Event

Early May, the Philippines elected a new president. Rodrigo Duterte, the popular mayor of Davao City – a large city on Mindanao island – won by a landslide victory with 38% of the vote, well ahead of the ruling Liberal Party’s candidate Mr Roxas (23%). At the end of June, Mr Duterte, 71 years old, will replace for six years the popular and investor-friendly incumbent Benigno Aquino after a successful term.

Impact on country risk

Although Mr Duterte was not among the favourites at the election, his pledge to make a relentless fight against crime – like in Davao city – and to crack down corruption, two structural evils the population is tired of, and also to reduce poverty, paid off. As a matter of fact, impressive economic growth (i.e. an average 6.2% in 2010-2015 compared to 4.4% in 2005-2009) during Aquino’s mandate was not inclusive enough as the number of poors continued to increase despite millions of new jobs created. The fact that Mr Duterte comes from a poor region, does not belong to the elite and a political dynasty ¬– a rarity in the country’s democratic history – might have contributed to his victory too. Though he inherits one of the most successful Asian economies from the past years, the medium-term outlook is uncertain. Mr Duterte is indeed a controversial and raw character, inexperienced in economic and foreign affairs, and determined to give priority to rapid results in lowering crime by all means, including a constitutional change and the use of extrajudicial methods which could strain relations with the army. Philippines’ history of military coups makes such a prospect dangerous as it could threaten political stability which greatly contributed to the recent strong economic performances. In the short term, a decisive and spectacular action against crime and drug dealers is likely to consolidate his popularity. Economic forecasts remain upbeat thanks to strong fundamentals, robust household consumption and a booming services sector. It is probably wise to expect continuity in macroeconomic policy, run by an expert cabinet, and infrastructure spending whereas reforms are not likely to be high on Mr Duterte’s agenda. His recent speeches suggest he might be pro-business and open up more industries to FDI while tightening mining laws. Among the key medium-term risks there are Mr Duterte’s relations with the elite, his ability to build a strong government coalition, and the crucial development of congested infrastructure. On the security front, he is expected to favour a pragmatic status quo in the maritime dispute with China in the South China Sea and to support the fragile peace agreement with Muslim rebel groups in Mindanao where the terrorist threat is increasing.

Analyst: Raphaël Cecchi, r.cecchi@credendogroup.com