Rude Language and Awakenings
October 4, 2016 at 13:00
Rude Language and Awakenings
Judgment, it seems, came early for President Rodrigo Duterte.
Not yet 100 days in office, the local currency hit a seven-year low of P48.25:$1, depreciating 3.5% since the start of the month while the main stock index retreated 3.1% over the same period, both worse than most regional peers.
Critics are quick to blame the President’s drug war, with over 3000 body count to date, and his penchant to lash out willy-nilly at challenges to his authority, especially at perceived interference from foreigners, be they the international press, human rights activists, the United Nations, or the President of the United States. His expletive-laden rhetoric disturbs and confuses many — most recently telling the credit rater S&P, which issued a warning about policy unpredictability, to “leave us” — and his apparent partiality to China and even Russia unnerves free marketers.
Yet just like the President, his apologists remain unapologetic.
They disdain the critics’ judgment as either moralistic, narrow-minded obsession with extrajudicial killings, or ivory tower westerners ignorant of local conditions. They argue that the death toll is a necessary evil to disrupt the drug trade and root out corrupt public officials engaged in the drug business, which evidence supposedly points to elected and appointed officials — from the lowly barangay to national level offices, from the executive to the legislative and judicial branches of government. They firmly believe that the President’s heart is in the right place and that he should be given the opportunity, a proper honeymoon period of not less than six months, to show results. Meanwhile, financial market losses have nothing to do with local politics but with global market conditions and relative valuation adjustments.
To be sure, some of the non-political reasons advanced for the local markets’ recent retreat are plausible. Externally, apart from recurring speculations of an impending US rate hike, the prospect of a Trump presidency has directed market attention to possible changes in US immigration and outsourcing policies that some fear, may affect the remittance and BPO-reliant Philippine economy. This concern comes at a time of ballooning trade gap that may see the country’s more than a decade-old current account surplus reversing into a deficit. This in turn, while by itself would not threaten the country’s external resilience, would probably deter speculative plays based on an appreciating local currency and thus, lead to hot money outflows, something that the BSP should in fact welcome.
Yet, the timing of the Philippine market sell-off (with disproportionately larger price impact vs. peers) coincides too closely with heightened foreign press coverage of the President and his drug war (as well as S&P’s commentary on the policy risk) for us to dismiss outright the role of political factors. The question in most analysts’ minds now is whether or not local support for the President remains intact.
While official survey results on presidential trust scores and voter support for his drug war are due in about two weeks’ time yet, anecdotally, we gather that there remains broad support still for the President on the ground and people in general are willing to give him room to do what he thinks needs to be done. Economic watchers on the other hand, seem less concerned with the rising body count and more with the uncertainty created by the President’s unpredictable off-the-cuff remarks that come across as unorthodox policy statements, including on foreign relations. The fear is that this uncertainty, arising as well from the President’s rebuff of well-meaning external advice about the futility of violent drug wars and his declaration of an indefinite state of national emergency that allows the military to assume police functions, may cost the economy valuable growth points if it ends up quelling investor appetites.
At this time, foreign investors who have spoken out against human rights violations (European and American chambers of commerce) can be expected to be watching; and waiting. Smaller local businesses appear optimistic enough but the conglomerates are seen to be much more cautious. After all, looking beyond the body count and the President’s coarse language would require less talk of action and more actionable business propositions, including clarity in labor contracting and mining permits, ease of doing business, removing infrastructure constraints, and more PPP auctions.
While we are getting initial positive reviews of administrative improvements in frontline agencies, including the tax bureau, we think that the President’s men would have to move even faster on their deliverables to win the perception game, currently dominated by images of drug-related killings and Venezuelan-style failed governance.
The silver lining for this administration is that, notwithstanding the maverick image that President Duterte has projected of himself to the world, when it comes to economic matters, he will listen to his empowered economic team led by his close supporter and friend since primary school, Finance Secretary Carlos Dominguez III. This is true of macroeconomic management, reforms in taxation, rice and labor policies, spending priorities especially the need to fast-track infrastructure buildup, and other items listed in the administration’s 10-point agenda. And the 10-point agenda is nothing but orthodox.
(This was excerpted from a GlobalSource market brief dated Sept 29, 2016 by Ms. Christine Tang (globalsourcepartners.com) and this columnist.)
