Philippine Politics

The Economist: Sceptred bile

The new president may undo the economic gains of recent years

UNDER Rodrigo Duterte, the president of the Philippines since late June, things have a habit of spiralling out of control. First came his campaign against the drug trade, which has led to the killing of almost 3,000 suspected dealers by police and unknown assailants, without even a nod at due process. In less than three months, he has presided over three-quarters as many extrajudicial killings as there were lynchings of black people in America between 1877 and 1950.

When Barack Obama expressed concern about the killings, Mr Duterte called him a “son of a whore”. America’s president tried to shrug off the insult. But Mr Duterte took the row to a new level this week, calling for American special forces to leave the southern island of Mindanao, where they have been training Filipino troops fighting several long insurgencies. “For as long as we stay with America,” he said, brandishing a picture of an atrocity committed by American soldiers more than a century ago, “we will never have peace”.

On September 13th he told his defence secretary to buy weapons from Russia and China rather than America, hitherto the Philippines’ closest ally, and the source of hundreds of millions of dollars in military aid each year. He also said the navy would no longer patrol the South China Sea alongside American vessels. This reversal is all the more surprising given America’s huge popularity in the Philippines.

In other words, Mr Duterte is not just crass and brutal; he is alarmingly volatile. He has little experience of national politics, let alone international affairs, having been mayor of Davao, a city of 1.5m or so, since 1988 (apart from a brief stint as vice-mayor to his daughter and three years as a congressman). Since becoming president, he has threatened to withdraw from the United Nations and to declare martial law. He idolises Ferdinand Marcos, a former dictator who did impose martial law. He says he wants to give Marcos a hero’s burial in Manila. All this, naturally, frightens both local and foreign investors and threatens to undermine the Philippines’ newly acquired status as South-East Asia’s economic star.

The Philippine economy grew by 7% in the second quarter, year-on-year, roughly double the long-run rate, and faster than China, let alone most other countries in the region. Unemployment, at 5.4%, has been falling steadily. The population is young and English-speaking, and a booming service sector is keeping more educated Filipinos from seeking their fortunes abroad. This burgeoning middle class—along with growing remittances from Filipinos abroad—anchors strong domestic consumption. During the six-year term of Mr Duterte’s predecessor, Benigno Aquino, the Philippine stock market boomed. Foreign direct investment tripled between 2009, the year before Mr Aquino took office, and 2015 (see chart).

Mr Duterte thus took over a country that was doing very well economically. His campaign focused not on abstractions such as foreign investment and the proper strategic balance between China and America, but on quotidian concerns: crime, traffic, corruption. After admitting that economic policy was not his strong suit, he promised to “employ the economic minds of the country” and leave it to them. His advisers duly released a sensible ten-point plan for the economy: it emphasised macroeconomic stability, improved infrastructure, reduced red tape and a more straightforward and predictable system of land ownership. Mr Duterte has also promised to focus on rural development and tourism. Workers’ advocates are pleased with his promise to crack down on “contractualisation”, whereby employers hire labour from third-party suppliers on short-term contracts to avoid paying benefits. Internet in the Philippines is slow and expensive; Mr Duterte has warned the incumbent telecoms firms to improve service or face foreign competition.

Unfortunately, Mr Duterte’s love of lynching and his propensity to slander the mothers of foreign dignitaries are making investors nervous. This month the American Chamber of Commerce warned that the anti-drug campaign was calling into question the government’s commitment to the rule of law. One financial adviser says that since Mr Duterte took over, investors are demanding a higher risk premium to hold Philippine assets. As Guenter Taus, who heads the European Chamber of Commerce in the Philippines, puts it, “A lot of people are hesitant to put their money into the Philippines at this point.”

Mr Duterte’s critics fear that the drug trade will only subside temporarily, but the damage done to democratic institutions will linger. The police freely admit that drug syndicates have taken advantage of Mr Duterte’s green light to kill rivals or potential informants. Police impunity makes many nervous: one longtime foreign resident of Manila says he has started to hear fellow expats talk about leaving. He worries that an off-duty policeman could take issue with something he did, shoot him and get away scot-free. “This didn’t happen under Aquino,” he says. “You didn’t feel there was a group of people who could kill someone and not go to jail.”

Local businessmen worry that the president might simply denounce their firms as transgressors in some respect, without producing any evidence. Mr Duterte, after all, did something similar when he published a list of officials he accused of being drug dealers. By the same token, Mr Duterte singled out Roberto Ongpin, the chairman of an online-gambling company, as an example of a businessman with undue political influence. Shares in Mr Ongpin’s company promptly plunged more than 50%; Mr Ongpin resigned a day later, and promised to sell his stake in the firm. “Everyone is scared,” says one corporate bigwig. “None of the big business groups will stand up to him. They’re all afraid their businesses will be taken away.”

A similar uncertainty hangs over Mr Duterte’s foreign policy. He seems to be inclined to strengthen the Philippines’ ties with China, at the expense of its alliance with America. During the campaign he criticised his predecessor’s frosty relations with China. The two governments are said to be preparing for bilateral talks—something that has not happened since 2013, when Mr Aquino’s government took a territorial dispute with China to an international tribunal. Shortly after Mr Duterte took office, the tribunal ruled in the Philippines’ favour, but he seems reluctant to press the point.

During the campaign Mr Duterte mused about the dispute with China over Scarborough Shoal, a rich fishing ground in the South China Sea, “Build me a train around Mindanao, build me a train from Manila to Bicol…I’ll shut up.” He also admitted that an anonymous Chinese donor had paid for some of his political ads. His reticence with China is all the more striking given his otherwise belligerent rhetoric and swaggering persona.

Of course, it is not clear that Mr Duterte will be able to strike a deal with China, or even that he will continue to pursue the diplomatic volte-face he seems to be contemplating. The optimistic view sees Mr Duterte as more bluster than substance. His chief of police claimed this week that the anti-drug campaign had reduced the supply of illegal drugs by 90%. That claim may allow him to declare victory and stir up some new furore, even as his advisers soldier on with the mundane business of government. Optimists speculate that if he follows through on his pledges to improve infrastructure and boost rural development, he might even leave the Philippines in a better condition than he found it.

The pessimistic view sees Mr Duterte continuing to lose friends and alienate people. He picks fights with America, with business, with the other branches of government. China exploits his weakness, increasing its military presence around Scarborough Shoal without building any railway lines in Mindanao. Investors stay away, and growth declines. The strongman ends up weakening his country. In the Philippines, sadly, that is a familiar story.