EIU: Duterte’s Intense Focus on the Philippines’ Domestic Security Might Lead to Neglect of Important Reforms

While the Philippines’ President-elect, Rodrigo Duterte, has a successful track record, as mayor of Davao city in the Southern province of Mindanao, in reducing corruption, crime and drug abuse, his methods have been dubious, posing serious doubts about his human rights record, according to a report launched by The Economist Intelligence Unit (The EIU).

The EIU believes that fears for the future of the Philippines political environment under Duterte are valid, but gross economic mismanagement looks less likely, at least in the short term.

“Mr. Duterte’s rise was quick and unexpected and the situation remains uncertain. He continues to be a loose cannon and speaks sensationally on a number of sensitive topics. However, it is still too soon to write off the dynamism of the Philippine economy under a Duterte presidency,” says Anwita Basu, Lead Philippines Analyst at the Economist Intelligence Unit.

Foreign investment outlook

As Duterte inherits a fairly robust economy from his predecessor, Benigno Aquino III, it will be difficult to shake the established strength in the fundamentals. Therefore, the most likely scenario the EIU expects is that the Philippines’ economy will expand by at least an average of 5% per year between 2016 and 2020. In this, Duterte will be open to foreign investment and may adopt measures to boost competition in the domestic economy.

Amid uncertainty over a Duterte administration’s economic policy it is, however, likely that foreign investors will postpone their decision to enter the Philippines by at least six to 12 months.

“Duterte is likely to be so focused on his internal law-and-order drive that he leaves the management of the economy to advisers and established lawmakers. His tough-man approach is still likely to retard the development of the country’s institutions, but this will not exert a significant drag on economic growth in the short-term,” adds Anwita Basu.

In pursuit of improved security

In an alternative scenario, the EIU calculates there is a 35% probability that Duterte's single minded pursuit of improving domestic security might lead to a neglect of other important economic and developmental reforms. This would result in a slowdown in economic growth (relative to the core scenario stated above).

Under these circumstances, private investment would weaken throughout Duterte's term, with businesses becoming more concerned with the law and potentially rising political instability.

A less likely scenario, to which the EIU place a 20% probability, is that Duterte is impeached following a legislative crisis within a couple of years of being elected. This would result in political paralysis and severe uncertainty.

Although he has maintained a fairly clean record in his two-decade term as mayor of Davao City, it’s possible the political elite will try to engineer impeachment proceedings if relations with Duterte deteriorate.

Given his divisive personality and tendency to dismiss political institutions and procedures, the risks remain heightened. Should an impeachment occur, the Philippines would return to its grim tradition of political instability.

Sturdy economy

Over the past five years, the Philippines has become one of the fastest-growing countries in South-East Asia, transforming from "the sick man of Asia" to a "rising tiger." With GDP growth of 6.2% per year, on average, from 2010 to 2015, the country also made improvements in its business environment with its rank in the ease of doing business rankings (compiled by the World Bank group) jumping from 144 in 2010 to 97 in 2015.

Should Duterte manage a smooth transition and not let his bellicose personality and hard-line attitudes get in the way of maintaining policy momentum, the economy will remain sturdy, says the EIU.