An initial surge of investor confidence in the current administration has started to ease more than a year after President Rodrigo R. Duterte assumed office, analysts from The Economist Intelligence Unit (EIU) said, as businessmen realize that his preoccupation with the war on drugs could divert attention from much-needed economic reforms.

The think tank said investors have begun to temper expectations with the Duterte government now that the dust of political noise that initially clouded their view has begun to clear.

“Mr. Duterte’s first year in office suggests that economic issues are likely to play second fiddle to his security and law-and-order agenda in the remaining five years,” EIU economists Pamela Qiu and Miguel Chanco said in an e-mailed reply to queries.

“The president’s effort so far has been primarily centered on his crackdown on drugs and crime, as well as on the conflict in Mindanao,” they noted last week.

“In contrast, there has been comparatively much less attention paid to policies on the economic front.”

While there remains a “high level” of investor interest in the economy — largely due to its rapid growth that has clocked above six percent for eight straight quarters — “the business community is starting to realize that their previous expectation that the heavy-handedness of Mr. Duterte would help to propel economic reform and infrastructure development was probably too optimistic.”

“Signs of investors’ waning confidence include the ongoing weakness of the peso (one of ASEAN’s worst-performing currencies this year); the current slowdown in real investment growth; teetering business confidence surveys and the outright year-on-year falls in approved foreign investments since Duterte came into office in mid-2016.”

The peso touched 11-year-lows this month as it traded around P51 to the dollar, with central bank officials saying they were prepared to step in to temper excessive foreign exchange swings while letting market forces dictate such movements.

Business confidence slipped to a three-year low this quarter, results of the central bank’s most recent survey showed, as concerns over the prolonged battle for Marawi city, a weaker peso and a seasonal slack in consumer demand weighed on sentiment.

On the other hand, the first of up to five tax reform packages proposed by the Executive remains under deliberation in the Senate, months after the House of Representatives approved its version of the bill on May 31.

Congress now has four months left to finalize the measure for submission to Mr. Duterte for enactment, as the Finance department hopes to enforce it starting January 2018.

Targeted bigger collections from tax reform are expected to finance bulk of the P8.44-trillion spending on infrastructure planned under the 2017-2022 “Build, Build, Build” program, besides development aid from China and Japan.

Despite these observations, the EIU expects the Philippine economy to grow by 6.5% this year, matching the low end of the government’s 6.5-7.5% growth goal.

Still, the economists said Mr. Duterte can do more to boost investor confidence and advance reforms on the economic front by “taking greater ownership and responsibility” of the ambitious infrastructure plans under the “Dutertenomics” agenda.

A “more forceful” push for the passage of tax reform, as well as further liberalization of foreign investment rules would also bode well in lifting investor interest, Ms. Qiu and Mr. Chanco added.

Source: http://bworldonline.com/business-interest-still-high-reality-bites/