Economic Outlook: Duterte Wins Filipino Presidency

Economic Outlook: Duterte Wins Filipino Presidency
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Controversial Davao City mayor Rodrigo Duterte emerged victorious in the Philippines’ recent presidential elections.  What should investors expect from the president-elect of one of Asia’s fastest growing economies?

Rodrigo Duterte, a dark horse candidate in the Philippine’s presidential race, won handily on May 9th despite facing well-connected, popular opponents that included celebrity-turned-senator Grace Poe and current vice-president Jejomar Binay.  Exit polls had Duterte receiving 38.92% of the vote, well ahead of the other candidates.

Duterte Wins Filipino Election

Duterte won the Philippines’ 2016 presidential contest by a margin of over 15%. Source: COMELEC-GMA

Duterte is frequently the center of controversy; he has drawn attention in the Western media for everything from insulting the Pope to joking about raping an Australian missionary. His rhetoric is often incendiary and profane; Duterte regularly pledges to “kill” and “butcher” criminals and drug peddlers.

How will the former mayor of Davao City govern when he assumes the Office of the President on July 30th? What can investors and business owners expect from the man nicknamed “The Punisher?”

The economic policy of Duterte

Duterte has said little about his plans for the economy on the campaign trail. This reflects both ambivalence and a lack of experience on Duterte’s part—the former lawyer focused almost exclusively on crime during his campaign and his tenure as Davao City’s mayor.

It seems likely that Duterte will delegate much of his economic policy-making to advisors and technocrats in his cabinet.  He followed this delegative model in Davao and has similarly pledged to appoint experts to run his economic and fiscal policy as President.

If Duterte chooses his cabinet wisely, investors will likely see a degree of conservative continuity in the governments’ macroeconomic policy; Duterte’s cabinet is likely to sustain many of current President Aquino’s successful initiatives.  These include investment in much-needed infrastructure and promoting foreign direct investment in manufacturing.  This is good news for investors concerned that the presidential elections might lead to a major break with Aquino’s policies.

That being said, Duterte is still less than ideal for investors.  His lack of a clear economic platform creates a great deal of uncertainty, despite his pledges to appoint competent technocrats to manage the economy.  Additionally, as a candidate with strong populist sentiments, he has expressed skepticism toward tax-breaks and free trade pacts.  Duterte seems unlikely to either reduce the Philippines’ abysmally uncompetitive corporate tax rate or push for membership in the new Trans-Pacific Partnership.  These stances will limit the potential growth for the Philippines’ economy.

Law and order

Duterte made his campaign almost exclusively about law and order – both in the streets and in Manila’s corridors of power.  He has touted his record as a crime-busting mayor in Davao – where he secured his nickname – and has promised to swiftly eradicate crime at the national level using hard-line tactics.  Duterte has also pitched himself as a political outsider willing to clean up the endemic corruption in the Philippine government.

This component of his platform is a mixed bag for businesses and investors.  A major national push to reduce crime could bolster security for businesses operating in the Philippines. But the hardline tactics that Duterte has adopted in the past pose key risks.  In particular, Duterte allegedly supported extrajudicial killings of suspected criminals carried out by mobs of vigilantes and assassins during his time in Davao – a practice that led to widespread condemnation by human rights groups.

Duterte still shows contempt for these concerns; just days before his election he exclaimed “forget the laws on human rights” and boasted that he would gladly kill a criminal in front of human rights activists if need be.  If Duterte replicates the unsavory tactics he utilized in Davao at the national level, it could hurt the reputations of businesses in the Philippines – and could even provoke sanctions against the country.

Similarly, a protracted anti-graft campaign could strengthen rule of law in the Philippines and bolster its economic outlook as well as the general quality of governance. However, this will only be the case if Duterte uses this campaign to attack corruption across the board in government rather than arbitrarily using them to eliminate political rivals. Businesses should be aware that any major uptick in anti-corruption measures could bring with them added scrutiny and compliance challenges.

Interestingly, Duterte has expressed enthusiasm for the Bangsamoro Basic Law and sustaining peace talks in Mindanao, which could help stabilize the southern island.  The more stable Mindanao becomes, the fewer resources the government will need to dedicate to policing the problematic island and the easier it will be to root out the remaining terrorist groups in the region like the notorious Abu Sayyaf Group.

The constitution

One last concern merits mention: Duterte’s fixation on constitutional reform.  Duterte has made in clear one of his top priorities is adopting a new constitution that creates a federalist system where local governments have significantly greater authority.  This could generate a seismic shift in the regulatory environment for businesses. While federalism could yield benefits in terms of accountability and efficiency, it could generate a seismic shift in the regulatory environment for businesses.  Federalism might also lead to regulatory fragmentation which could make it more difficult for the Philippines to attract foreign direct investment.

Overall, Duterte’s presidency brings both opportunities and risks.  Businesses need to keep a close eye on the progress in Duterte’s constitutional reforms and corruption measures. Investors should remain optimistic but hedge their bets – Duterte may offer continuity in key elements of Aquino’s economic policy, but he does not seem to be interested in more extensive liberalization and his other policies could create new risks for the Filipino economy.

Categories: Asia Pacific, Politics

About Author

Erik French

Erik French is a PhD Candidate at the Maxwell School of Citizenship and Public Affairs, a supervisor at Wikistrat Inc., and a former Sasakawa Peace Foundation fellow with Pacific Forum CSIS. His research focuses on security, politics, and economics in East Asia.