Everyman’s Strategic Survey: The Philippines

downloadA couple of days ago I commented on the Philippines’ President elect Rodrigo Duterte, opinions were, I noted, mixed: some cautiously hopeful, others pessimistic.

I have explained, I think, that I have focused rather a lot of attention on the Philippines for three reasons:

First: Canada needs friends in the Asia-Pacific region and the Philippines is a, broadly, friendly country;

Second: the Philippines is an emerging secular democracy ~ the institutions left by the United States are not as strong as many, Filipinos included, might wish but they are there and Canada can help to strengthen them; and

Third: the Philippines is now the third largest and, I believe, fastest growing immigrant “community” in Canada ~ the people in the Philippines are, increasingly, our ‘kith and kin.’

Now both The Economist and the Financial Times have published assessments of what the outlook is like for thew Philippines under a new President.

The Financial Times focuses on President elect Duterte’s domestic agenda, noting that “in the Philippines, where much of the public is concerned about security and drug abuse, his harsh stance against crime has won support.” The Financial Times is cautiously optimistic, on the economic policy front noting that “The presumptive president, who is expected to be sworn in at the end of June once his poll victory is confirmed, has named a series of experienced technocrats and businessmen who would be invited to join his cabinet. They include Carlos “Sonny” Dominguez, who has previously served as minister of natural resources and secretary of agriculture, and Arthur P. Tugade, who heads a government agency that manages one of the country’s special economic zones.

The Economist, on the other hand, is less optimistic. It explains the Duterte victory by nothing that “the country of 100m people that Mr Duterte inherits has one of the fastest-growing economies in Asia. But poverty stubbornly persists. Voters are also fed up with crumbling infrastructure, productivity sapping gridlock, persistent corruption and ineffective government. And discontent simmers at the country’s narrow, feudal politics, dominated for decades by a handful of wealthy landowning families … [and] … Mr Duterte ran as an action man and outsider, ready to tackle the nation’s problems just as one might wring the neck of a foul snake. He has given few details. In a long, meandering speech, laced with bad language, at the rally in the park he promised only to fight crime and corruption. The crowd cheered as he pledged to send the army and police to kill criminals. Similar threats made on the campaign trail thrilled many more people than they horrified. Ordinary Filipinos are sick of the robbers they meet in the street—as well as those they put up with in high office.

The Economist‘s analysts are worried: “The question now is what sort of president Mr Duterte will make. His campaign focused almost entirely on crime, drugs and corruption. These are important in a gun-mad country where being asked for bribes is a daily frustration. But to deal with them he has offered only macho posturing. His promise to stamp out all three within six months of taking office is impossible, even if he goes ahead with his killing spree (he has threatened to slaughter 100,000 criminals and dump their bodies in Manila Bay to fatten the fish). But he can do a lot of damage trying.” Further: “In some respects, Mr Duterte says, he will follow the path the country is already taking, for instance, by seeking peace in the south. Mr Aquino’s administration was on the brink of signing a peace agreement with Muslim rebels in Mindanao, ending a decades-long insurgency, when 44 policemen died in a botched raid on a splinter group. After that raid the bill to establish an autonomous political entity became politically toxic and died in Congress. Mr Duterte says he supports creating such an entity and may revive the bill.

An abrupt shift in economic policy seems unlikely. For all his tough talk on everything else, he has suggested no major changes. Since the economy is chugging along nicely, this is just as well. Nominal income per head grew from $2,372 in 2011 to $2,873 in 2014. Between 2010 and 2015 the economy expanded at an average annual rate of 6.3%, nearly two percentage points faster than in the previous five years—and the biggest improvement among South-East Asia’s larger economies (see chart ). The World Bank forecasts more of the same—growth of 6.4% in 2016 and 6.2% for the two years after. In Mr Aquino’s term the country attained an investment-grade credit rating for the first time, reducing the country’s borrowing costs.

As the economy has expanded, public debt has declined markedly, from 77% of GDP in late 2004 to around 44% in March. Remittances grew in 2015 for the 14th year in a row and now account for around 10% of GDP. But a fast-growing service sector, particularly in business-process outsourcing—call centres, data transcription, software and engineering design, and other back-office tasks—has kept more skilled Filipinos at home. The number living abroad has fallen from 10.2m in 2013 to 9.4m today, according to Mr Aquino.

Mr Duterte wisely plans to maintain his predecessor’s focus on infrastructure. Less wisely, he thinks he can revive the country’s steel industry, despite a global glut. He wants to boost investment in tourism—the Philippines attracts fewer visitors than it should, given its situation and beauty—and proposes leasing islands to foreign investors to set up factories. Worryingly, given the Philippines’ potential as a trading nation, he sounds lukewarm about joining the Trans-Pacific Partnership, a free-trade pact. He says that he will hire “the economic minds of the country”, and let them make policy. Choosing the right advisers might reassure jittery investors and keep the country on track.

On the foreign and defence policy front The Economist says: “The most pressing foreign-policy question facing the Philippines is its stand-off with China over claims in the South China Sea (or the West Philippine Sea, as it is known at home). On this Mr Duterte has careened all over the map. He has declared himself “ready to die” for this 21-china-artificial-islandcountry’s claims, vowing to jet ski to a disputed island personally to plant a Philippine flag. He has insisted that he is open to bilateral negotiations and joint development, something China has said it favours as well. He has also vowed to “shut up” about the dispute if China agrees to build train lines Disputed-claims-in-the-south-china-sea-Agence-France-Presse-okiacross the Philippines … [and] … What he will actually do is a mystery. Most recently, he has seemed willing to accept the status quo: after voting on Monday he told reporters, “I would say to China: ‘Do not claim anything here, and I will also not insist that it is ours.’” The Permanent Court of Arbitration, an international dispute-resolution body in The Hague, is expected to rule in the coming weeks on the Philippines’ case against China. If it sides with the Philippines and then China begins building on the Scarborough Shoal—which both countries claim and which China has occupied since 2012 in contravention, according to the Philippines, of an American-brokered agreement—no Filipino president can simply acquiesce, especially a tough guy.

The Economist, as it so often does, also offers a very useful brief “Guide to the Philippines in charts.”

The Economist concludes its quite detailed assessment, both pessimistically and a bit peevishly, saying that: “A return to instability would do the Philippines no good. The country is not over-reliant on commodities or China. Unlike China, Japan and Thailand, the Philippines has a young population and a cheap English-speaking labour force. The country does not share Indonesia’s protectionist instincts and is more welcoming to foreign investors. If it keeps to today’s path it could become one of Asia’s stars.

All of that is at risk. In the short term Mr Duterte is unlikely to make any policy reversals to stop growth. But investors are nervous: Mr Aquino was dull but predictable; Mr Duterte is neither. Further ahead, the Philippines risks the same combination of political unpredictability and stagnation as Thailand—another country divided between a minority long accustomed to getting its way and a majority that keeps voting against it. If the Filipino elite understands the message voters have sent in electing Mr Duterte, they could avert this fate.

The bigger risk comes from the long-term damage a strongman could do to a young democracy’s still-fragile institutions. On the stump Mr Duterte mused about shutting down Congress and declaring a “revolutionary government” if he fails to get his way. His enthusiasm for vigilante killings shows his preference for order at the expense of law. The Philippines’ growing prosperity reflects the country’s improved governance, and the confidence of investors. Voters rightly want more inclusive growth and are frustrated at the domination of their country by a small number of families. But electing a president with contempt for the law and democratic norms will solve neither problem.

No matter what the outlook, Canada can and should engage more actively with the Philippines to secure its friendship, to contribute to and participate in its its growth, and to contribute to peace in the region.

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