ADMIT it, you’ve had this feeling, too: The foreboding that, despite all available evidence and in rejection of any sort of reason or logic, Davao Mayor Rodrigo Duterte is likely going to win this election.
That is going to be bad for business, one way or another, and we can consider that assertion a fact, simply because business says it would be. Makati Business Club Chairman Ramon del Rosario—presumably speaking for many of his group’s members, judging from the off-the-record comments some of them have made—hammered Duterte for his “lack of respect for the rule of law,” and his lack of interest in economic issues.
It does not matter whether the MBC or its chairman is correct in its implied assessment of Duterte, which could be politely summarized as, “We don’t know what this guy’s economic perspective and priorities are, because he doesn’t appear to have formed any, and the way he otherwise presents himself suggests that even if he did have some economic thoughts, they are probably not something we’d agree with.” Even if Duterte turns out to be surprisingly energetic and effective at guiding the economy, the fact that businessmen, or an apparent majority of them at any rate, believe he won’t be, means that fears of economic turmoil if he is elected are likely to be a self-fulfilling prophesy. Nervous investors will stay on the sidelines for a time until it becomes clear which way the new administration is heading; if perceived as positive (again, it doesn’t really matter if it actually is or not), the business interest will return quickly enough, but it will take some time to complete the cycle—at least until the government writes and passes its first budget, or in other words, not before the third quarter of next year.
It bears emphasizing that virtually no one who has expressed uneasiness about a Duterte presidency from a business or economic perspective can really quantify what kind of harm they fear he could do; the misgivings are based entirely on not knowing what to expect. The thing that’s really off-putting about Duterte is his volatility; one doesn’t know from one moment to the next if he’s going to be King Solomon, Captain Queeg, or Mang Kanor. That sort of inconsistency doesn’t work for most businessmen, especially when the would-be leader also makes it clear he has little use for rules, customs, or advice from others.
Although some of the recent downturn in the stock market and some up-and-down movement of the peso have been attributed to nervousness over a potential Duterte win, objective evidence does not really support that assertion yet; however, peso and equity market declines will probably be the first warning signs of the ‘Duterte downturn.’ Once it begins in earnest, we can expect some pullback in investments, perhaps slightly tighter lending, an uptick in bond rates, some retreat in imports and capital expenditures, and possibly—depending on the general mood of the country—an easing of consumption spending, all of which will degrade at a faster or slower rate depending on the strength or weakness of the peso.
The overall impact could be very mild, with GDP growth slowing by only a fraction of a percent, but that is only if Duterte demonstrates fairly quickly that he does, in fact, realize there is an economy to be managed and has a rational plan to do that. So far he has given absolutely no indication that is the case or ever will be, and that is what makes the business community uneasy, and rightly so. Of course, although it may already be unreasonably optimistic to hold on to the possibility, this all may be hypothetical; the country might yet, as unlikely as it seems, come to its collective senses and elect someone else. But I’m not betting on it.
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A necessary but enlightening correction was brought to my attention a couple of days ago in regard to my last column (“BMI’s brave leap into PH election politics,” May 3) by Peter Hoflich, who is the senior manager of Communications for BMI Research in Asia.
In that column, I made the assumption that Fitch Ratings, which owns BMI, uses BMI’s research in its credit risk assessment work—why else would Fitch acquire a top-flight economic research firm?—but that is not necessarily the case.
As Mr. Hoflich explained, “I did notice that you also mentioned Fitch’s own reports a lot in the article—while it’s true that we’re a recently-acquired unit of Fitch, I need to explain that our research is actually completely separate from Fitch’s because we are run completely independently. Our offices are separate, as are our methodologies, mandates, databases and client bases. So our analysis and views in no way represent Fitch’s analysis and views.”