Philippines – Pressure to Boost Investment

Voters will go to the polls for presidential and legislative elections in May 2022, and President Rodrigo Duterte is burnishing his populist and nationalist credentials with the aim of maximizing public support for a presidential bid by his daughter Sara. Duterte has gained notoriety for using his powers to bully rather than cajole—his threat to jail anyone who refuses a COVID-19 vaccine comes as no surprise to those familiar with the “shoot first” strategy that has characterized his administration’s battle against the domestic drug trade—and his approach to foreign policy can be similarly lacking in nuance.
However, the fact that his government promotes foreign business interests, and invests heavily in the economy and infrastructure, has been reason enough for most investors to overlook his shortcomings, and his still strong popular support figures to benefit any presidential contender who receives his endorsement. That said, there are some potential challengers who could give a member of the Duterte clan a run for their money.
Sen. Manny Pacquiao is a champion boxer who served as president of Duterte’s PDP-Laban from December 2020 until earlier this month, when he was ousted from the party after criticizing Duterte’s weak response to China’s aggressive territorial claims in the South China Sea. Other possible strong contenders include Sen. Grace Poe, who finished third in 2016, and Vice President Leni Robredo, who is expected to stand as the candidate of the Liberal Party and could enjoy a bump if the recent death of former President Benigno Aquino III gives rise to a nostalgia for a more orthodox and less authoritarian approach to governance.
The most notable complaint from investors at the moment stems from administrative obstacles that are impeding progress on some major projects, including delays in obtaining visas and other documents, and the uncertain availability of access to COVID-19 vaccines and reliable supplies of renewable energy. Trade Secretary Ramon Lopez has acknowledged these problems and has indicated that the government will look into offering foreign investors special treatment to streamline administrative processes.
Worryingly for investors, the Philippines is one of 22 countries placed on a “grey list” by the Financial Action Task Force, the Paris-based money laundering and terrorist financing watchdog, which amounts to a warning of sanctions if the government fails to implement corrective measures. Authorities are confident that faithful implementation of the national strategy for 2018-2022 will enable the country to meet its commitments in time to be delisted by January 2023.
The economy contracted by 4.2% in real terms in the first quarter of 2021, mostly due to an 18% year-on-year decline of investment spending. Although COVID-19 re-emerged as a major threat in the March-May period, the vaccination program is proceeding well enough, and it is unlikely that the government will in any event resort to another crippling nationwide lockdown. The boost from a base effect in the second quarter is expected to produce annual real expansion of 4%–5% this year, still well short of the government’s downwardly revised target of 6%–7%.
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