President Rodrigo Duterte’s “erratic and crass style” is a cause for concern, his pronouncements in recent weeks increasing downside risks to the strong growth outlook for the Philippines, the London-based research consultancy firm Capital Economics said.
“When Rodrigo Duterte became president of the Philippines on 30th June, we warned that although the fundamentals were in place for the economy to grow strongly, his election had made the outlook much less certain,” Gareth Leather, economist at Capital Economics said in a report released late Monday.
“With his first 100 days as president nearly up, and Duterte continuing to unnerve investors with a string of controversial comments, we think the downside risks to the outlook have increased,” he said.
Capital Economic has a 6.7 percent growth forecast for the Philippines for full-year 2016, higher than the 5.9 percent expansion in 2015 and within the 6 percent to 7 percent official growth target.
Leather said that following his election in May President Duterte initially helped to sooth the nerves of investors who were worried by his lack of expertise in economics by promising to delegate all matters of finance and economics to his new Finance Secretary Carlos Dominguez 3rd.
The president has kept his promise to steer clear of economic policymaking by pledging to stick with most of his predecessors’ economic policies, and the new Department of Finance chief has been able to win the confidence of investors.
“And where Mr. Dominguez has sought to change policy, such as by increasing the budget deficit to 3 percent of gross domestic product (GDP) to fund a badly needed increase in infrastructure spending, the changes have been well received,” the economist said.
What has unnerved investors is a string of inflammatory statements and erratic foreign policy changes—raising questions about the President’s judgment and his commitment to the rule of law.
Leather noted instances when President Duterte called United States President Barack Obama a “son of a whore,” and threatened to completely upend the country’s foreign policy by “opening an alliance” with China, at the same time ordering US troops out of the Philippines.
“Meanwhile, his anti-drugs campaign, which has led to thousands of extrajudicial killings, has generated negative headlines across the world.”
Investors are right to be concerned by the behavior of the new president, Leather said.
Without the financial support of the private sector, the government would struggle to fund the new administration’s ambitious infrastructure plans and keep the budget deficit to within 3 percent of GDP, he pointed out.
“Given Duterte’s recent outbursts it is hardly surprising that some investors are having second thoughts,” he said.
Even if President Duterte is leaving economic policies in the hands of his finance secretary, there is no guarantee that this will be the case moving forward, Leather noted. “In the event of a sharp slowdown in growth, there would be nothing to stop the president from pump-priming the economy, putting at risk the country’s hard-won reputation for fiscal prudence.”
With President Duterte in charge, it is hard to rule out a sudden disruption of the political stability that has become the norm since 2010. “Military coup attempts were a destabilizing feature of political life in the Philippines before Benigno Aquino came to power, but have been notably absent in recent years,” Leather said.
A return to the political instability that characterized politics in the Philippines for much of the post-war period could quickly cause sentiment to sour even further. The fact that President Duterte has recently promised to double the salaries of the armed forces suggests he is unnerved by the possibility of a coup, he said.
“These are still early days and there is still plenty of time for Duterte to change his approach to governing. The Philippines’ own history shows how poor leadership and political uncertainty can hold back an economy. The key risk now is that history repeats itself,” he said.