By Prof. Eric Vincent C. Batalla
Image Attribute: File photo of President Rodrigo Duterte / Source: Wikimedia Commons
Initial fears of economic decline have been allayed by the new government’s reiteration of its socio-economic agenda and also by indications that the economy is doing well. The Philippine Stock Exchange index (PSEi) was down to about 7000, just days before the May 2016 elections and even the day after on account of heavy net foreign selling. The mood then reversed and the PSEi climbed by 500 points a week later and reached 8000 by July.
However, anxiety over the economy continued because of political volatility arising from controversial domestic and foreign policies of the new government. An initial source of discomfort was the appointment to the cabinet and other government posts of people from different parts of the political spectrum, including those from the radical Philippine Left. Duterte, who during the election campaign had flaunted communist leader Jose Ma. Sison as his teacher in college, appointed militants to head the labor, agrarian reform, social welfare, education, and antipoverty portfolios of government. The appointments were expected to produce domestic conflict on key issues in these areas.
Another source of uncertainty relates to the government’s pursuit to end the major insurgencies. The government has resumed peace talks with the Communist Party of the Philippines (CPP) and the National Democratic Front (NDF) and it is not clear what concessions the government is willing to make, particularly in the area of economic reforms, where government and communist rebels have staked diametrically opposed positions. In regard to the Moro insurgency, the government’s proposal to shift to a federal system of government seemed to have been welcomed by major insurgent groups such as the Moro Islamic Liberation Front (MILF) and the Moro National Liberation Front (MNLF). Duterte, who had advocated for federalism during the presidential campaign, believed that peace with the Moros could be better achieved with a Moro federal state rather than an autonomous region dependent on the central government. However, as in the past, attempts to change the constitution, either in whole or in part, have been difficult to achieve and have generated much opposition.
Perhaps a more controversial project, which has generated a lot of media and international attention, is Duterte’s war on drugs. Similar to Thailand’s experience under Prime Minister Thaksin Shinawatra in 2003, Duterte launched an anti-drug war that resulted in over 2500 deaths during a five-month period. The killings were highly criticized locally and internationally and were, arguably, a primary cause of the recent souring in Philippine–American relations. While the bloody war had received massive but silent public support, the US government has expressed in no light terms its concerns about extrajudicial killings and the disregard of due process. Duterte, in turn, resented foreign intervention in his response to the drug problem.
During the ASEAN Summit held in Laos in September, Duterte’s encounter with President Barack Obama did not reflect the warm friendship that had existed between the two countries, particularly during Aquino’s term. Originally scheduled for a one-on-one meeting, Duterte had warned Obama that if he was not “respectful” vis-à-vis Duterte’s anti-drug war, he would “curse” him in the forum. The US president then decided to cancel his appointment with Duterte. In response, Duterte did not attend Obama’s group meeting with leaders of Southeast Asia.
In early October, in an apparent reaction to a threat of aid withdrawal, the Philippine president again lambasted the US and other international bodies, saying,
We have a problem here trying to preserve our society and you mess up by [raising] human rights [issues]. You threaten us using your assistance. How do you look at us? Mendicants? (as quoted in Romero 2016).
Duterte then reminded local officials, including Vice-President Robredo, not to sacrifice the country’s dignity for “crumbs of foreign aid.” It was clear that Duterte had wanted what he perceived to be better and fairer treatment of the Philippines by the US. At one point, he even broached the idea of requiring US citizens to obtain a visa to the Philippines since Filipino citizens do the same (and at a high cost for applying) when going to the United States. Duterte also wanted to secure an “independent” foreign policy that was less dependent on the US, which, while criticized by some, has also stirred nationalist sentiments anew. Despite wrangling with the Obama administration and issuing provocative anti-American statements, Duterte still received trust and approval ratings of 86 per cent from the September–October 2016 Pulse Asia survey. The survey also indicated that the president received the trust of at least 85 percent of Filipinos from all socio-economic groups.
Still, the rants against Obama and the US have drawn concerns regarding the fate of American firms, especially BPO companies, in the Philippines. There was speculation that American BPO companies would pull out of the country, which would hit the domestic economy hard. News reporters worked on this spin through interviews with contact center workers. However, there were no official indications of either pull-out or expansion of BPO firms. Policy ambiguity and confusion reached a high point during the president’s state visit to China, when he announced a “separation” from the US, both militarily and economically. This made BPO workers worry about losing their jobs. Certainly, it alarmed the BPO industry association and the American Chamber of Commerce (AmCham), which immediately sought clarification from the government. US firms dominated the BPO industry in the Philippines. Duterte and cabinet leaders later assured the two associations that US firms would continue to receive government protection. Following a top-level meeting with Finance Secretary Carlos Dominguez, the AmCham, which had earlier criticized the Philippines government for drug-related killings, reaffirmed its support of Duterte’s socio-economic agenda.
Duterte’s visit to China signaled the return of friendly ties between the two countries. Relations between the two had become antagonistic during the Aquino administration over maritime territorial disputes in the South China Sea. Following a naval stand-off in April 2012, China seized control of Scarborough Shoal and imposed economic sanctions (tourism, fruit exports, etc.) on the Philippines. The occupation was legitimated by its nine-dash line policy, which officially demarcated China’s maritime territories. The Aquino government then filed a suit before the Permanent Court of Arbitration (PCA) at the Hague, Netherlands, which in July 2016 rendered a decision favoring the Philippines in its complaint against China’s nine-dash line policy. By the time the decision was rendered, Duterte had taken over the reins of government. However, the new government took care not to greet the PCA decision with official fanfare and instead called for restraint and sobriety. This was consistent with Duterte’s policy of warming to China. During his state visit, Duterte was warmly welcomed by Chinese state leaders, including President Xi Jinping. The visit generated more than USD 24 billion in Chinese pledges of investment and funding.
The China visit signified the initial success of Duterte’s attempt to broaden the Philippines’ economic partnerships and defuse military tensions in disputed territories. Following the visit, China relaxed its restrictions on Filipino fishermen in Scarborough Shoal. It also indicated the lift of restrictions on importations of Philippine fruits, particularly bananas, most of which come from plantations in Duterte’s home island of Mindanao. The success of the state visit encouraged the president to announce his “separation” from the US, which government officials later repackaged as a “rebalancing” of Philippine foreign policy. The “rebalancing” policy suggested the end of the “special relations” between the two countries and the country’s pursuit of a foreign policy independent from its former colonizer and ally. Aside from China, the government also moved to forge closer ties with Russia.
The unfolding of the government’s rebalancing policy did not sit well with the pro-US business establishment, as well as the Philippine military, which depended on the US for its modernisation and other development programs. This discomfort within the military probably led to the Duterte government’s later clarification that the Philippines intends to continue its military alliance with the US (contrary to the president’s statement in China) and that the so-called alliance with China would only be for trade and investments.
Amidst the political controversies under the Duterte administration, the Philippine economy managed to grow by 7.1 percent during the third quarter of 2016. Although portfolio investments produced a net inflow in October, the stock market had dropped to its pre-election low of around 7000 based on investor speculations on the US bond market and the election of Donald Trump as US president. Likewise, the peso exchange rate fell to close to PHP 50 to the US dollar. Overseas remittances during the January–September period exceeded USD 22 billion, an improvement of approximately 5 percent from the same period in 2015.
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About the Author:
Eric Vincent C. Batalla is a professor of political economy and current chair of the Political Science Department, De La Salle University, Manila, Philippines. His current research focuses on governance and development issues in the Philippines.
Cite this Article:
Batalla, Eric Vincent C. (2016), Divided Politics and Economic Growth in the Philippines, in: Journal of Current Southeast Asian Affairs, 35, 3, 179–182.
Published by GIGA German Institute of Global and Area Studies, Institute of Asian Studies and Hamburg University Press in The Journal of Current Southeast Asian Affairs which is an Open Access publication under the conditions of the Creative Commons Attribution-No Derivative Works 3.0 License.
Romero, A. (2016), Duterte Dares US, EU: Pull Out Aid to the Philippines, in: Philippine Star, 6 October.