Can the next Philippine president keep the economy growing?

Dan Steinbock says the country, now expanding at 6.5 per cent a year, has come a long way from its days as the ‘sick man of Asia’, and the election on May 9 of a successor to Benigno Aquino will be keenly watched

PUBLISHED : Friday, 22 April, 2016, 12:13pm
UPDATED : Friday, 22 April, 2016, 12:14pm

After the rule of president Ferdinand Marcos, from 1965 to 1986, and a close relationship with the US Reagan administration, the Philippines became known as the “sick man of Asia”. But over the past six years, confidence has been restored by President Benigno Aquino, who enjoys the trust of most Filipinos, according to surveys. As a fourth-generation politician, Aquino’s 2010 election win was buttressed by the legacy of his father, an opposition leader assassinated by Marcos, and his mother, the first post-Marcos president.

President Benigno Aquino takes the Philippines forward

Today, the Catholic-majority Philippines is widely seen as one of the most promising economies in Asia, although it is still haunted by centrifugal forces. Politically, it is witnessing the rise of new and more independent leaders, though old political dynasties still cast a shadow over its future.

Strategically, Washington and Manila are cementing a military alliance that leaves many Filipinos apprehensive.

Currently, the economy’s growth potential stands at 6.5 per cent per annum, with services, construction, manufacturing and consumption fuelling this. The future of IT business services is also promising. Yet, public underspending, lower exports, soft agricultural production and outflowing portfolio investments restrain growth.

This real estate fund would rather invest in the Philippines than China

One tenth of the gross domestic product remains reliant on remittances and the Filipinos working in the Middle East have been hit hard by the plunge in oil prices. Public investment remains too low, due to weak execution. Investment in human capital has increased, but should be accelerated. The poverty rate remains around 20-25 per cent, and income inequality is high.

Aquino’s rule has also been tarnished by crisis situations, such as the 2010 Manila hostage crisis involving Hong Kong tourists, Typhoon Haiyan in 2013, the Mamasapano anti-terrorism military operation in 2015 and the recent US$81 million money-laundering debacle.

With the Obama administration engaged in a “pivot” to Asia and China rebalancing in the region, integration has also accelerated in the Association of Southeast Asian Nations. Pro-US Filipinos hope to join the US-led Trans-Pacific Partnership (TPP) in the next round of expansion. However, Aquino has failed to achieve a change in the constitution, which bans foreign companies from holding more than 40 per cent equity in some industrial sectors.

Foreign policy and national security are also high on the voter agenda because of increasing geopolitical friction with China, the country’s largest importer and third-largest market for exports. As Aquino and his foreign minister, Albert del Rosario, have opted for a tougher policy and rejected bilateral talks, disputes have been taken to the international court. Concurrently, they have pushed for an alliance with Washington, joint military exercises and cooperation with Vietnam and Japan.

But after May, when Aquino will step down (Rosario stepped down in March for health reasons), the new president will seek to recalibrate the policy towards China.

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Grace Poe’s powerful personal narrative and support among the poor have put her in box seat to become next Philippine president

Last year, Aquino designated former interior minister Manuel “Mar” Roxas, an ex-investment banker and another political princeling, as his successor to sustain his reforms. As the leader of the ruling Liberal Party, “Mr Market”, as Roxas is known, appeals to moderate elites and wants to push forward with the China arbitration case. But he is trailing in opinion polls.

Vice-President Jejomar “Jojo” Binay portrays himself as a popular representative of the poor who has a long record of social service. Despite an initial lead, he is now also trailing, due to corruption allegations during his terms as mayor of Makati City. He would be willing to hold bilateral talks with China over the South China Sea and is open to joint exploration of resources.

Running as an independent, Senator Grace Poe is in second place in many polls, and is a formidable contender. As a foundling (and Marcos’ rumoured illegitimate child), Poe was adopted by the famed late actor and politician Fernando Poe Jnr and his wife Susan Roces. Like Roxas, she supports the arbitration case in The Hague, though she would favour further engagement with China. To the elites, she is a compromise.

At this point, Duterte’s greatest threat is his own macho rhetoric

The colourful Rodrigo Duterte is currently leading, with almost 30 per cent in the polls. The long-serving Davao City mayor is tough on crime, which resonates with most Filipinos. When Duterte took over in Davao in the 1980s, it was a dangerous economic backwater. Today, the city is booming and crime is down.

At this point, Duterte’s greatest threat is his own macho rhetoric, which could undermine his pole position. Nevertheless, he has been vocal for the rights of women and ethnic minorities. He would like to reinforce federalism in the Philippines to defuse centralism in Manila and Islamic terrorism in the south. He shares Binay’s policy on China, and has been critical of the US-Philippine alliance, as he does not believe Washington would honour its defence obligations. He would lean more towards China.

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During the campaigning, much attention has also been focused on the vice-presidential candidate, Senator Ferdinand “Bongbong” Marcos, 59, the son of Ferdinand and Imelda Marcos, who hopes to pave his way for the next election.

Until recently, the Philippines was an idyllic growth pocket amid the chilly international environment, as reflected by the fairly strong peso. But with stagnation spreading in the West and growth decelerating in the East, pressures are expected to mount in Manila.

On May 9, the Philippines will vote for a new president. “More of the same” policies will no longer be enough for the 100 million Filipinos at home and the 10 million working abroad. They want their rightful share of economic growth – which requires more economic development, political unity and peace in the region.

Dr Dan Steinbock is the founder of Difference Group and has served as research director at the India, China and America Institute (US) and visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). See