Duterte’s war vs crime seen to result in long-term gains

Fund manager Mark Mobius said investors should not be overly concerned with Presi­dent Duterte’s “firebrand” im­age, as his election is consistent with the global wave of chosen populist leaders who are effec­tively implementing law and order in their respective coun­tries, which is “a good thing” for their long-term prospects.

“I think the marketing impact is going to be good to a longer term. Once he [Mr. Duterte] gets his house in or­der, I think he’s going to soften up and you’re going to see the reforms take place,” Mobius, who is executive chairman of the Templeton Emerging Mar­kets Group, said in a television interview.

Mobius, who has spent more than 40 years working in emerging markets all over the world, also said economic risks remained “benign” in emerg­ing Asian markets, including the Philippines.

Asked if the President’s use of colorful language would have an effect on business con­fidence, Mobius said: “No, I re­ally don’t think so. I think we’re seeing this globally–more populist leaders, people who are effective in pushing down crime and corruption. You’re seeing that all over the world, which I think is a good thing.”

Mobius said concerns about the Philippines and its President were “overdone,” considering that other coun­tries in Asia, like Indonesia and Thailand, are also dealing with their own political issues.

“I don’t see any down­side anywhere, because there are individual problems in each country. There’s concern about Mr. Duterte and the Philippines, which I think is overdone. There are concerns about reforms in Indonesia; in Thailand, the political environ­ment may be questionable. But all in all, the situation looks pretty benign in Asia,” he said.

This “benign” situation, Mobius said, also includes the Philippines, where a successful campaign against crime and corruption spearheaded by Mr. Duterte “will be very positive for the [country].”

The International Mone­tary Fund (IMF), meanwhile, cited Mr. Duterte’s 10-point socioeconomic agenda to pro­mote inclusive growth and re­duce poverty incidence from the current 26 percent to 17 percent over the next six years via massive public investments.

In its latest annual assess­ment report, the IMF wel­comed the new government’s intent to sustain high growth and “accelerate poverty re­duction,” as a staff team of its Executive Board noted that poverty, income inequality and unemployment persisted in recent years despite the coun­try’s favorable macroeconomic performance.

This staff team point­ed out in last month’s report that the former Davao City mayor, who was inaugurated as President on June 30 with a 10-point agenda calling for a “more ambitious” inclusive growth strategy, had tapped into a desire by Filipinos for change to tackle “the high lev­els of poverty and inequality that persist especially in rural areas despite years of robust economic growth.”

In a joint statement that accompanied the IMF staff report, Executive Director Marzunisham Omar and his senior adviser, Thomas Ben­jamin Marcelo, said “the Phil­ippines remains committed to continue implementing sound macroeconomic policies and wide-ranging structural re­forms to support the strong and sustained growth of the economy and enable a durable reduction in unemployment and poverty.”

Last week, the World Bank (WB) also said in a report that the Philippines has emerged as one of the most dynamic econ­omies in East Asia in the first half.

The WB attributed the bright prospects on the economy to the Duterte ad­ministration’s assurance to investors of continuity of economic policies.

The economic outlook is optimistic, with risks tilted to the upside, the WB said in its report on the Philippines, titled “Outperforming the Region and Managing the Transition.”

The report noted that en­hancing the inclusiveness of growth is a priority of the new administration of Mr. Duterte.

The IMF said in its report it also supported the increase in the fiscal deficit target to 3 per­cent of gross domestic product (GDP) from 2017, anchoring fiscal policy to a broadly stable public debt-to-GDP ratio.

It said the increase in the deficit target would allow a welcome boost to infrastruc­ture and social spending, while ensuring fiscal sustainability.

The IMF also said it wel­comed the Duterte adminis­tration’s initiatives in its pol­icy agenda to increase social spending and promote rural development and agriculture.

It noted that the agenda includes “accelerating infra­structure investment, raising competitiveness by relaxing constitutional restrictions on foreign direct investment, en­suring security of land tenure, strengthening the education system, implementing a com­prehensive tax-policy reform, modernizing tax collection agencies, and improving social welfare programs.”

“The Philippines’ high poverty rate fell only by 0.3 percentage points per year, from 28.8 percent in 2006 to 26.3 percent in 2015 [national definition],” it added.

“The new authorities tar­get a reduction in the poverty rate of 1.25 to 1.5 percentage points per year during their term, with a cumulative de­cline of 7.5 percent to 9 per­cent in six years,” it said.

The IMF said it supported the government’s plans to im­prove human capital and social services for the poor.

It also supported efforts to promote development in a more geographically balanced manner.

It also said it welcomed plans to improve the condi­tional cash-transfer program, raise investment in education and health, promote rural and value chain development, and ensure land tenure in agricul­ture.

It said the new administra­tion plans to increase the defi­cit target to 3 percent of GDP starting in 2017, to raise infra­structure and social spending, implying a fiscal stimulus of 1 percent of GDP in 2017.

“The deficit target of 3 percent of GDP, higher than the 2 percent under the pre­vious administration, would allow the authorities to ad­dress the Philippines’ large infrastructure and social gaps to promote inclusive growth,” said the IMF.

“It would also reduce the debt-to-GDP ratio to un­der 31 percent in 2021, thus, providing a margin of 5 per­cent of GDP to respond to materialization of fiscal risks and uncertainty around the baseline projections through flexible implementation,” it added.

Article IV of the IMF’s rticles of Agreement calls for the IMF’s bilateral discus­sions with members, usually on a yearly basis.

This Staff Report was prepared by a team for the IMF Executive Board’s con­sideration in September, fol­lowing consultations with Philippine officials on eco­nomic developments and policies under the new gov­ernment.

In its own statement, the IMF Executive Board said, “The outlook for the Philip­pine economy remains favor­able despite external head­winds.”

The board said the “Phil­ippine authorities are well equipped to respond, as needed, with suitable policies should any risks materialize, particularly given the strong fundamentals and ample pol­icy space.“