Philippine economy is a mess as Duterte plays on Covid-19


The great thing about Moody’s Analytics calling the Philippines for economic mismanagement is that Rodrigo Duterte’s army of internet followers has nowhere to go.

True, they are all over the Twittersphere to defend their man in the presidential palace. But misdirection and whataboutism cannot explain how quickly Duterte’s reform campaign has ceased to work. And the extent to which his war of choice on drug trafficking hurt a booming economy upon his arrival in June 2016.

Most leaders in Southeast Asia face challenges related to illegal narcotics and drug addiction. Only Duterte, however, seemed to make this the raison d’être of his presidency.

A big victim of the move is the strides Duterte’s predecessor, Benigno Aquino, has made to turn around a long neglected economy. From 2010 to 2016, Aquino set out to design a system focused on better growth, not just faster. He tackled registry and tax cheats, increased accountability and transparency, and took a close look at giant construction projects and other contracts.

In no time, the Philippines got their very first investment trade ratings. First, Fitch Ratings in 2013, then Moody’s Investors Service and S&P Global. Foreign direct investment accelerated Manila as the former “Sick Man of Asia” enjoyed his new status among the darlings of emerging markets.

Duterte was elected to supercharge things. His 22 years as mayor of the southern city of Davao has earned him some sort of popular hero status. The city was renowned for enjoying faster gross domestic product growth, lower crime rates, and less bureaucracy than the national average.

Unfortunately, Duterte prioritized guns over butter. The ferocity of the war on drugs drew rebuke from the United Nations, Human Rights Watch and even the Vatican. Few screams, by contrast, have come from the gatekeepers of the global economic class.

This brings us back to Moody’s Analytics getting dark on Duterte’s economy. Thanks to skewed government priorities, the Philippines entered the pandemic with serious pre-existing conditions. The public debt burden that Aquino worked to reduce the risk of return. Corruption is on the rise again. In 2019 alone, Manila plunged 14 notches in just 12 months in the Transparency International rankings. He fell again in 2020.

And the growth that Southeast Asia’s fifth-largest economy enjoyed before Covid-19 was largely the product of turbocharged central bank easing. Then came the lockdowns and Duterte’s mismanagement to get the vaccinations into the guns.

As a result, according to Moody’s analysts, the Philippines “is not expected to return to pre-pandemic production levels until the end of 2022. In contrast, China, Taiwan, South Korea and Vietnam have returned to previous production levels, while Indonesia and Thailand are set to return this year. This, says Moody’s, makes the Philippines a “regional laggard” at the worst possible time.

Admittedly, Duterte’s 1,796 days in office are not enough to compensate for decades of economic neglect. As much as Aquino has achieved in six years, it has failed to create enough well-paying jobs to keep pace with a young and growing population.

Still, Duterte’s 59 months should have been enough to make some headway in improving the health game at home. He also had 18 months of experience fighting Covid-19 for his team to design basic vaccination plans and tackle vaccine hesitancy.

Structural obstacles abound, of course. The first is that local governments have long taken the initiative to create public health networks, not Manila. Despite this, the nation of Duterte, which has 108 million inhabitants, follows Cape Verde and Paraguay when it comes to vaccinations. Poorly funded and organized contract testing and tracing protocols do not help.

“This is problematic because it means the Philippines remains vulnerable to persistent local spikes in infection, which inhibits economic recovery,” warns Moody’s.

Equally important, the nation’s delayed recovery from its neighbors will not only delay Aquino-era efforts to reduce inequality, but will result in a new wave of families that will no longer be middle class.

Optimists will argue that Duterte still has more than 12 months in office to implement his “Davao City model” for national prosperity. In reality, Duterte may be distracted by helping to ease the political career of his daughter Sara, who currently holds her former post as mayor.

Such maneuvers might leave little time for the overall economic retooling that Duterte was elected to execute. Chances are, the central bank will play an even bigger role in delivering Moody’s plans for 5.3% GDP growth this year. Given Duterte’s history of distraction, the future looks anything but bright.

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