Govt urged to expand, not break alliances, with Western allies


    The Philippines should not break ties with traditional allies like the United States, while forging a stronger alliance with China, to ensure that the country’s trade and investments with the rest of the world will continue to prosper, bankers and analysts The Manila Times interviewed over the weekend said.

    President Rodrigo Duterte and his economic managers have already clarified that the country is not totally breaking alliance with the US, as diplomatic ties with Washington will continue.

    But a top banker said Malacañang’s new foreign policy still remains unclear, even after the clarifications issued over the weekend.

    “It may be too early to speculate,” said the banker, who heads one of the country’s biggest lenders. “We do not even know what it means from a policy perspective. It may be better to wait until we get clarity on it.”

    During his four-day state visit to China that ended last Friday, Duterte announced his intention to break military and economic alliances with the US, while strengthening ties with China. The trip was rewarded with $24 billion in loans and investment pledges, including $3 billion that will be sourced from Chinese banks.

    “Overall, it’s (closer ties with China) net positive for the Philippines,” said Astro del Castillo, managing director at First Grade Holdings. “Any new market is welcome.”

    Del Castillo said the government should not abandon its alliance with other countries, and instead make sure that it can take advantage of its mended relationship with Beijing by finding ways to export more to China, Asia’s biggest economy, which has a lucrative market of more than a billion population.

    “What is disheartening is that the president is the top salesman of the country. While opening doors to other countries, he should not be closing other doors,” Del Castillo said.

    Former National Treasurer Sergio Edeza echoed del Castillo’s lament on Duterte’s plan to separate from the US.

    “It’s not good if we alienate our traditional partners. We cannot rely on China alone,” Edeza, senior vice president and head of treasury at San Miguel Corp., said.

    Capital Economics, meanwhile, said shifting away from the US and moving closer to China could be damaging to the Philippine economy, one of the star performers in Asia.

    In a report released over the weekend, Capital Economics downplayed the $9 billion loans that the country will get from China during Duterte’s visit last week, noting that the Philippine government could easily tap the international market to raise money.

    Second biggest export market
    The US is the Philippines’ second-biggest market for exports, accounting for 15 percent of total shipments abroad in August, next only to Japan, which cornered 20.4 percent of local goods sold overseas, government data showed. China, meanwhile, is the country’s fourth largest export market with an 11.4 percent share.

    However, in terms of imports, China is the Philippine’s biggest source of imported goods, with 18.7 percent share of the total in August, while the US is number 3 and accounts for 9.2 percent of the total in the same month.

    The Philippines enjoyed a $1.2-billion trade surplus with the US in the first nine months of the year, while it incurred a $5.9-billion deficit with China.

    Upbeat on infrastructure investments
    BDO chief market strategist Jonathan Ravelas said he is upbeat on the potential investments from China, particularly on infrastructure, after Duterte’s trip. Though he said he is on a “wait and see” mode when it comes to Duterte’s bid to separate from Washington.

    “I’m optimistic on the potential deals and investments that he (Duterte) brought back. This should help our infrastructure agenda,” Ravelas said in an interview.

    Central bank data showed net foreign direct investments from China stood at $3.3 million in January-July, dwarfing those from the US, which totaled $78.3 million during the same seven-month period.

    But Edeza said: “It remains to be seen if the [close ties with China]will bring economic benefits [to the country].”

    Regina Capital managing director Luis Limlingan agreed.

    “It’s a good move to invite China, and risky to taunt the US,” Limlingan said. “Overall, why not strive to have investments from both countries.”

    BPO industry safe
    There were concerns that Duterte’s recent rhetoric against Washington may prompt American businessmen and companies, especially those in the booming BPO sector, to pull out of the country, and bring their money in friendlier economies in the region.

    Del Castillo said there was nothing to fear.

    “US businessmen understood the country’s political risks. Some companies are even expanding their presence in the BPO sector,” he said.

    The US is the country’s top revenue source for business processing and IT services, accounting for 70 percent of the industry, according to the Contact Center Association of the Philippines. US firms like American Express and Visa made the country their BPO hub in the region.

    Revenues from the BPO sector were seen rising to $25 billion this year, versus $22 billion in 2015.

    The industry is the second-biggest source of dollar inflows for the Philippines, next to remittances from Filipinos working overseas, who sent home $25.6 billion last year, according to central bank data.

    Next year, the BSP expects revenues from the BPO industry, which employs over a million Filipinos, to overtake the volume of dollars sent home by OFWs.

    Socioeconomic Planning Secretary Ernesto Pernia clarified that the country will keep its ties with the West, including the US and Europe, while forging stronger alliances with China, Japan, South Korea, and the Asean region.

    “You know in this age of globalization, the more relations you have with more – for the different parts in the world, the better for the economy,” Pernia said in a statement released by Malacañang over the weekend.

    Pernia said BPOs “will not be touched” as the Duterte administration acknowledges its significant contribution to the domestic economy.



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