Dutertenomics in perspective

We live in interesting times. Over the past week, I have had the distinct privilege of having to respond to a relatively strident press release from the Department of Finance (DOF) on a recent article of mine published by the Tokyo-based Nikkei Asian Review (June 21).

Thus, my decision to dedicate this week’s article to the Philippine economy, postponing the second part of my planned articles discussing what I believe is lacking in Vice President Leni Robredo’s political narrative. The economy is also a timely topic as we enter the third year of Mr. Duterte’s presidency.

Surely, the economy isn’t in total “doldrums” (June 24), as President Duterte recently claimed. Our Gross Domestic Product (GDP) growth rate is well within the 6-7 percent target, making the Philippines among the faster-growing economies in the world. Our infrastructure spending as a percentage of GDP is set to breach the 5 percent milestone, a historic high. And revenue generation has also improved, as new tax measures gain pace.

But the overall story is a bit more complicated. In my June 21 piece, I raised concerns over the Philippine peso (weakest in nearly 12 years), rising inflation (breaching the 4 percent target of the government) widening current account deficit ($2.5 billion, highest in 18 years), and the drop in new foreign investment pledges (down by 51.8 percent in 2017 and 37.9 percent in first quarter of this year).

The DOF alleged that my piece was based on “generalizations [that] are erroneous and not backed up by accurate statistics.” Yet they didn’t rebut the veracity of even a single figure I used in my article.

All the figures and data used in my column were thoroughly fact-checked (anyone who writes for world-class publications should know this) and, crucially, are based on data provided by the Philippine government itself, namely the National Economic and Development Authority, Bangko Sentral ng Pilipinas (BSP), and Philippine Statistics Authority.

Interestingly, it was the DOF’s own statement that appears to have escaped proper fact-checking. It got the currency picture flatly wrong (Philippine peso was at P55.57/$US1 in 2003, not in 2013!). This was subsequently corrected, likely after I and others pointed it out to them on their website.

Gladly, however, some senior DOF technocrats reached out and shared alternative and additional data to me to pitch a more nuanced picture of the Philippine economy. Our economic managers gave the assurance that the inflation picture (average of 4.1 percent in first half of this year) is still manageable to below the 4-percent upper limit before the end of the year, despite the recent upsurge which had prompted new interest rate adjustments by the BSP.

Of course, I also agree that a weak currency has its advantages, that’s why mercantilist nations artificially and deliberately undervalue their currency. But, in the case of the Philippines, I would be glad to see how exactly this has helped our export sector, which has suffered four consecutive months of contraction this year so far.

Moreover, a weak currency raises the cost of food and energy imports as well as foreign-denominated debt. This, combined with new taxes, may partly explain our inflationary upsurge in recent months.

According to London-based BMI Research, “the Philippine peso continues to be the worst performing currency in the region,” while London-based Capital Economics has warned about a “big increase in inflation [f]ollowing the increase in taxes at the start of the year.”

The DOF is correct to highlight the increase in “approved” FDI recently, a record-high $10 billion in 2017 and growing by 44 percent in the first quarter of 2018. Yet, “pledges” of investments are also an important indicator of business confidence in the country; our officials, after all, make a big deal of it whenever President Duterte secures huge “pledges” of investments on his trips to China, Japan, South Korea, etc.

A weakening currency, rising inflation, the drop in investment pledges—all these can’t be explained by exogenous factors alone. So what explains these strains on our economy?

In its latest report, Capital Economics argued that “a longer term concern is Duterte’s erratic and crass leadership style, which is showing signs of putting off investors.” That’s an almost exact echo of the concern I raised in my Nikkei Asian Review article. I wonder if Capital Economics will receive a press release, too.

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