A leading credit rating agency says uncertainty about Duterte’s style of government means Manila is unlikely to have its creditworthiness upgraded anytime soon. Meanwhile, foreign investors are rapidly pulling out cash.
By Dung Phan
It’s nearly three months since President Duterte took office. So far we have learnt that he wants to get tough on drug crime, pull away from American influence and of course, make the Philippines great …again. Yet despite a series of offensive remarks, Duterte has not said anything majorly concerning about economic policy. However, this lack of zeal when talking about his eight-point economic agenda has started to show its downsides, say experts.
On Wednesday, the international credit rating agency Standard and Poor’s (S&P), which measures a government’s creditworthiness, warned that the Philippines is unlikely to get a credit rating upgrade in the next two years. The major financial institution says that “the stability and predictability of policymaking has diminished somewhat.” Although S&P has maintained its stable outlook for the Philippines, it stressed a range of “weaknesses” under the Duterte administration which included his foreign policy and national security statements.
Trinh Nguyen, French investment bank Natixis’ senior economist said that, theoretically, Duterte’s proposed plans for liberalising foreign direct investments and boosting infrastructure should be positive news for investors. However, foreign businesspeople are worried that the constant flip-flops and uncertainty caused by the president’s remarks will distract from core economic priorities. And it is certainly difficult to keep track of Duterte’s train of thought. No one knows whether the country still needs the US; whether China will be a new ally; or even whether the Philippines will stay in the UN. And Duterte might have to pay the price for his love of surprises. Foreign investors are pulling money out of the country’s stock market rapidly, selling shares in 24 of the last 25 trading days.
The official information from the Philippine Stock Exchange (PSE) showed net foreign transactions on the benchmark PSE index fell every week between August 15 and September 16. Meanwhile, the Philippine peso plunged 3.37%, reaching close to its weakest point since 2009. Over the one-month period considered, the benchmark index has been the worst performer in the region. Hundreds of millions in foreign funds fled the Philippine stock market after Duterte called the US President Obama “a son of a whore.”
Against this backdrop, the general escalation of Islamist violence, including the recent bombing in Davao City, could collide dramatically with the drug war to create a volatile political climate. While Duterte wants to duplicate what he had done with Davao City – turning a city of crime into a safe place – this plan might come with substantial political risks. There has been an increasing number of accusations of murders and attacks on government critics. And this week, the Philippines witnessed a possible political polarisation when a senator, one of Duterte’s main opponents, was ousted by the President’s close allies. And even the hugely-popular drug war will not be completed in six months as promised, says Duterte. The task was bigger than anticipated.
While the anti-drug drive will not end anytime soon, many are calling into question the government’s commitment to the rule of law. “Investors like predictability – they like to have a sense that they know where things are going – and so if someone comes in and seems to be willing to tear up the normal ways of doing things, it’s generally not welcomed,” said Mark Williams, London-based chief Asia economist at Capital Economics Ltd.
Under Aquino’s presidency, the Philippine economy grew by an average of 6.2% a year, emerging as a top regional performer. But this legacy of fiscal prudence and economic progress does not seem to be a weight on Duterte’s shoulders. Instead, he chooses to focus on combating crime and leave the economics to others. But that decision poses a threat in itself. “President Duterte’s economic agenda is spot-on regarding intent. Still, action on this economic agenda is so far lacking,” say strategists from Nomura strategists.
“If he just focuses on criminality and leaves the infrastructure to his men, there could be risks of delays there,” said Alfred Dy, head of Philippine Research at CLSA Limited, Research Division. “In the Philippines, the president has a lot of power to get things done, so he needs to be involved there.”