PRIVATE think tanks and financial institutions warned that the current security situation in the Philippines poses a major risk to the country’s economic growth, although government analysts said the law and order situation has so far not affected investor sentiment.
Analysts from Fitch-owned think tank BMI Research, London-based consultancy firm Capital Economics and Dutch financial giant ING Bank issued the warnings in the wake of the rise in drug-related killings and the terror attack in Davao City September 2.
In a report released late Monday, BMI Research said it expects the security situation in the Philippines to worsen over the coming months because of the Duterte administration’s heavy-handed approach against crime and drugs and the military’s continuing offensives against the Abu Sayyaf Group.
Accordingly, it has revised its short-term political risk index score for the Philippines to 64.6, from 66.3 previously to reflect the escalation of domestic security threats.
“We expect greater reprisals resulting from both the government’s crackdown on crime and drugs in the country and the military’s conflict with the Abu Sayyaf group in Southern Philippines. This will likely lead to an increase in the frequency of terror attacks over the coming months,” the think tank said.
BMI noted that since President Rodrigo Duterte took office and began his administration’s war on drugs, more than 800 drug suspects have been killed by police and vigilantes, while the police estimates the number to be closer to 2,000.
Although the President’s war on drugs has garnered broad public support domestically, it has provoked criticism from the international community and family members of the victims who have decried the lack of respect for human rights, it said.
“We highlight that such extrajudicial killings could lead to reprisal actions by both criminal organisations as well as indignant relatives of victims,” the institution pointed out.
Meanwhile, the think tank also took note of President Duterte’s declaration of a nationwide state of lawlessness on September 3 after a bombing attack on September 2 killed at least 14 and injured dozens of people in Davao City.
Before leaving the country to attend the Association of Southeast Asian Nation Summit in Laos, the Chief Executive on Monday raised the declaration of “state of lawlessness” into a state of “national emergency.”
“While the government’s reaction to the terrorist attack was decisive and could be effective as a deterrent over the very near-term, we believe the frequency of such terror attacks are likely to intensify over the coming months,” BMI warned.
Capital Economics sees the uncertain political situation following President Duterte’s election as the main risk to the economy.
Although the President initially helped to calm investor nerves by promising to continue with the economic policies of his predecessor, the situation has worsened in recent weeks, said economist Gareth Leather of Capital Economics.
“Threats to shoot suspected drug smugglers without trial and the recent imposition of a ‘state of lawlessness,’ which grants the military powers to help in police operations following a terrorist attack in the southern region of Mindanao which killed 14 people, have helped to re-awaken concerns over his commitment to the rule of law as well as his judgment,” he said.
“With Duterte in charge, it is hard to rule out a sudden shift in policy or a disruption of the political stability that has characterized the last six years. Either would cause sentiment to sour and growth to weaken,” he added.
Increased terrorist activity
ING Bank Manila said the Davao City bomb blast highlights the possibility of increased terrorist activity going forward.
“The declaration of state of lawlessness by the President was seen also from a risk standpoint that the government needs assistance (by calling on the military) for the national police to counter the perceived state of lawlessness, which some say was also a result of government statements that may have encouraged vigilante killings,” ING Bank Manila senior economist Joey Cuyegkeng said.
Cuyegkeng said they believe that such political developments and concerns, if unchecked, would have a more profound impact on markets and the economy.
For now, he said, the impact is likely to be marginal and is likely to be offset with favorable macro-economic fundamentals such as structural inflows, high foreign exchange reserves, strong domestic demand and monetary and fiscal leeway.
No negative market reaction yet
For his part, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said that based on the central bank’s observation, financial market players are not yet affected by the country’s current security situation.
“So far, no. We’ve been talking to our counter parties. I think they also want to look at what will happen next, which is normal,” Tetangco told reporters on the sidelines of the Philippine Investment Forum held on Tuesday.
The BSP chief said market behavior so far have not yet reflected any negative market reaction.
In fact, he said the peso even strengthened against the US dollar in Monday’s trade, closing at P46.52 to a dollar or 10 centavos stronger than the P46.62 finish on Friday last week.
“Yesterday the peso strengthened against the US dollar and today it’s range-bound, so there’s been negative reaction as far as the foreign exchange market is concerned,” Tetangco said.
In Tuesday’s trade on the Philippine Dealing System, the peso weakened against the US dollar by 8 centavos to close P46.60:$1.
In the equities market, the BSP chief said there has been no selloff or major negative impact as well.
“Now, I think the market will be influenced more by what the Fed will do and what the other advanced economies will do. So it will be more externally driven,” he added.
Bourse trading seen to normalize – DOF
The Department of Finance (DOF) also on Tuesday dismissed the fall of the stock market on the first business day after the September 2 Davao City bombing, adding that trading is expected to normalize soon enough following the business community’s positive response to President Duterte’s decisive measures in the wake of the Davao blast.
The Philippine Stock Exchange index (PSEi) fell 43 points, or 0.6 percent, to close at 7,764.05 at the close of trade on Monday.
“We can expect initial market jitters after such an incident,” said DOF spokesperson Paola Alvarez.
“What is important is that Davao is back to normal and that the stock market will soon enough return to its vibrant trading, more so now that the business community has already expressed its support for the decisive measures that President Duterte has taken to maintain peace and order immediately after last Friday’s night market attack.”
Leaders of various business groups—among them the Philippine Chamber of Commerce and Industry (PCCI), International Chamber of Commercè of the Philippines (ICCP), Philippine Exporters Confederation, Inc. (PhilExport) and Management Association of the Philippines (MAP)—have earlier expressed their support for the actions thus far taken by the Duterte administration in response to the Davao City bombing.