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Duterte takes charge as headwinds blow

by June 29, 2016 General

The journey’s full of headwinds — from the ripple effect from “Brexit” that threatens the global economy that’s still on shaky ground given prospects in China and the United States, to the rise of protectionism, to La Niña, economists said.

Financial markets and investors could become less forgiving as they start counting Mr. Duterte’s first 100 days in office which will set the tone on whether promises the tough-talking erstwhile Davao City mayor made during his campaign were more than just theater.

“As candidate and even as president-elect, Duterte enjoyed some wiggle room for reinterpreting his statements and actions. It will be different after June 30. He will be subjected to intense scrutiny,” sociologist and University of the Philippines professor Randolf “Randy” S. David said in a mobile phone reply.

“Almost everything he says will be taken as indicative of official policy.”

Any policy misstep this early can overshadow the strong macroeconomic fundamentals that, together with healthy fiscal management, earned the Philippines its first investment-grade rating in 2013 — a legacy of outgoing President Benigno S. C. Aquino III with whom, according to protocol, Mr. Duterte was supposed to share that ride to Quirino Grandstand. That landmark was the site for inaugural addresses delivered by seven of the country’s past 15 presidents.

Mr. Duterte’s choice to instead hold his inauguration at Malacañan Palace and earlier than the 12 noon set by the 1987 Philippine Constitution somehow reflects the unorthodox candidate he was during his incendiary campaign against corruption and crime.

He had said he wanted to be frugal. Economists and market analysts hope that belt-tightening — typical of a new government — won’t apply when it comes to fueling economic growth.

“[W]e are hopeful of a shortened learning period with minimal odds of a drastic cutback in public spending experienced in the first 18 months of the Aquino government,” said Romeo L. Bernardo, economist at GlobalSource Partners.

Underspending in the early days of the Aquino administration was an outcome of efforts to ensure public contracts are clean amid perceived corruption that plagued Mr. Aquino’s predecessor, but critics at that time viewed that as a drag to growth.

“2010 was about graft and corruption. Good governance is good economics and good economics is Aquinomics. That’s finished. 2016 is about implementation,” Jonathan L. Ravelas, chief market strategist at BDO Unibank, Inc., said in a phone interview.

Incoming Budget Secretary Benjamin E. Diokno, one of the Aquino administration’s vocal critics, had announced a plan to bump up the deficit ceiling to 3% of gross domestic product when Mr. Duterte takes over.

And while investors took that signal as good news for investments, the brewing squabble between newly appointed Environment Secretary Regina Paz “Gina” L. Lopez, an anti-mining advocate, and Finance Secretary Carlos G. Dominguez over a new mining policy could dampen risk appetite. Mr. Duterte should not ignore fixing that internal row within his first 100 days, economists said.

Bernardo M. Villegas, economist at the University of Asia and the Pacific, said in an e-mail that Mr. Duterte should “send a strong message” to his advisers who lock horns over policy “that their extreme views have to be modified if they expect to remain in the Cabinet.”

“A major headwind we should be ready for will be the violent reactions that criminal elements will have against Duterte’s hardline policy to uproot criminality among the police and the drug lords,” Mr. Villegas added.

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It’s a view shared by those who bet on the equities market, with certain stocks recently swinging between gains and losses depending on what Mr. Duterte says.

“I think one potential pitfall the Duterte administration should watch out for is that the all-out drive on criminality, corruption and illegal drugs will induce negative reactions. Because powerful vested interests will be attacked, the administration should be careful to do everything by the book to reduce accusations of extra-judicial killings, etc.,” economist Luz L. Lorenzo, head of Research at Maybank ATR Kim Eng, said in an e-mail.

“These accusations could have knock-on effects on other initiatives being taken that are not as controversial.”

Another early test for Mr. Duterte: food security after El Niño’s wrath and as La Niña looms.

Markets had expected an additional 500,000 tons of rice imports this year, but earlier this month incoming Agriculture chief Emmanuel F. Piñol said there is no urgent need to buy the grain from rice-exporting neighbors.

But experts have a dire warning.

“If you buy at last minute, chances are you won’t be able to get a good deal. You’re limited to a few supplying countries — Thailand, Vietnam, Pakistan and possibly India — so your negotiating freedom is not very much,” said Bruce J. Tolentino, deputy director general for communication at the International Rice Research Institute (IRRI).

“What we’re worried about is that stocks are relatively low. The stocks in India, China and the Philippines are quite low and when you have low stocks you don’t have much room to manage price spikes.”

The long-term solution is to open up the market, with the IRRI proposing a commodities exchange managed by a neutral player or arbiter like Singapore, Mr. Tolentino said.

But it’s a political call, with the task of importing rice held largely by the National Food Authority (NFA).

“The one problem that we see looming is coherence and consistency in economic policy and programs given the presence of the representatives of the communist party… Even the Agriculture secretary, a friend of Mr. Duterte drawn from local government, has espoused non-market interventions in the area of rice policy,” Mr. Bernardo said.

Guests at Mr. Duterte’s spartan inaugural affair will be served light snacks, but even without the traditional toast that would have been a gesture of amity towards the diplomatic community, analysts advise that the new Philippine leader should not throw a monkey wrench into things especially when it comes to diplomatic ties with key allies US and Japan.

“Immediately talking with or a premature talk with China while at the same time not taking into account the concerns of our allies Japan and the US,” would be a policy misstep, said foreign policy expert Renato C. De Castro of the De La Salle University.

Beijing refuses to recognize the case lodged by the Philippines with the Permanent Court of Arbitration in The Hague over territorial claims in the South China Sea and insists such disputes should be resolved bilaterally — a strategy widely seen calculated to prevent the Philippines from being able to lean on allies on this matter. Manila is challenging the legality of China’s claim there, in part by arguing that no piece of land in the Spratly archipelago can be legally considered a life-sustaining island. A ruling by The Hague is expected as early as next week.