Philippine President Sparks Market Jitters

Investor unease over the future of the Philippines, one of Southeast Asia’s fastest-growing economies, has soared following Rodrigo Duterte’s landslide victory in the May presidential election.

Rodrigo Duterte, the Philippines’ new strongman

The long-serving mayor of Davao City won the overwhelming support of ordinary Filipinos frustrated at chronic lawbreaking and a deeply rooted culture of impunity. Duterte’s often incendiary remarks—including a vow to dump the bodies of criminals in Manila Bay—earned him the monikers “The Punisher” and “Dirty Harry” and have fueled fears of a return to political instability.

Unlike outgoing president Benigno Aquino, Duterte shows scant interest in the economy. Fears that Aquino’s legacy could be upended saw the peso fall more than 3% against the US dollar in the month preceding elections, and foreign investment outflows of $354 million in April sharply reversed March’s $482 million inflows. Duterte has hinted he may allow greater foreign participation in the economy, which dynastic family groups who control large chunks of business fiercely opposed during Aquino’s term.

But Richard Heydarian of Manila’s De La Salle University, who previously warned of capital flight, says Duterte has taken positive steps, “bringing together some competent technocrats to his cabinet, which is reassuring.” The real test will be later, he says, “when the honeymoon is over and we get a [clearer] grasp of Duterte’s managerial skills.”

Under Aquino, the country has been an economic rock star. GDP growth averaged 6.3% in the past five years, 1.8% higher than in the previous five years and a bigger improvement than that shown by any other country in the region, according to research consultancy Capital Economics. Aquino’s achievements and his campaign against corruption received widespread praise; the country received its first-ever investment-grade credit rating.

Now, Zachary Abuza, a professor at Washington’s National War College, predicts an undisciplined administration. “Duterte is unpredictable—he ran a campaign almost devoid of policy specifics; he speaks off the cuff, and often contradicts himself.”