London-based research consultancy firm Capital Economics warned in a study the Philippines’ economic success story would be put in jeopardy by a Duterte presidency.
In a research note, Capital Economics Asia economist Gareth Leather said the country had been one of the region’s few economic success stories over the past few years, but with the highly controversial Mayor Rodrigo Duterte of Davao City riding high in the polls ahead of Monday’s presidential elections, the country could be forced to take a step back.
“Monday’s presidential elections will have a key bearing on the prospects for the Philippine economy,” Leather added.
Early this year, Capital Economics said President Benigno Aquino 3rd was leaving the economy in much better shape than he found it, and that there were reasons to think his achievements could outlast his presidency.
It added that Aquino deserves much of the credit for turning the country’s fortunes around since his election in 2010, with his clean image and reformist stance winning over investors.
Philippine gross domestic product growth over the past five years has averaged 6.3 percent a year, which is 1.8 percentage points higher than in the previous five years–a bigger improvement than in any other country in the region.
The think tank, however, also warned that the wrong leader could quickly cause sentiments to sour.
Installing, for example, another Ferdinand Marcos, whose disastrous presidency from 1965 to 1986 saw the economy lurch from one crisis to another, could quickly see economic prospects unravel.
“We now have concerns that the electorate may be about to make exactly that kind of mistake. The latest opinion polls show Rodrigo Duterte, a highly controversial seven-term mayor of Davao is pulling clear of his rivals,” Leather said.
He noted that after Aquino’s surprise election victory in 2010, few analysts were predicting that the Philippine economy was about to take off in such spectacular fashion.
“In the same way that people underestimated Aquino, it may be too soon to be ringing alarm bells over Duterte,” Leather, nevertheless, said.
The economist said it is well worth noting that during Duterte’s time as mayor of Davao City, crime rates plummeted and Duterte gained a reputation as a politician capable of getting things done.
This more hands-on approach could see him having more success than Aquino in pushing through key reforms and driving improvements in infrastructure, Leather added.
In terms of Duterte’s economic policies, he pointed out, the mayor appears to have recognized the progressthat the country has made over the past six years, and it is unlikely that he would deliberately attempt to rock the boat by, for example, embarking on an unaffordable spending splurge.
“However, there is only so much benefit of the doubt he deserves. Given how little Duterte has talked about economic reform during the campaign, it is hard to imagine it being one of his main priorities if he comes into office,” Leather said.
It was noted that the sharp fall in the crime rate during his time as mayor of Davao City was largely achieved on the back of a spate of extra-judicial killings in his constituency, calling into question his commitment to the rule of law.
Leather underscored that Duterte’s presidential campaign has also been marred by a string of highly controversial comments, including threats to kill criminals in the streets, jokes about raping a missionary and threats to sever ties with Australia and the US.
On the campaign trail, he praised Ferdinand Marcos for his ability to “change the system,” and has threatened to declare a “revolutionary government” if he doesn’t get his way, the economist noted.
Duterte has also found himself mired in a corruption scandal amid allegations that he failed to declare tens of millions of US dollars worth of assets, Leather said.
“In the increasingly likely event that Duterte wins Monday’s presidential elections, financial markets, which have sold off as his victory has looked more likely, would probably fall further,” the economist said.
A healthy fiscal position, low levels of external debt and a current account surplus make the Philippines well-placed to cope with sudden short- term changes in sentiment, he added.
“However, the longer-term consequences of a Duterte victory are unlikely to be so benign and there is a real risk that Aquino’s most important achievements could quickly start to unravel,” the economist said.
One of the key features of the past six years, he added, has been a return to political stability and an absence of coup attempts.
“The military might not be as tolerant of someone who wants to ‘change the system.’ Corruption, which has fallen back during Aquino’s presidency, could quickly reescalate,” Leather pointed out.
“The Philippines’ own history shows how bad leadership and political uncertainty can suck the life out of an economy. If the politics in the Philippines did take a turn for the worse, growth would almost certainly suffer, with investment likely to be hit first,” he also warned.
A decline in sentiment could see the country struggle to attract funds it needs to plug its infrastructure deficit, Leather said.
“Investment in the fast-growing business process outsourcing and manufacturing sectors could also start to slow. In short, the Philippines could quickly see itself going from growth star to regional also-ran,” he added.