THE Philippines faces instability if political uncertainty will prevail under a Duterte government, credit rating agency Standard & Poor’s warned on Tuesday.
In a report, S&P noted that political developments have the most potential to shape sovereign rating trends in parts of Southeast Asia.
“Support for stability in the Philippines could weaken if political uncertainties increase after the presidential elections. The key question is whether political stability will continue after the presidential elections,” it said.
The agency noted that Davao City Mayor Rodrigo Duterte will be the second President who does not come from an elite family.
Former President Joseph Estrada was the first.
S&P said the country’s experience under Estrada provides a cautionary tale.
It also noted that during his two and a half years as President, Estrada implemented policies that negatively affected the interests of the Filipino elite, including limiting the use of sovereign guarantees for government contracts with private suppliers and expanding rural land reform.
His weak relationship with these powerful interests could have been a reason for his ouster in early 2001, the rating agency claimed.
“The risk of political uncertainty is, therefore, somewhat higher in a Duterte presidency,” it said.
The credit watchdog said all the other presidential candidates have experience in national politics.
“They are widely expected to pursue gradual policy changes, not unlike the Aquino administration. Duterte’s style, if he assumes the presidency, is more uncertain,” it added.
“Used to a hands-on approach in governing a city that is his political base, Duterte could take some time getting used to the many compromises required in the national leadership position,” S&P said.
According to the rating agency, some measures that Duterte is considering could change the status quo, including liberalizing the telecommunications sector and amending the Constitution to strengthen the power of local governments.
“He could face strong resistance if he pushes some of these changes aggressively,” it also warned.
Should Duterte’s style lead to serious political battles, it could damage one of the key achievements of the Aquino administration — a sustained period of political stability, S&P said.
This stability, it added, had improved consumer and investor sentiments, which in turn led to stronger investment spending and economic growth.
“They also contributed to our two rating upgrades on the Philippines since 2013. A return of political confrontations could weaken the improving trend for sovereign credit metrics,” the agency said.
In April, the debt watcher maintained the Philippines’ BBB investment grade credit rating with “stable” outlook, saying the country’s strong external position will lead to higher per capita income, but cautioned that ratings may go down if the reform agenda stalls under the next administration.
On the other hand, Fitch Ratings said it does not expect the outcome of the elections to have immediate impact on its investment grade rating for the Philippines.
When the rating agency affirmed its BBB–with a positive outlook in April– the agency had said it will wait and see whether the improvement in governance achieved under Aquino will be sustained.
The credit rater, however, added that it continues to view the country’s underlying economic fundamentals as a strength, given its strong net external creditor position, declining general government debt and deficit levels, and positive growth momentum.