The day after the election, when it was clear Duterte will be the next Philippine President, the PSEi went up to 7,174.88 or 183.01 points... and the next day it ended at 7,396.52 up 221.64 points. So it turns out those fear mongers about a Duterte victory are off the mark!
But it is wrong to attribute that dramatic rise from days of decline simply to Duterte’s victory. Coincidentally, other regional markets were also up for various reasons.
Indeed, Asian equities ended mostly higher prompted by a weaker yen and higher oil prices. The markets are now so international, so intertwined and so affected by a variety of events that it is a mistake to attribute a rise or a decline to a single domestic reason.
Of course, if a revolution broke out and there is blood spilled on Ayala Avenue and the market collapsed, the cause and effect is clear. But in more normal days, the market and the economy for that matter rises and falls not because of one event but based on a complicated mix of issues and events.
Anyway, I had been saying here that all the doomsayers about a Duterte presidency before the elections were wrong. For one thing, our economy has become so resilient and there are so many good things going for it so that neither an Aquino nor a Duterte can take full credit or blame for it.
But it is undeniable there was high anxiety among many of our movers and shakers about the prospect of a Duterte presidency. The failure of Duterte to say much about his plans for the economy during a Makati Business Club forum left local business decision makers bewildered on how he plans to deal with the economy.
Indeed, there are few hints on how Duterte views the economy and what he may want to do. Concerns were expressed he may not have a good grasp of how our economy works, most specially in the context of the globalized world.
For instance, someone from a long faded oligarch family was reported to have convinced Duterte he should have a basic steel industry (Iligan?) as the backbone of his economic agenda. Many scoffed the proposal is made at a time when China’s steel mills are underutilized and Tata Steel is desperately trying to get rid of their steel plant in the UK. Duterte must be careful he does not produce his own set of rent seeking oligarchs out to use government resources for their own dreams.
Actually, Duterte’s instincts are better than he realizes on where to invest for the future: EDUCATION. The knowledge industry will be increasingly hot.
We need to go up the next level in our BPOs since call centers as we know them may be rendered obsolete by technology. Investing in education and teacher training will get a faster and better return on investment economically and socially than putting up a Philippine steel mill at a time of global supply glut.
What keeps me reassured about Duterte’s economic agenda is the information that one of his top advisers is Dr. Ernie Pernia, a former ADB economist and professor emeritus at the UP School of Economics. Dr Pernia will surely give him sound economic advice, if Duterte will listen to him.
A Rappler article of Marites Vitug revealed that Pernia sat down for a meeting with Duterte early this year to talk about economics. Vitug wrote that Duterte appeared comfortable with Pernia, who discussed the proposed economic platform with power-point slides.
But Duterte was reported to have spoken animatedly about law and order and why it is important in the grand scheme of things. It is Duterte’s belief that if criminality is solved, a major obstacle to investments is hurdled. That makes sense to me. Why invest in a country where your personal security is under threat?
The key points raised by Pernia, according to Vitug, covered the following: Investment climate: infrastructure development, streamlining of bureaucracy, taxation following regional/global standards, labor market stability, prudence in fiscal and monetary policy and easing of constitutional restrictions on foreign direct investments (FDIs).
Regional and rural development: Shift of emphasis on infrastructure spending from Metro Manila and Calabarzon to regional/provincial urban centers, rural/agricultural areas.
Decentralization of governance toward eventual federalism and a radical reform of the judicial system.
Vitug wrote Duterte did not disagree with Pernia on any of those. But — and this is a big but — he has not “internalized” the economic issues. “There is a need for an intensive discussion and he needs to think about these deeper,” Pernia says.
Duterte didn’t talk about any of those issues in the two occasions he faced the business community. Indeed, Vitug said Pernia thinks about Duterte’s lack of focus on economic issues and sharpness in framing inequality and poverty as key parts of his platform and, in a light vein, quips: “I really don’t know if he considers me one of his economic advisers.”
It impressed me that in a Go Negosyo forum, Duterte became cautious on what to say about tax reform beyond a statement that he is for it. He explained he visited former Prime Minister Cesar Virata before going to the forum to precisely ask about tax reform.
According to Duterte, Virata advised him to first convene a panel of experts and not promise anything until he understands the ramifications of the tax reform issues. That’s when I saw the man is not irresponsible and he can be expected to act in the nation’s best interests.
Another favorite topic that will affect businessmen is contractualization. Here, his position is no different from all his rivals in the last election.
I suspect that none of them realizes all the implications of an outright ban they were promising on the campaign trail. Now is the time for affected industry groups to send him position papers that explain their concerns.
The business community can rest assured that on some big issues, they have Duterte on their side. He is in favor of relaxing constitutional restrictions on foreign investments. Amending the Constitution for this and other reforms is on top of his agenda.
I am not sure how the entry of Jose Ma Sison as an influential adviser will affect Duterte in his position. If we let the communists have their way, they would isolate the country’s economy from the rest of the world. One just needs to see what isolation can do to a country like Myanmar to realize the strategy of the commies is not only outdated, but wrong.
There is one other thing Duterte said that hopefully will not change once Sison gets in the picture. Duterte said he has no plans to continue agrarian reform which he described as having done nothing good to farmers or land owners. In Duterte’s Skype conversation with Sison, the communist leader mentioned agrarian reform as one of his concerns.
As to the bottleneck to investments as a result of red tape, Duterte often cites what he has done in Davao. He said he has declared a war on red tape because “That’s what investors don’t like.”
He said in Davao City, processing of government documents is limited to 72 hours. Any delays have to be explained to the Office of the Mayor. He said he would also get rid of any redundancies in government offices, reconfiguring the system so that only five or seven signatures are required for a permit to be issued.
Of course, there are other things about the economy that investors want assurances from a President Duterte. But for now, maybe knowing that Dr Pernia may have Duterte’s ear should be reassuring enough for the business community.
Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco