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Duterte must be bold on economic policy

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In Brief

The Philippines has concluded its elections with Rodrigo Duterte coming from out of nowhere only to gallop passed better known political figures and snatch the presidency. Duterte was a long-serving mayor of Davao City and, except for a brief tenure as a member of the House of Representatives, has not been a national political figure.


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Unlike other candidates who have long cherished the job, Duterte didn’t appear to harbour presidential ambitions until only a few months before the national elections in May 2016.

A simple, powerful packaging of his persona as a stern problem solver and man of action created a strong connection with an electorate that has felt helpless in the face of issues of peace and order, poverty, income inequality and state neglect. This effective campaign catapulted him to the presidency.

A successful outsider challenge to the status quo may have seemed unlikely. The outgoing president Benigno Aquino can point to a sterling economic performance on his watch: an average GDP growth of almost 6 per cent during his six-year term (better than the other ASEAN countries), low inflation, macroeconomic stability, investment-grade credit ratings, a stable banking industry and prospects of higher growth in the immediate future.

Aquino’s main contribution lies in demonstrating that investor-friendly, market-enhancing economic policies and improvements in the governance framework lead to higher growth. The shedding of the Philippines’ reputation as the ‘sick man of Asia’ can largely be credited to his administration of the economy.

But the economy remains stuck with deep-seated problems of high incidences of poverty and high levels of income inequality. A large segment of the well-educated workforce can’t find quality jobs domestically and many are employed overseas. Economic growth needs to be more inclusive. Growth is important, and so are the economic policies that create it. But growth is meaningless unless poor and disadvantaged citizens are able to cross over the poverty divide. The twin challenges of growth and equity will be major issues for the new administration.

What are the key economic challenges facing the incoming Duterte administration? And what policy responses to these challenges need to be prioritised?

The president-elect and his economic advisers immediately presented an eight-point economic agenda that will define the country’s policy space over the next six years. It consists of macroeconomic policies aimed at promoting economic stability, increased tax collection, better infrastructure, fostering an attractive investment climate, boosting support services to small farmers, improving land administration and management, basic and higher education, and implementing conditional cash transfers. A close economic adviser hastily added federalism and reproductive health to the list.

The new administration is almost sure to get full legislative support for its economic agenda and associated policies, a key requirement for delivering electoral promises in a tripartite democratic government. A coalition-building exercise has begun in the House of Representatives to foster legislative support for the eight-point agenda. Senators, meanwhile, are still in the process of sizing each other up before they choose the next Senate President.

On its surface the eight-point economic agenda is generally fine, although some will perhaps take reproductive health and federalism as contentious issues. The eight-point plan does not depart from the policy goals identified by past administrations and it contains no surprises. It is tempting to think that in order to attain the new administration’s economic goals, economic policies will be as market-friendly as the previous administration’s. But it is too early to say.

The challenge lies in fleshing out the specific economic policies needed to implement the eight-point economic agenda. In the first place, the public needs clear policy statements and policy coherence from its newly elected leaders. A campaign promise to reduce personal and corporate income taxes is simplistic but popular. Any proposal to reduce taxes should be part of a well-studied, comprehensive overhaul of the Philippines’ outdated tax system. Providing private tax relief should be balanced against the need for ample fiscal space to produce the public goods needed by society more broadly.

Duterte’s campaign promises of subsidies, doubling salaries of particular groups in the bureaucracy, expanding the coverage of conditional cash transfers, fixing labour regulations, and making rice importation a government monopoly — all promises that have been made without the benefit of sufficient empirical study — should be given a sober reality check. Somebody has to pay the cost of providing all those goodies. Is the taxpaying public able and willing to bear the cost?

Past administrations have tried and failed to address several factors that have constrained the realisation of the Philippine economy’s full growth and employment potential. These include the constitutional provision that limits foreign direct investment in the economy, the country’s weak regulatory frameworks, widespread corruption in the police and judiciary, and insufficient peace and order. The new Duterte administration enters office with an overwhelming mandate from the electorate. This is precious political capital that can and should be used to intensify market-friendly economic policy reforms and deal with those critical development constraints. It is time for the ‘tough guy’ president to make some tough policy choices.

Gilberto M. Llanto is President of the Philippine Institute for Development Studies.

2 responses to “Duterte must be bold on economic policy”

  1. The Philippines, with a population of about 102 million, is, arguably, one of the poorest countries in Asia. In 2013 its GDP was US$272.2 billion, which was lower than the GDP of Singapore, which has a population of only 5.32 million.

    The writer points out that “The outgoing president Benigno Aquino can point to a sterling economic performance on his watch: an average GDP growth of almost 6 per cent during his six-year term.”

    But could he achieve that without the estimated US$23 billion repatriated by Filipino expatriates from the Middle East, Canada and the Asean region? Hardly.

    What the Philippines needs to advance is not just money (peso), which it can print 24/7, leading to hyperinflation vis-a-vis Zimbabwe, but capital tools and new modern factories to produce consumer goods for local consumption and for export to the rest of the world.

    Mr R. Duterte, the President-elect, is smart enough not to depend on the US and he wants to hold bilateral talks with China, over the disputes in the South China Sea.

    A friendly, win-win solution could build confidence and result in a spike in Chinese investments in the Philippines, resulting in the creation of millions of jobs, new infrastructures like super-highways, high-speed rails, downtown mass rapid-transit rails to clear the ubiquitous traffic gridlock in Manila, harbours, airports and build hospitals, clinics, schools and universities, new modern factories and mega Malls.

    The Philippines has rich deposits in precious and base metals. With commodity investment reforms and new capital, new gold and copper mines could be developed.

    Manila has joined the AIIB as a founding member and will participate in the multi-trillion yuan One-Belt and One-Road projects to create prosperity for the people of the Philippines.

    The unthinkable alternative is to go down the slippery slope with Uncle Sam and the Philippines will have more bombs, endless wars and poverty for decades more to come.

  2. This very useful summary by Dr Llanto of the economic policy of the incoming president Duterte points to the marked improvements in economic performance in the Philippines in recent years. Hopefully the incoming government in the Philippines will build on this record.

    In fact, in terms of overall economic growth, the last six years during the Aquino administration have brought the period of best economic growth in the Philippines for 30 years. During the Aquino administration, growth averaged around 6% per year. This was certainly a strong performance considering the headwinds to growth in the region recently.

    But this period has only been a start. The challenge for incoming president Rody Duterte is both to maintain the growth rate, and also to find ways of ensuring the benefits are more equally shared.

    In principle, good policies should allow both goals to be achieved simultaneously. In practice, the devil will be in the detail. As Gilberto Llanto says, very few details of the implementation of policies have been discussed yet. We now need to see what flesh the incoming government can begin put onto these bones.

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