THE traditional 100-day “honeymoon period” for the presidency of Rodrigo Duterte has not yet reached its end (that will be on Oct. 8), but already there are rumblings in the business sector about the direction of the economy if the needed reforms get sidetracked by security concerns.
The unease is more about what is not happening, if the recent comments of financial and market analysts are to be believed.
Moody’s Investors Service warns of a “clouded” economic outlook if recent events, such as the heightened security alert following the deadly Sept. 2 bombing in Davao City, lead to prolonged uncertainty.
The credit ratings agency said President Rodrigo Duterte’s spending of political capital to defend his campaign against illegal drugs could exact a toll on his government in terms of lost opportunity for urgent economic reform.
COL Financial, a major stock brokerage, has pointed to a likely “sideways movement” in prices on the Philippine Stock Exchange until the Duterte economic agenda begins in a tangible way. The economic program is expected to roll out significant tax reform, spending on infrastructure, expansion of some social programs, and major initiatives such as a national broadband network, expanded irrigation systems for farmers, and a push toward industrial development.
Other analysts and business groups share a similar sentiment. The European Chamber of Commerce in the Philippines has also begun to express, if only in cautious tones, some misgivings about the somewhat chaotic first few weeks of the Duterte era, in particular the war on drugs, which has claimed more than 2,000 lives since May; Duterte’s unique method of employing “name and shame” against people who he believes ought to be brought to heel, such as former Justice Secretary and now Senator Leila De Lima and business tycoon Roberto Ongpin; and the still somewhat unclear direction of the country’s mining policy in the hands of Environment Secretary Gina Lopez.
These misgivings appear to be reflected in the local stock market, which has declined about 6.34 percent over the past six weeks, from a high point of 8,102.30 points on July 21, to 7,619.10 points as of September 7.
To be fair, not all of that decline can be blamed on ‘uncertainty’ over the Duterte program. The US Federal Reserve has been hinting at raising its benchmark interest rate for the past couple of months, and seems likely to do so perhaps later this month. That drives money out of markets in emerging economies like the Philippines, as investors seek higher returns in the US.
Other issues such as the potential fallout from the ‘Brexit,’ the slowdown in globe trade volumes – which resulted in the spectacular collapse of Hanjin Lines, the world’s seventh-largest shipping company – a Chinese economy that has evidently cooled, and the annual “ghost month” of August have all played a role as well.
But it is the nature of the rather small market community here that sentiment tends to be taken up by all concerned in short order and have an almost immediate impact on the financial markets, whether or not the sentiment is entirely valid.
Whether or not analysts, brokers, traders, and established investors are correct to suggest that “wait and see” might be the best approach in an atmosphere that seems uncertain, that suggestion has a real impact, and as such, becomes a real economic issue that the Duterte administration must address.
How the government might address that uncertainty, we leave up to them to decide, but if we may make a recommendation, it would be to do something the Duterte team has already done once to good effect: Shortly after being elected, the nation’s economic managers held a conference with business interests to share ideas and listen to concerns.
Doing that again, and repeating the exercise from time to time, is an effective and economical way to advance the government’s agenda and address issues before they trigger any serious backlash.