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Duterte delegates Philippines into-economic-sweet-spot

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Duterte delegates Philippines into-economic-sweet-spot

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After six months in office, Philippine President Rodrigo Duterte points to only two big wins: his brutal drug war and an unexpected alliance with China.

  Behind the tough talk, Duterte oversees one of the world’s fastest-growing economies. His cabinet is drafting reforms to fix deep-rooted structural problems.   Duterte uses the same strategy that worked for him as Davao City mayor. He cracks down on crime and leaves economic policy to his advisers. “I am no expert on the economy,” he admits, saying he relies on “the bright guys” in his cabinet.   Economic Planning Secretary Ernesto Pernia meets him just twice a month. “He is obsessed with crime and drugs,” Pernia said. “He leaves other issues to the cabinet.”   The formula has worked so far, but economists question its limits. BPI economist Emilio Neri warned about deficit spending, stimulus-driven growth, and unsustainable populist policies.   Duterte rarely mentions the economy, but growth surged to 7.1 percent in the third quarter, Asia’s second highest. The government projects 7 percent for the year and 6.5–7.5 percent in 2017. Analysts credit both Duterte’s leadership and policies he inherited from the previous administration.   Markets show less confidence. Since Duterte took power, the main stock index has dropped nearly 20 percent in dollar terms. The peso has fallen 5 percent against the dollar, though other Asian currencies also weakened.   Supporters highlight his decisive leadership. In Davao, he slashed red tape, fired corrupt officials, and attracted investors. Growth there hit 9.3 percent in 2014, compared to 6.1 percent nationwide.   Nomura analysts say his populist, development-driven style shows he is determined to fix weak infrastructure. A quarter of next year’s record $67 billion budget goes to transport, ports, flood control, and other projects.   Strong remittances of $22 billion in the first 10 months, rising 4 percent from last year, and record-low unemployment at 4.7 percent also drive consumer spending. “He deserves credit,” Finance Secretary Carlos Dominguez said. “The important thing is business confidence in him is very high.”   Still, Duterte’s volatile foreign policy unsettles investors. He stunned allies by announcing a “separation” from the U.S. in Beijing, while warming to China, the Philippines’ historic rival in the South China Sea. China pledged billions in loans and increased imports, but uncertainty lingers.   Economists warn Duterte’s risk-taking could hurt policy. U.S. firms, which dominate the $23 billion outsourcing industry, have delayed investments. Capital Economics flagged growing risks to foreign investment. Moody’s kept a stable outlook, expecting strong growth if Duterte balances reforms with his drug war.   “In six months, economic policy reforms have taken a back seat,” Neri said. “Most of the focus is on the anti-drugs campaign.”      
Youths are pictured at at a slum area in Baseco, Tondo city, metro Manila, Philippines December 24, 2016. REUTERS/Romeo Ranoco

Youths are pictured at at a slum area in Baseco, Tondo city, metro Manila, Philippines December 24, 2016. REUTERS/Romeo Ranoco

 

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