Duterte’s new economic agenda: What is old and what is new?

Duterte’s new economic agenda: What is old and what is new?

Duterte’s economic agenda seeks to reassure investors and tackle some issues that the outgoing administration was either unable or failed to address. But it must implemented with concrete economic policies.

Unveiled by Carlos Dominguez, the new finance secretary, the economic agenda of the newly-elected President of the Philippines, Rodrigo Duterte, is an attempt to reassure the business community about his commitment to continue a business-friendly economic policy. The new administration will seek to alleviate poverty, take actions to ensure that the Philippines remains attractive to investors, carry out tax reforms to fight corruption, and initiate programs to improve the labour force.

Some continuity and a few new ideas

The first point of the economic agenda is that the new administration will largely maintain current macroeconomic policies. This should come as no surprise as the Philippines saw a growth rate higher than any other ASEAN country at almost 6 percent over the last six years under the outgoing President Aquino’s leadership, owing to his market-friendly economic policies.

Increased spending on infrastructure is Duterte’s first priority. Albeit one of the fastest growing and one of the most developed countries in the region, the Philippines still suffers from inadequate infrastructure, particularly frequent power cut and a poor transportation system, which cause increased business costs and undermine economic activities. Duterte has vowed to improve public transport and his first big project is the establishment of a railway for the Philippines.

Another key policy direction that investors were uncertain about was whether the new administration would remain market-friendly and continue to attract foreign investment. The economic agenda promises to continue to ensure the attractiveness of the Philippines to foreign investors, with two measures being put forward to achieve this. The new government will fight crime and ease economic activity. The new administration will adopt the “Davao model”, a city where the president-elect has served as mayor. The Philippines economy is heavily depending on consumer spending and remittances, and transforming the economy towards a more investment-friendly economy will help to sustain growth.

The new administration will also strengthen basic education and provide scholarships for study programmes that match the needs of private employers. Young people will have the chance to specialize from high school rather than having to wait until university levels. Many qualified young graduates are unable to find good jobs in the Philippines and have sought employment abroad. One industry that would particularly benefit from this is the outsourcing industry, which is estimated to be worth $22billion in 2015 but continues to face the challenge of recruiting skilled labour.

One of the main issues the outgoing administration has failed to deliver on is improving the livelihood of farmers. The new economic agenda will provide support services to small farmers to help them improve productivity and market access. If done correctly, this could have great potential to alleviate poverty as almost 60 percent of the labour force is employed in the agricultural sector. Other poverty reduction measures include reforming the tax system to make it more progressive by indexing tax collection to inflation rate, and the conditional cash transfer (CCT) program that will be expanded.

The next steps

The economic agenda looks good on paper, but the business community is waiting to see how the new administration will go ahead with the implementation.

Some measures such as an alcohol ban to reduce crime will be something that can be implemented fairly quickly, other objectives require more thorough planning. One key area the new government need to work on is attracting foreign investment apart from providing security and order. The Philippines’ 32 percent corporate tax is one of the highest among the region and the 40 percent cap of foreign ownership of real estate and companies in the country is preventing the Philippines from reaching its full growth potential.

Given the nature of the Philippines’ political landscape, which is largely based on personal and party loyalty, it is difficult to assume how the new President will fare on economic areas. In the short run, Duterte will be looking to consolidate his political power and gain support for the implementation of his agenda. With the huge legitimacy the president-elect has gained from his large election victory, the new administration could take the Philippines into a next phase of high growth for the coming six years, providing they are able to ensure policy coherence.

Categories: Asia Pacific, Politics

About Author

Qingzhen Chen

Qingzhen is a GRI Senior Analyst and a research analyst for an international information company. Her research focuses on China and the Asia Pacific. Previously she was a market researcher for PwC. She has gained regional knowledge from internships with the UNDP, China Policy, and the Royal United Services Institute. She holds a BA in Politics and East European Studies and an MSc in Security Studies from University College London.