Previous Quarterly Editions
Expropriation Risk: 51 53 56 58 Political Violence Risk: 48 48 44 44 Terrorism Risk: 68 69 69 66 Exchange Transfer and Trade Sanction Risk: 36 36 38 38 Sovereign Default Risk: 42 43 45 47
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In July 2020, President Rodrigo Duterte signed the controversial Anti-Terrorism Act into law. The new legislation had already passed a legislature in which the president’s control has been strengthened by the mid-term elections. Among various provisions, it allows a council appointed by the president and largely made up of cabinet members, but without any judges, to identify suspected terrorists and have them detained by the security forces for up to 24 days without warrant or charge. As such, the legislation significantly increases the executive’s power to determine what constitutes terrorism by including such broad categorisations as intimidating the general public, spreading a message of fear, and destabilising the fundamental political, economic, or social structures of the country. The legislation is being presented as a means to prevent public emergencies such as the five-month siege of Marawi city on Mindanao in 2017 by local militants affiliated to Islamic State, in which more than 150 members of the security forces were killed and 1,400 injured. However, the law has been widely criticised abroad and civil society groups have warned of the possibility that the Duterte administration may use it to target opponents and curb dissent. Petitions have been filed in the country’s Supreme Court but the constitutional fight over the law will go on for several months. The government will be keen to keep the legislation intact as its provisions should help persuade the Financial Action Task Force (FATF) to keep the Philippines off its ‘grey list’ of countries that are not doing enough to combat terrorist financing. Last year, the FATF said that the country was only partially compliant with eleven of the organisation's requirements. One thing that Duterte’s supporters and critics both agree on is that the Anti-Terrorism Act has done little to dent the president’s popularity. This has been strengthened rather than diminished by his handling of the COVID-19 pandemic even though the administration began to ease localised lockdown provisions in May and June 2020 without having curbed the rate of infection. Duterte chose to scale back lockdown restrictions for Metro Manila, which accounted for two-thirds of the country’s cases, from the start of June 2020, confident that the resultant easing of economic hardship would allow him to ride out any political outcry if the move resulted in a surge of cases. However, the government has been slow to disburse support for people struggling financially through the lockdown. April 2020 saw a programme to provide cash handouts for two months to roughly 18 million poor families, as well as a wage subsidy scheme to help small businesses retain employees for the same period, but their rollout was held up by bureaucratic complications. Although constitutionally limited to a single term, Duterte is still concerned with his popularity because he wants to pass the presidency to a chosen successor in 2022. There seems little danger of an imminent fall in support, but the COVID-19 crisis may have longer-term effects in the next two years that include doubling unemployment to 10% and a reduction in tax revenue that forces a noticeable reduction in public spending. Duterte continues to build up his regional role. At the start of June 2020, the government suspended termination of the Visiting Forces Agreement (VFA) that allows the US to deploy military personnel to the Philippines on a temporary basis. With the recent uptick in Chinese aggression in the South China Sea, Duterte calculates that he needs Washington's support more than ever. Termination of the VFA would have weakened bilateral ties significantly at a time when necessary spending on the COVID-19 pandemic is threatening Manila's plans to buy multi-role jet fighters and a submarine.
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In May 2020, the Philippine telecoms regulator told ABS-CBN, the country's largest media conglomerate, to stop broadcasting. In February 2020, the solicitor general had asked the Supreme Court to cancel the company’s franchise, in part because it flouted foreign ownership regulations. ABS-CBN denied this and applied as usual to Congress for an extension to its franchise. Congress had yet to consider the matter when the order came to stop broadcasting. President Duterte has long expressed disapproval of the network, and it has often been critical of his policies. ABS-CBN responded cautiously, hoping that public opinion would make its case, but its application for a 25-year franchise extension was rejected by a committee of the lower house in July 2020. The broadcaster, whose shares have lost two-thirds of their value under Duterte, and which employs more than 10,000 people, remains off the air. The administration’s move has increased fears about press freedom and raised further concerns about presidential interference in commercial contracts.
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In June 2020, a Manila court found Maria Ressa, CEO and editor-in-chief of news website Rappler, guilty of 'cyber libel'. The convictions relate to a 2012 article, updated in 2014, that alleged criminal activity by a Philippine businessman. Many see the prosecution and outcome as politically motivated as Rappler has frequently criticised President Duterte since he came to power in 2016. The news website has also been hit with legal cases over alleged ownership violations and tax evasion, which it denies. Ressa, who now faces up to six years in prison, has been bailed pending appeal. While the Duterte administration insists that the law has taken its course, the president will have to contend with criticisms of the human rights situation for the remainder of his six-year term.
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Although President Duterte lifted martial law on Mindanao at the start of 2020, the military presence has remained very much in place as a deterrent to local communist insurgents as well as Islamist militant groups. Duterte sees this as an acceptable price for officially ending a situation that has deepened Muslim Mindanao’s alienation from the island’s Christian majority and the country more generally.
Inflation averaged 2.5% in the first six months of 2020, comfortably within the central bank’s target range of 2-4% and well down on the high of 7% seen in 2018. This encouraged the central bank to make the fourth cut of the year to its interest rate at the end of June 2020, when an unexpectedly large reduction of 50 basis points brought it to a record low of 2.25%. The bank’s new governor, who was brought in in 2019 to encourage a more expansionary approach, has indicated that further cuts are possible.
Given Duterte’s use of infrastructure spending to boost growth, the fiscal deficit was already going to surpass this year’s target of 3.2% before the COVID-19 pandemic hit and is now expected to be around 8%. The debt-to-GDP ratio now looks likely to rise from 40% to 50% during the course of 2020 but foreign reserves hit a record level of 84 billion US dollars in June 2020, and the country should retain its stable investment rating.
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