President Rodrigo Duterte recently admitted that the Philippine economy is in the doldrums. His “ingenious” solution: promote jueteng, an illegal numbers game that originated from, where else, China.
Such off-the-cuff pronouncement reflects the mind of a simpleton. He’s basically telling us that, if we need more money, just simply roll the dice. Here’s a leader who’s supposed to guide us to prosperity egging us to put our livelihood on a wager.
I’m not sure if his economic team was even consulted with such contemptible, outright ridiculous tact to pump up the economy.
The Capital Economics, a London-based independent macroeconomic research, analysis and forecasts firm has, in fact, attributed Duterte’s erratic and crass leadership for the ambivalence of foreign investors to park their money here.
It says that Duterte’s style of leadership “is putting off investors as poor leadership and political uncertainty could derail the country’s economic growth momentum.” Gereth Leather, the research firm’s senior economist, says: “The country’s own history shows how poor leadership and political uncertainty can hold back an economy. The biggest risk for the Philippines is that history now repeats itself. There are already signs that things are taking a turn for the worse. Since Duterte came to power, the stock market has underperformed, inflows into the country’s equity market have dropped, while pledges of foreign direct investment have fallen.”
I believe that the country’s economic fundamentals are still very much in good shape. If economic policy will only be left in the hands of his economic team, there’s an excellent chance that we’ll survive the tumultuous headwinds.
Duterte certainly doesn’t have what it takes to understand economics and is incapable of even offering a decent policy alternative. I agree with University of the Philippines economist JC Punongbayan’s tweet that Duterte “Gets it wrong on so many levels… saying the economy is ‘in the doldrums’ could just end up being a self-fulfilling prophecy.”
The fact remains that there’s a growing discontent among local and foreign investors. In various e-mails sent to me, they complain that the business atmosphere feels like “we’re heading for the worst.”
I asked Bangko Sentral ng Pilipinas (BSP) Governor Nestor ‘Nesting’ Espenilla Jr. about his views on where the country’s economy is headed. This is his response:
“I can understand the unhappiness of some businessmen/investors. But we need perspective here. There’s considerable global market turbulence and uncertainty at this time, and it’s a challenging environment for many economies, especially emerging markets like the Philippines. We’re definitely affected, but we’re not an isolated case. We do need to carefully navigate, but we should be ultimately fine. I’m truly convinced we have good economic fundamentals at this time and have provided for safety buffers to sail through this. [We] just need to hunker down.”
From a monetary standpoint, Espenilla says that the BSP has been managing the consequences of the Fed action to normalize US rates from ultra-low levels at a time when US fiscal policy is also very expansionary because of Trump tax cuts.
“This is strongly pulling back in from the rest of the world portfolio flows that has also led to overall appreciation of the US dollar against most currencies. For the Philippines, this would account for sharp correction in the Philippine Stock Exchange where foreign hot money is dominant. This is then reflected in capital outflows affecting the Balance of Payment and the peso exchange rate. On top of this theme, there is also the considerable uncertainty injected by Trump’s protectionist policies and geopolitical tensions that have affected oil supply, causing oil prices to spike.”
He says that these high profile global developments give rise to a lot of negative sentiments that inconveniently amplify local developments. Here at home, rice and other food-supply disruptions added to the higher excise tax under the Tax Reform for Acceleration and Inclusion (TRAIN) law. The confluence of these factors have led to faster than expected inflation.
He reveals that the TRAIN package already included certain budgetary subsidies to cushion its inflationary effects, but laments that there was considerable delay by government agencies to implement: “Now they’re catching up on the release of these subsidies, as well as importing rice. These will help ease inflation pressure. Rice tariffs will also help once enacted, possibly later this year.”
The BSP also hiked the policy rate twice to curb inflationary expectations that can build on the supply side shocks: “We’re being very measured about this, so the country’s strong growth prospect is still protected.”
Espenilla predicts that the economy will continue to grow close to 7 percent and be back to inflation target by next year. He’s also not worried by strong import growth because, as he says, it’s just consistent with investment-led growth. “We expect the current account deficit and the BOP deficit, while bigger, to remain manageable relative our growing economy. Both less than 1 percent of GDP.”
He explains: “Historical sources of currency crises, high external debt and low reserves, are no longer there. Our external debt to GDP ratio is down to 23 percent, from over 50 percent 12 years ago. Our reserves are much thicker, $79 billion, equivalent to seven months of imports. Finally, our banking system is very solid and far from any crisis. The fiscal position is also stronger, precisely because of tax reform.
I truly believe, we shouldn’t be too negative on the economic front. A lot of emerging markets will be happy to trade places with us at this point. We’re on the right track although there’s always room to execute better. It’s definitely a challenging environment but I remain fundamentally positive on our economic prospects especially if we continue to forge ahead with reforms.”
Of course, my friend Nesting is speaking from a vantage point. He knows whereof he speaks, but the thorn will always be on how the President will project the Philippines as a safe haven for investment. So far, the foul-mouthed Duterte has proved to be a bane. He is the problem.
For comments and suggestions, e-mail me at mvala.v@gmail.com.