see < https://psa.gov.ph/sites/default/files/2015%20PIF.pdf > and < https://psa.gov.ph/sites/default/files/2012%20PIF.pdf >, noting that 2011-12 data are grossly understated, for which several police chiefs were suspended or investigated).
All this cannot but improve the climate for business, for which enterprises in Davao City under Duterte thank him. So will his push to forge lasting peace with communist and Muslim rebels.
Boosting the countryside
One final growth accelerator is Duterte’s longstanding commitment to rural development, through increased public spending outside Metro Manila, and eventually the shift to a federal form of government, with more state power and resources in the hands of the regions.
As for the current uncertainty in relations especially with the US, the best attitude may be that of Russel’s boss Secretary of State John Kerry. After speaking to Philippine Foreign Secretary Perfecto Yasay, Kerry said their nations can “work through” this period of confusion.
So can business.