Business community turning positive on incoming president

From bad to good to better seems to best describe the business sector’s perception of presumptive President Rodrigo Duterte as he continues to announce controversial policy plans that include the integration of communist rebels into his Cabinet. 

A Wall Street Journal analyst even said the new leader “bodes well” for the country’s economy, although he also issued a warning about an impeachment threat if he “alienates the elite.”

Standard & Poor’s (S&P) Global Ratings, meanwhile, continued to see positive output for the Philippines economy with the entry of Duterte, but said growth risks from external real and financial sectors remain.

“Luckily, the bombastic Rodrigo Duterte has a good track record as the mayor of Davao [City] and, more important for us as investors, he’s not a socialist. Like Thailand’s Thaksin Shinawatra [elected as prime minister in 2001], his goal is to distribute the Philippines’s new wealth beyond Manila to the whole archipelago,” said Martin Hutchinson, a longtime international merchant banker.

Hutchinson ran derivatives platforms for two European banks before serving as the director of a Spanish venture capital company, was an advisor to South Korean company Sunkyong, and chairman of a United States modular building company.

He said Duterte would hopefully meet a better fate than Shinawatra, who was ousted in a coup in 2006.

“Duterte’s election certainly bodes well for the country’s economy, as well as its companies,” Hutchinson said. “Duterte is no tycoon. But as the long-standing and effective mayor of Davao, a city of 1.4 million people on Mindanao island, he made the city safer and less corrupt, albeit using draconian methods against criminals.”

Like Shinawatra, not only does Duterte promise to spread the benefits of economic growth through the archipelago, but he’s also not part of the traditional ruling elite, Hutchinson said.

“As I mentioned to Currency and Capital subscribers, what’s most important for us as investors is that Duterte shows no signs of socialism or grandiose public-spending plans,” he added.

Hutchinson also said that, as investors, there are two questions that should be answered about Duterte: Will his desire to spread economic growth more widely lead to massive public spending or a distortion of the markets? And assuming Duterte governs competently will he be impeached by the Philippine Congress, where he’s unlikely to control a majority?

He said the threat of impeachment is present, because of a precedent in former President Joseph Estrada, who was impeached in late 2000 and forced out of Malacañang in January 2001.

“If Duterte alienates the elite sufficiently, this is a danger, especially with the elite-friendly Robredo as vice president,” Hutchinson added.

“If he isn’t impeached, Duterte’s term will last six years, and he won’t be able to run again. In spite of a generally skeptical international reaction to his election, the Manila stock market approved of him, rising 5 percent over the two days after his election,” he said.

S&P also holds positive view

Meanwhile, S&P Global Ratings said it continues to see positive output for the Philippines economy with the entry of Duterte, who vowed to continue the Aquino administration’s infrastructure program, among other things.

In a study titled “APAC Economic Snapshots”, the debt rater said Duterte’s statements, made after preliminary poll results showing him leading the presidential race, pointed to maintaining the public-private partnership (PPP) program and a change in the Constitution to address restrictions on foreign investments.

“With economic policy unlikely to change significantly with the incoming president, underlying demographic trends will continue to drive growth,” S&P Global Ratings said.

The report noted that “a growing and educated middle class will continue to be absorbed by a combination of overseas employment and a booming outsourcing industry, driving consumption and investment even as external demand remains weak,” it added.

However, the credit rater said growth risks from external real and financial sectors remain.

“Persistently low oil prices, despite helping the goods trade balance, pose a tail risk of sharply reducing demand for overseas Filipino construction workers in the Middle East—a major source of remittances,” it said.

The credit watchdog sees a 6-percent expansion, as measured by gross domestic product (GDP), for the country this year, slightly higher than the 5.8-percent growth in 2015. For 2017, it forecasts growth to be higher at 6.3 percent.