Philippines Report

Capital Economics: Duterte’s erratic, crass leadership style showing signs of putting off investors

Contrary to initial fears, President Rodrigo Duterte was not a “disaster” for the economy during his first two years in office, even as London-based economic research firm Capital Economics on Tuesday warned that his “erratic and crass” behavior is a disaster waiting to happen moving forward.

“Two years after coming to power, President Duterte of the Philippines has not been the disaster for the economy that some feared. Growth has remained strong, while economic policy has been left in the hands of technocrats, who have pushed through a number of sensible reforms,” Capital Economics senior Asia economist Gareth Leather said in a report titled “Philippines: A two-year progress report on President Duterte.”

The gross domestic product (GDP) grew 6.8 percent in the first quarter, below the 7 to 8 percent full-year target for 2018, but still among the fastest economic expansion in the region.

 

“For the most part, Duterte has stuck to his campaign promise by staying out of the day-to-day running of the economy. Instead he has delegated economic management to a few respected officials, most importantly, Carlos Dominguez as finance minister, who has provided reassurance to investors concerned about Duterte’s war on drugs and other controversial policies,” the research firm noted.

Capital Economics cited two achievements of the Duterte administration so far: the ambitious “Build, Build, Build” infrastructure program, as well as the comprehensive tax reform program, whose first package on personal income taxation was signed by the President in December.

“Spending on infrastructure is set to reach 5.3 percent of GDP this year and over 7 percent by 2022, up from just 4.1 percent in 2016. If it is to achieve this target while keeping the budget deficit within the 3-percent-of-GDP ceiling, the government will need to raise more revenue. The government is already making progress in this area. Tax reforms passed at the start of this year are likely to raise revenue equivalent to around 1 percent of GDP. Further tax increases are scheduled for the next couple of years,” Capital Economics said.

However, the research firm  noted that the massive infrastructure push and tax reform also “[created] some problems” for the economy.

“The first has been a big increase in inflation. Following the increase in taxes at the start of the year, inflation now stands at a seven-year high. The government’s infrastructure drive has also led to a surge in imports of capital goods, which has contributed to a sharp deterioration in the country’s current account position and put the currency under downward pressure,” it said.

As of end-May, the headline inflation rate averaged 4.1 percent, already breaching the government’s 2 to 4 percent target for the entire year.

Also, the peso slid to nearly 12-year lows against the US dollar in recent weeks.

But for Capital Economics, “a longer term concern is Duterte’s erratic and crass leadership style, which is showing signs of putting off investors.”

http://philippinesreport.com/god-stupid-mine-lot-common-sense-duterte-says/

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