The Philippines

Fist of iron

A new strongman president may prevent the Philippines from becoming an economic star

Almost 90 years later demonstrators, fed up with the murderous kleptocracy of President Ferdinand Marcos, massed in the same park in a display of people power that eventually pushed him into exile. On May 7th, two days before Filipinos went to the polls to choose a new leader, 250,000 people thronged Rizal Park for a rally for Rodrigo “digong” Duterte (pictured above), who promises another political upheaval.

Mr Duterte, the tough-talking mayor of Davao, triumphed on May 9th: with more than 95% of the vote counted, he holds a 15-point lead. The two runners-up have conceded defeat. His rivals were well beaten. Miriam Defensor Santiago, who has served in all three branches of government, took just 3.4% of the vote. Grace Poe, a telegenic senator with little political experience, threw in the towel on election night. Mar Roxas, a cabinet minister, finished well adrift, despite an endorsement by the outgoing president, Benigno Aquino. Jejomar Binay, Mr Aquino’s vice-president, who has faced a steady stream of corruption allegations, finished even further behind.

The country of 100m people that Mr Duterte inherits has one of the fastest-growing economies in Asia. But poverty stubbornly persists. Voters are also fed up with crumbling infrastructure, productivity sapping gridlock, persistent corruption and ineffective government. And discontent simmers at the country’s narrow, feudal politics, dominated for decades by a handful of wealthy landowning families.

Mr Duterte ran as an action man and outsider, ready to tackle the nation’s problems just as one might wring the neck of a foul snake. He has given few details. In a long, meandering speech, laced with bad language, at the rally in the park he promised only to fight crime and corruption. The crowd cheered as he pledged to send the army and police to kill criminals. Similar threats made on the campaign trail thrilled many more people than they horrified. Ordinary Filipinos are sick of the robbers they meet in the street—as well as those they put up with in high office.

Mr Duterte will be the first president from Mindanao, the southernmost of the islands that make up the Philippines and the poorest part of the country (see map). He will also be the first not to have held national office since the late Corazon Aquino, mother of Benigno and widow of an assassinated opposition leader, who rode the “people’s power” revolution to the presidency in 1986. Mr Duterte tapped into a deep resentment at the immense wealth and political sway amassed by a few elite families.

Three of the four candidates whom Mr Duterte defeated were politically connected to Ms Aquino; the fourth, Grace Poe, was the adopted daughter of a friend of Marcos. Malcolm Cook at Singapore’s Institute for South-East Asian Studies, refers to them as “the faded yellow ribbon brigade” (yellow ribbons were an anti-Marcos symbol).

Family ties

The promise of the 1986 revolution has turned into what Miguel Syjuco, a Filipino novelist, calls “a resurgent oligarchy”. Political dynasties dominate local and national politics. Even the Marcoses have worked their way back into power: Imelda, Ferdinand’s widow, is in Congress; Ferdinand junior is a senator locked in a tight race for vice-president; and his sister, Imee, governs Ilocos Norte province. This elite is well-connected, often Western-educated and its members present themselves well to the world, but they have grown increasingly disconnected from the people they supposedly serve.

Mr Duterte exploited this gap. He mentioned his modest means repeatedly during the campaign. His supporters railed against trapos (“traditional politicians”, a play on the Tagalog for “old rags”). His unpolished speech and impatience with convention and democratic processes became assets rather than liabilities; signs of authenticity and an indication that he will do things differently.

His advocacy of a barely defined federalism appealed to simmering provincial resentment of the power concentrated in Manila. To win over voters in the capital, meanwhile, he touted his record in Davao, which he takes credit for turning from a violent city into a mini-Singapore: safe, clean and orderly. Residents frustrated by chaos and gridlock in the capital hope he will work the same wonders there. But the Manila region, a conurbation of 17 cities and municipalities, will be hard to corral. And honouring his promise of federalism would require changing the country’s constitution. Three post-Marcos presidents have tried—and failed—to do so.

The question now is what sort of president Mr Duterte will make. His campaign focused almost entirely on crime, drugs and corruption. These are important in a gun-mad country where being asked for bribes is a daily frustration. But to deal with them he has offered only macho posturing. His promise to stamp out all three within six months of taking office is impossible, even if he goes ahead with his killing spree (he has threatened to slaughter 100,000 criminals and dump their bodies in Manila Bay to fatten the fish). But he can do a lot of damage trying.

Crime and punishment

He vows to hang offenders, and reminisced fondly about Marcos’s ability to “use the forces of government to get what he really wanted”. Many dismiss such statements as bluster and trust that Mr Duterte will moderate his tone once in office. But hoping that a president will not do as he says is risky.

In some respects, Mr Duterte says, he will follow the path the country is already taking, for instance, by seeking peace in the south. Mr Aquino’s administration was on the brink of signing a peace agreement with Muslim rebels in Mindanao, ending a decades-long insurgency, when 44 policemen died in a botched raid on a splinter group. After that raid the bill to establish an autonomous political entity became politically toxic and died in Congress. Mr Duterte says he supports creating such an entity and may revive the bill.

An abrupt shift in economic policy seems unlikely. For all his tough talk on everything else, he has suggested no major changes. Since the economy is chugging along nicely, this is just as well. Nominal income per head grew from $2,372 in 2011 to $2,873 in 2014. Between 2010 and 2015 the economy expanded at an average annual rate of 6.3%, nearly two percentage points faster than in the previous five years—and the biggest improvement among South-East Asia’s larger economies (see chart ). The World Bank forecasts more of the same—growth of 6.4% in 2016 and 6.2% for the two years after. In Mr Aquino’s term the country attained an investment-grade credit rating for the first time, reducing the country’s borrowing costs.

As the economy has expanded, public debt has declined markedly, from 77% of GDP in late 2004 to around 44% in March. Remittances grew in 2015 for the 14th year in a row and now account for around 10% of GDP. But a fast-growing service sector, particularly in business-process outsourcing—call centres, data transcription, software and engineering design, and other back-office tasks—has kept more skilled Filipinos at home. The number living abroad has fallen from 10.2m in 2013 to 9.4m today, according to Mr Aquino.

Mr Duterte wisely plans to maintain his predecessor’s focus on infrastructure. Less wisely, he thinks he can revive the country’s steel industry, despite a global glut. He wants to boost investment in tourism—the Philippines attracts fewer visitors than it should, given its situation and beauty—and proposes leasing islands to foreign investors to set up factories. Worryingly, given the Philippines’ potential as a trading nation, he sounds lukewarm about joining the Trans-Pacific Partnership, a free-trade pact. He says that he will hire “the economic minds of the country”, and let them make policy. Choosing the right advisers might reassure jittery investors and keep the country on track.

Mr Aquino does not deserve all of the credit for the country’s economic health. Gloria Macapagal Arroyo, his predecessor, put in place budgetary and fiscal reforms that laid the groundwork for steady growth. She introduced a value-added tax, which boosted government revenues, slashed administrative costs and instituted a cash-transfer programme that gives up to 15,000 pesos ($319) a year to nearly 4.4m poor households, provided they vaccinate their children and send them to school.

Mr Aquino built on Ms Arroyo’s ambitious social programmes and fiscal reforms. In 2012 his government imposed “sin taxes” on tobacco and alcohol, directing 85% of the revenue to health care and 15% to help tobacco workers and farmers find new jobs. Two years later the health department’s annual budget had risen from $1.25 billion to $2 billion; by mid-2015 the share of people enrolled in a popular national health-insurance scheme had risen to 82% from 74% in 2011. He expanded basic education to include kindergarten and schooling to the age of 18, and extended Ms Arroyo’s cash-transfer programme for the poor.

Mr Aquino also spent political capital on fighting corruption and improving transparency. Many noticed, however, that the highest-profile victims of his anti-corruption campaign were three opposition senators, a chief justice who ordered the break-up of an Aquino family plantation and Ms Arroyo, also a political opponent. Many also noticed that, despite Mr Aquino’s noble statements about following “the straight path”, ordinary folk still had to pay backhanders to police and bureaucrats. Even so, the Philippines has improved its position in Transparency International’s corruption index from 134th in 2010 to 95th last year.

Infrastructure is improving. Spending rose from 1.8% of GDP when Mr Aquino took office to around 5% this year. The perception that such spending is more effective and has been transparently handed out has helped bring a tripling of foreign direct investment into the Philippines.

Such encouraging numbers do not tell the whole story, however. The share of Filipinos living below the national poverty line in the first half of 2015 was 26.3%, the same as in 2009, before five years of runaway growth. An expanding population means that even as some have moved out of poverty, there are more poor people now than when Mr Aquino took office.

Poor state of affairs

City-dwellers and service-sector workers have done well. GDP per person in Manila is over four times higher than in parts of Visayas and Mindanao. More than half of the country’s poorest people are farm workers, who are three times more likely than city-dwellers to be poor. High rice prices, a result of a misguided self-sufficiency programme, hit the poor especially hard.

Manila and other cities remain horribly congested. Voters blamed Mr Aquino, though it is not his fault. The Philippines has underinvested in infrastructure for years. As the economy boomed, more money has been put into fixing roads, but not nearly enough to keep up with the soaring number of cars, especially in Manila. No one knows what Mr Duterte plans to do about rural poverty, or how he will ease Manila’s traffic jams.

When it comes to foreign relations, he has already shown a knack for offending allies. When officials from America and Australia expressed displeasure at a crass remark from Mr Duterte, about how he wished he had been first in line when an Australian missionary was raped and murdered during a prison riot in the Philippines, he dared these steadfast allies to sever diplomatic ties. After Singapore said that a Facebook post showing Lee Hsien Loong, the prime minister, appearing to endorse Mr Duterte was false, he joked about burning a Singaporean flag. Such cracks did not go down well, for some reason.

No figure is too beloved for Mr Duterte to insult. Recalling the heavy traffic during a papal visit to Manila, Mr Duterte said, “Pope, you son of a bitch, go home. Don’t visit us here anymore.” That was in a speech accepting his party’s nomination for president. Filipinos, more than 80% of whom are Catholic, seem not to have held it against him.

The most pressing foreign-policy question facing the Philippines is its stand-off with China over claims in the South China Sea (or the West Philippine Sea, as it is known at home). On this Mr Duterte has careened all over the map. He has declared himself “ready to die” for this country’s claims, vowing to jet ski to a disputed island personally to plant a Philippine flag. He has insisted that he is open to bilateral negotiations and joint development, something China has said it favours as well. He has also vowed to “shut up” about the dispute if China agrees to build train lines across the Philippines.

What he will actually do is a mystery. Most recently, he has seemed willing to accept the status quo: after voting on Monday he told reporters, “I would say to China: ‘Do not claim anything here, and I will also not insist that it is ours.’” The Permanent Court of Arbitration, an international dispute-resolution body in The Hague, is expected to rule in the coming weeks on the Philippines’ case against China. If it sides with the Philippines and then China begins building on the Scarborough Shoal—which both countries claim and which China has occupied since 2012 in contravention, according to the Philippines, of an American-brokered agreement—no Filipino president can simply acquiesce, especially a tough guy.

For all of Mr Duterte’s bravado and alleged extrajudicial killings of suspected criminals, he may not even make much of an impact on crime. The murder rate in Davao remains stubbornly high. Mr Duterte’s reputation for cleanness was challenged toward the end of the campaign, when Antonio Trillanes, an independent vice-presidential candidate, accused him of having millions of dollars stashed in secret bank accounts, running illegal protection rackets and hiring ghost employees. Mr Duterte denied the charges.

His anti-establishment campaign may also hamper him: having run against the political elite, he now must govern with them. In Mr Duterte many see echoes of Mr Estrada, another populist outsider elected on an anti-corruption platform. His presidency lasted just under 18 months: he was impeached for graft, and resigned after the army withdrew its support.

A similar future may lie in store for Mr Duterte. During the campaign some speculated that Mr Aquino’s Liberal Party (LP) machine would throw its support behind Ms Poe once it became clear that Mr Roxas could never win. Instead party grandees are rumoured to prefer impeachment, particularly if the LP candidate, Leni Robredo, wins the vice-presidency, and would become president on Mr Duterte’s departure. As The Economist went to press she had a narrow lead.

Many hoped the Philippines had outgrown such antics. When Mr Aquino steps down at the end of June, he will become the first president to enter office with clean hands and to leave the same way since Fidel Ramos in 1998. Unlike his two predecessors, Mr Aquino has faced no charges of impeachment (they succeeded against Mr Estrada, but not against Ms Arroyo) or coup attempts. Whatever one thinks of Mr Duterte, the country’s voters chose him and he deserves to take office with the wind, rather than schemers, at his back.

Thriller in Manila

A return to instability would do the Philippines no good. The country is not over-reliant on commodities or China. Unlike China, Japan and Thailand, the Philippines has a young population and a cheap English-speaking labour force. The country does not share Indonesia’s protectionist instincts and is more welcoming to foreign investors. If it keeps to today’s path it could become one of Asia’s stars.

All of that is at risk. In the short term Mr Duterte is unlikely to make any policy reversals to stop growth. But investors are nervous: Mr Aquino was dull but predictable; Mr Duterte is neither. Further ahead, the Philippines risks the same combination of political unpredictability and stagnation as Thailand—another country divided between a minority long accustomed to getting its way and a majority that keeps voting against it. If the Filipino elite understands the message voters have sent in electing Mr Duterte, they could avert this fate.

The bigger risk comes from the long-term damage a strongman could do to a young democracy’s still-fragile institutions. On the stump Mr Duterte mused about shutting down Congress and declaring a “revolutionary government” if he fails to get his way. His enthusiasm for vigilante killings shows his preference for order at the expense of law. The Philippines’ growing prosperity reflects the country’s improved governance, and the confidence of investors. Voters rightly want more inclusive growth and are frustrated at the domination of their country by a small number of families. But electing a president with contempt for the law and democratic norms will solve neither problem.

From the print edition: Briefing

Source: www.economist.com

Lawmakers urged to pass ‘Konektadong Pinoy’ bill

Bicam approves CREATE MORE bill

Philippine Cable and Telecommunications Association says Konektadong Pinoy to accelerate infrastruct...

PHL Senate approves CREATE MORE bill on second reading

Foreign chambers urge Senate to work on stalled connectivity measure

[MEDIA RELEASE] Foreign Chambers Look Forward to Resumption of Senate deliberations on Konektadong P...

23 biz groups push ‘Konektadong Pinoy’ Bill

[EDITORIAL] Time to give PBBM a grade

[MEDIA RELEASE] A Call by PBG, JFC, Industry Associations, and Civil Society Organizations to PBBM t...

Biz groups push for approval of 21 economic measures