Philippines Economic Growth Represents a High Hurdle

April 27, 2016Philippinesby Dan Steinbock

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The next Philippine President has monumental economic challenges.

While the Aquino reforms have ignited great progress, the next Philippines president will be more independent in critical economic, political and military decisions that will also shape Southeast Asia’s future, says Dan Steinbock.

After President Ferdinand Marcos (1965-86) and a close relationship with the Reagan administration, the Philippines became known as the “sick man of Asia.”  In the past six years, a new confidence has been restored by President Benigno Aquino III, 56, who enjoys the trust of most Filipinos, according to surveys.

As a fourth-generation politician, Aquino’s 2010 election win was buttressed by the legacy of his father, an opposition leader assassinated by Marcos, and his mother, the first post-Marcos president.

Today, the beautiful Catholic-majority Philippines is widely seen as one of the most promising economies in Asia, although the country is still haunted by centrifugal pressures. Politically, it is witnessing the rise of new and more independent leaders, though old political dynasties still cast a shadow over its future.

Strategically, Washington and Manila are cementing a military alliance, which leaves many Filipinos apprehensive.

Economic progress, strategic liabilities        

Currently, the Philippines economy’s growth potential is at 6.5% per annum, with services, construction, manufacturing and consumption fueling growth. The future of the IT business services is promising. Yet, public under-spending, lower exports, soft agricultural production and outflowing portfolio investments restrain growth.

A tenth of the GDP remains reliant on remittances and the Filipinos working in the Middle East have been hit hard by the plunge of the oil prices.

Public investment remains too low, due to weak execution capacity. While Aquino pushed the auction for the country’s largest-ever public private partnership project, the latter failed in March. Investment in human capital has increased, but should be accelerated. Poverty rate remains around 20-25%, and income equality is high.

Aquino’s rule has also been tarnished by crises, such as the 2013 Manila hostage crisis of Hong Kong tourists, the 2013 Typhoon Haiyan, the anti-terrorist Mamasapano massacre in 2015, the recent $81 million money-laundering debacle, and the farmers’ Kidawapan clash.

As the Obama administration is executing the US pivot to Asia and China is rebalancing in the region, integration has also accelerated in the Association of Southeast Asian Nations (ASEAN) community. Pro-US Filipinos hope to join the US-led Trans-Pacific Partnership (TPP) in the next round of expansion. However, Aquino has failed to achieve a change in the constitution, which bans foreign companies from holding more than 40% equity in some industrial sectors.

Today, foreign policy and national security are also high on the voter agenda because increasing geopolitical friction with China, the country’s largest importer and third-largest market for exports. As Aquino and his foreign minister Albert del Rosario have opted for a tougher policy and rejected bilateral talks, disputes have been taken to the international court. Concurrently, the two have pushed for an alliance with Washington, joint military exercises, and cooperation with Vietnam and Japan.

However, after May, Aquino will leave, Rosario has resigned for health reasons and the next president will seek to recalibrate the policy toward China.

Rise of new leaders               

Last year President Aquino designated former interior minister Manuel “Mar” Roxas, an ex-investment banker and another political princeling, as his successor to sustain his reforms. As the leader of the ruling Liberal Party, Roxas, 59, “Mr. Palengke” (Mr. Market) appeals to moderate elites and wants to push forward with the China arbitration case but remains fourth with 19% in polls.

Vice President Jejomar “Jojo” Binay, 73, portrays himself as a popular representative of the poor who has a long record of social services. Despite initial lead, he is now third with 20%, due to corruption allegations during his terms as Mayor of Makati City. Founded by Binay, the United Nationalist Alliance supports his candidacy. He would be willing to have bilateral talks with China over the South China Sea and is open to joint exploration of resources: “China has money, we need capital,” he says.

Running as an independent, Senator Grace Poe, 47, has slid down to second place with 25% but remains a formidable contender. As a foundling (and Marcos’s rumored illegitimate child), Poe was adopted by the famed late actor and politician Fernando Poe Jr and his wife Susan Roces. Like Roxas, she supports the arbitration case in The Hague, though she would favor further engagement with China. To the elites, she is a compromise.

The colorful Rodrigo Duterte, 71, is currently leading with almost 30% in polls. The long-serving Davao City Mayor has a tough stand on crime, which is resonating with most Filipinos. He leans on the nationalistic, social-democratic PDP-Laban. When Duterte took over in Davao in the 80s, it was a dangerous economic backwater. Today, the city is booming and crime is down.

At this point, Duterte’s greatest threat is his own macho rhetoric, which could undermine his poll position. Allegedly molested by a priest as a boy, he has also been vocal for the rights of women, and ethnic minorities, however. He would like to reinforce federalism in the Philippines to defuse centralism in Manila and Islamic terror in the south. While he shares Binoy’s policy to China, he has also been critical of the US-Philippine alliance, would lean more toward China and does not believe Washington would honor its defense obligations.

During the campaigns, much public apprehension has also been focused on the vice presidential candidate, Senator Ferdinand “Bongbong” Marcos, 59, the son of Ferdinand and Imelda Marcos who hopes to pave way for next election.

Time for a new era                

Until recently, the Philippines has been an idyllic growth pocket amidst the chilly international environment, as reflected by the fairly strong peso. However, as stagnation is spreading in the West and growth decelerating in the East, pressures are expected to climb in Manila as well.

On May 9, the Philippines will vote for a new president. “More of the same” policies will no longer be enough for 100 million Filipinos at home and 10 million Filipinos working abroad.  They want their rightful share of economic growth – which requires more economic development, political unity and peace in the region.

Can the Next Philippine President Keep the Economy Growing? is republished with permission from The Difference Group

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