Business Community Cautiously Welcomes Duterte’s Economic Agenda

By Norashiqin Toh —

Beneficiaries of the popular Pantawid Pamiliyang Pilipino Program, which Duterte pledged to expand upon in his economic agenda. Source: DFAT photo library's flickr photostream, used under a creative commons license.

Beneficiaries of the popular Pantawid Pamiliyang Pilipino Program, which Duterte pledged to expand upon in his economic agenda. Source: DFAT photo library’s flickr photostream, used under a creative commons license.

Tough-talking Davao City mayor Rodrigo Duterte, who on May 30 was officially proclaimed victor in the Philippines’ May 9 presidential election, won over voters with his campaign focused on crime and corruption. His policy agenda on other issues was often less clear.

When his rambling April 27 speech at the influential Makati Business Club focused largely on plans to eradicate criminals and drug lords, business leaders worried at the absence of clear economic plans, and said he lacked substance. After collecting advice from “the best economic minds of the country,” the Duterte team has finally offered a concrete eight-point economic agenda. At first blush, the fears that Duterte would squander the economic gains of the last six years seem to be assuaged.

Carlos Dominguez, a member of Duterte’s transition team and incoming finance secretary, on May 12 presented the next administration’s agenda. The president-elect promised to continue and maintain the successful macroeconomic policies that have brought high economic growth to the Philippines in recent years. Duterte also expressed his willingness to keep high-performing members of current president Benigno Aquino’s economic team, acknowledging that “the economy is doing good under the Aquino administration.”

One pillar of the Aquino administration that Duterte has latched onto is the Pantawid Pamilyang Pilipino Program, a hugely popular conditional cash transfer (CCT) program providing social assistance and development to about 4.3 million poor households. Monetary grants are channeled to families abiding by conditions such as enrolling children in school and ensuring their daily attendance.

A 2015 World Bank report called the Philippines’ CCT program one of the largest and best-targeted social safety net programs in the world, and Duterte is looking to expand the program through initiatives such as providing beneficiaries with access to capital, allowing them to start their own small businesses. Given the persistence of the country’s rich-poor divide during Aquino’s leadership, expanding and improving the implementation of CCT will address income inequality and promote more inclusive growth.

Another key area of continuity will be the public-private partnership (PPP) program, the cornerstone of Aquino’s economic program which targets much needed infrastructure development. Poor infrastructure costs billions in lost productivity and energy each year. Duterte supports the PPP, but said he will push for faster implementation by addressing bottlenecks in the scheme and weeding out corruption from the projects.

The global financial community has already welcomed this focus on infrastructure development. Dominguez also said that the new administration will increase infrastructure spending to 5 percent of total economic output, more than double the 2.3 percent average of the past 30 years. Such an acceleration in public spending will inject significant economic activity into the country, translating into more jobs and growth and inspiring greater investor flows.

Where Duterte breaks most starkly from his predecessor is his openness to tackling restrictive economic provisions through constitutional reform. Reluctant to touch the constitution that was drafted under his mother’s administration, Aquino excluded economic constitutional reforms from his legislative priority list, despite lobbying from local business groups and foreign chambers of commerce.

Duterte on the other hand has expressed his willingness to drop the current restrictive laws on foreign direct investment (FDI). Specifically, Duterte is open to amending the section which prevents foreign entities from owning more than 40 percent equity in Philippine corporations in certain sectors, and shuts them out entirely from others. This move will make the Philippines more attractive to FDI, and is likely to lead to significant job creation.

Interestingly, Duterte said he will not touch the constitutional limit on foreign land ownership, despite his intention to liberalize the entry of FDI. This suggests that tensions between economic nationalism and global competitiveness will continue to be a core issue in Philippine economic policy. In addition, Duterte’s invitation for communist rebels to join his cabinet may be a cause of concern for business interests. While the rebels have declined cabinet positions, they are likely to suggest pro-communist alternatives to Duterte.

For now, the broad strokes of Duterte’s economic agenda appear promising. In contrast with previous apprehension over Duterte’s ability to manage the Philippine economy, the eight-point agenda reflects sound policy ideas that can generate employment and growth. The Philippine central bank expressed confidence that these policy initiatives would improve the economy and generate more jobs.

Under Duterte’s leadership, Davao City cut bureaucratic red tape in 2013 by implementing a policy requiring business permits to be issued within 72 hours. Davao City evolved from a lawless and corrupt city into one of the easiest places in the Philippines to do business, according to World Bank data. The Davao region also recorded 9.4 percent growth in 2014, the fastest growing area in the country. Time will tell if Duterte can replicate this success on the national stage, but his first steps appear promising.

Ms. Norashiqin Toh is a researcher with the Southeast Asia Program at CSIS.


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