DUTERTE`S FIRST YEAR: THE STRONG ARM AND THE BIG HAND

As the first year of the Duterte administration approaches much discussion will take place on the eventful year full of political twists and economic turns that pundits have already said have created a historical epoch dividing our history into two periods: before and after Duterte.

The Indelible mark on Philippine politics and economy will be felt more deeply in the coming year, as the changes in the way things are done in these fields will begin bearing fruit. Since the changes seem numerous, it is helpful to  describe them in two phrases: a strong arm, to impose political programs, and the big hand, to pull long economic reforms.

 

The strong arm

Elements of the strong arm are obvious enough, resulting in the million or so drug surrenderees, action against Abu Sayaaf and Maute all show a capacity to decisively impose political will on the state’s enemies. Duterte takes credit for all damage done, takes responsibility for police and military actions and behavioe, and as a result is seen as someone who can deliver.

This is radically different from past administrations that quibbled, fingerpointed and fuddled their way through crises like the Luneta siege, Mamasapano and Zamboanga.

We are thus seeing, for the first time, a strong arm being flexed to deal with internal and internal threats.Other manifestations of the arm include the following:

 A revamped and  assertive foreign policy

Facing up to America and talking to China directly take a lot of courage and are a turn away from the foreign policy frameworks of previous administrations that relied heavily on foreign support from the United States, to the point of petitioning international tribunals to restate our own rights while a foreign country built their structures within our Exclusive Economic Zone  

The geopolitical reality of the last year  is that  the US is fast descending into a shadow of the superpower it once was. As China leaps into the position of world’s largest economy in 2020, expect more countries to pivot to China as Duterte did. The One Belt One Road initiative is drawing more adherents.

Thus , deepening ties with Russia and China enable us to access funds and materials at rates lower than America’s, with better terms and without the stigma of being an American stooge representing it in Asia that is skeptical of its agenda.

The unprecedented supermajority in Congress

As the last of the Liberal Party holdouts move into the presidents PDP- Laban party, 

 

The big hand

Pundits have spoken long and hard about how well or unwell the economy has been performing a year after President Duterte. Harking back to June 2016, many of them stood worried that he would not appoint a good economic team to continue our high growth clip. Markets had their usual jitters as a new President takes office and the rest is history.

With markets at their best, inflation within managed bands and our currency exchange rates stable, the fear of the Philippines becoming Venezuela did not happen.

A year since the Duterte election, our economy remains humming, even surpassing certain benchmarks such as Foreign Direct Investment figures and a robust stock market.  Donor agencies have kept the same growth forecasts.

The following is a set of descriptions that can shed light on our economy’s performance, and the changes that are taking place in the way by which our economic managers have held our economic growth, kept largely intact and growing, beating expectations.

  1. Markets are stable

The economic team led by sonny Dominguez and Ernie Pernia worked well to placate market concerns, and got to work involving economic stakeholders to build a ten point socioeconomic agenda that enabled stakeholders to participate in crafting a program they could claim as their own- and keep adverse opinions and market sentiment within safe territory.

  1. Creating Equity

At the end of the last Presidents term, the worry advanced by many experts and multilateral banks was that despite high growth, inequality remained, even intensified as unemployment and poverty rated stayed the same. This would breed many externalities, such as traffic in the cities, and conflict in the countrysides. Inequality heightens enmity and creates strife.

The fear was that without creating equity and empowering poorer sectors, growth cannot be sustained. it would be paper growth that would only feed an economic bubble that burst similar to the late 1990s financial crisis.

  1. Reducing poverty to 15%

Reducing inequality and  spreading the wealth will build strong markets that will sustain growth. This by itself, is a theoretical departure from the neoliberal policies of the past, wher small government and privatized public services, utilities were preferred. Privatizing may have ensured the survival of these services, but was unable to increase the access of more Filipinos to these essentials.

  1. Build! Build! Build!

As the government promises to spend some 8 trillion pesos over a five year period to fill in the infrastructure gap, hundreds of thousands of jobs and a multitude of new investments, not to mention millions more tourists are expected to arrive. The infrastructure renaissance that helped push Thailand and Malaysia to cut poverty and experience sustained growth promises dividends for us.

  1. Grow and Grow

Grow the food through free irrigation and intensified support for agriculture. As the Quantitative restriction regime under GATT ends in 2017, we are simply tasked to produce more of our own food to create not only self sufficiency and perhaps lower food costs especially for the poor.

  1. Alternative financing and sourcing

With the pivot to China and cultivating stronger ties with Russia, the government has begun to spread its influence and seeks opportunities among partners that can offer important investments, financing and materials that are more cost effective  than what traditional partners like the United States and Japan can offer.

Tax Reforms are needed for the big hand to work

This is the particular challenge of the big hand- it requires locally generated resources, and should avoid external borrowings since they are foreign currency denominated and expose financing to external shocks.  The proposed 80-20 mix in favor of local sources is a step in this direction. It allays the fears of many of a debt crisis, as local borrowings are easier to manage than dollar denominated loans.

This is why tax reforms are a must if the big hand is to work. Government must be able to generate the needed revenue from local sources without over burdening certain sectors like the middle class which have been the old bedrock of our tax effort.

Lowering income taxes for the middle class is good because it frees up money to be spent on essentials which will also be sourced locally. Passing the tax burden to other sectors without driving inflation will require careful planning. Contrary to detractors, CTRP will not exactly create that feared inflationary spiral.

Departing from the past policies: deliberate efforts to push growth

In sum, the ten point socioeconomic program includes deliberate programs to create the inclusive economy where past regimes failed. Departing from the hands off policies of the past, expect pump priming and direct resources to create opportunity.

Government intervention  is needed since the market is not always efficient to include the vulnerable and excluded, or the poor, of which a fourth is still the Philippines. Sustaining growth means including them.

In all of these, the radical departure from the past government is that it is putting its hand is pushing activities to create growth, putting its own money where its mouth is, to create the economy it needs to cut poverty, sustain peace and development, and give all Filipinos the economy needed for fulfilled lives.