Incoming Philippine President eyes key economic issues as reign begins

MANILA: Rodrigo Duterte’s big day has arrived. The long-time mayor of Davao will be inaugurated as the Philippines’ 16th President on Thursday (Jun 30) after a landslide election victory in May.

But with a resounding win comes the huge task of continuing to pull the Philippine economy out of a decades-old rut. Duterte’s predecessor Benigno Aquino has been credited for shaking off the country’s "sick man of Asia" label; under his leadership, GDP grew by an average of 6.5 per cent until 2015, eclipsing that of its neighbours. The country also got it first investment grade credit rating.

Rating agencies are now waiting to see how the new leadership will steer the country, highlighting the need for continued reforms.

"The agency does not expect the outcome of the Philippines election to have any immediate impact on the rating or outlook," Sagarika Chandra, Associate Director in Fitch Ratings’ Sovereigns, said in a report. "However, when the rating agency affirmed the rating at ‘BBB-‘ with a positive outlook in April, the agency had pointed out that it would wait and see whether the improvement in governance standards achieved under the administration of Aquino can be sustained after the 2016 elections, in line with its rating sensitivities."

LIFTING FOREIGN OWNERSHIP LIMITS

Duterte’s camp has said it will maintain macroeconomic policies of the Aquino government but has also highlighted its own key economic projects. These range from tax reform to agricultural development.  

Of the announced agenda, the most radical shift in policy from the Aquino administration is Duterte’s willingness to relax foreign ownership restrictions in certain industries, in an effort to bring in more investments.

Current rules limit foreign investors to owning no more than 40 per cent of businesses in most industries.  Some sectors, such as media and engineering, are completely off-limits. This is based on the constitution Aquino’s mother, Corazon, passed as President in 1987.

“Limits in this area have contributed to the Philippines’ low foreign direct investment relative to other countries,” said ratings agency Moody’s said. “The liberalisation of ownership restrictions could significantly support medium-term economic growth.”

Foreign direct investment has been a key ingredient in the economic success of the Philippines’ neighbours. In Malaysia and Thailand, it has helped bring in more jobs and technological advances.

TACKLING TRANSPORTATION GRIDLOCK

Duterte’s appointed transportation head Arthur Tugade said the new President should be given emergency powers to address the country’s worsening traffic crisis. If granted by Congress, this will allow the new administration to speed up release of government funds for transportation projects.

It could also grant them authority to open up private property developments to traffic and remove terminals and markets along major roads. Some business leaders in the country are backing the idea.

"The Makati Business Club will be prepared to support the consideration of well-defined emergency powers for the transport sector, provided these emergency powers are specific, limited, and timebound; anchored on a solid national policy; and complemented by a strong system of accountability," said the Makati Business Club, which is the country’s top association of corporate leaders, with members including Shell, Ascott and Accenture.

Poor transport infrastructure coupled with strong economic growth have resulted in headaches on the road. According to the American Chamber of Commerce of the Philippines, the country may become unlivable in four years if the traffic situation is not addressed.

Another study by Japan International Cooperation Agency pegs the country’s economic loss at US$51.6 million each day, due to traffic jams.

Meanwhile HSBC said that lifting caps on foreign ownership and significant infrastructure spending could have the most important implications for the Philippine peso. “Both of these measures could spur foreign direct investment into the Philippines,” it said. “Indeed, the room for FDI to play catch up.”

CONSIDERING WIDER FISCAL DEFICIT

While the outgoing Aquino administration was praised by credit rating agencies for its conservative fiscal strategy, the Duterte government is eyeing a different approach. 

Incoming Budget Secretary Benjamin Diokno is considering a budget deficit of 3 per cent of GDP to increase government spending. Aquino's team limited its budget deficit to 2 per cent of GDP, but consistently fell below that limit. In 2015, it was a mere 0.9 per cent of GDP.

Mr Diokno said the higher deficit will be used to fund infrastructure and agriculture projects.

MINING SECTOR ON ITS TOES

Duterte has fired a warning to mining companies in the country, calling on them to "shape up". A native of resource-rich Davao, his administration has said it will review mining contracts and permits. Duterte also appointed environmentalist and anti-mining advocate Gina Lopez as head of the Department of Environment and Natural Resources.

Observers and industry players saw the moves as a damper to the mining industry, but the administration said it was not anti-mining but supportive of responsible mining. Still, the Philippine Stock Exchange Mining & Oil Sector Index dropped 4.1 per cent the day Lopez accepted the post. It dropped another 7.3 per cent the day after.

The Philippines has some of the largest untapped mineral resources in the region, worth US$1.4 trillion according to Reuters. Still, it accounts for less than 1 per cent of GDP, mainly because of strong opposition from anti-mining groups, an ongoing insurgency and widespread corruption.

-CNA

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