Previous Quarterly Editions
Expropriation Risk: 51 53 51 53 Political Violence Risk: 48 48 48 48 Terrorism Risk: 65 67 68 69 Exchange Transfer and Trade Sanction Risk: 36 37 36 36 Sovereign Default Risk: 42 42 42 43
TREND ▲ OUTLOOK ▲
Although President Rodrigo Duterte increased his support in the legislature during the 2019 midterm elections and continues to enjoy an extremely high personal approval rating, he increasingly faces challenges that are partially of his own making. In November, he sacked Vice President Leni Robredo from the role of ‘drugs czar’ after only two weeks of chairing the Inter-Agency Committee on Anti-Illegal Drugs, which oversees Duterte's signature ‘war on drugs’. However, Robredo has long been a critic of Duterte’s approach and may have uncovered information that would assist the International Criminal Court’s preliminary examination into Duterte’s policy, which has resulted in thousands of deaths since its launch in 2016. Her removal has put his drugs policy under greater scrutiny at home and abroad. Mindanao, Duterte’s home base and where his daughter Sara is mayor of Davao City, remains a problem. The Bangsamoro Transition Authority was set up in early 2019 as the interim government of the fledgling Bangsamoro Autonomous Region, which is home to many of the country’s Muslims. Although the southern Philippines has been one of the highest-risk areas in South-east Asia for militant attacks, Duterte appears to have chosen not to extend martial law in Mindanao into 2020 in a move that will be welcomed in Davao City and elsewhere but does not indicate a substantial fall in the security risk. Although the economy is still the envy of many of its neighbours, the rate of growth continued to slip during the first half of 2019 and ended the year just below 6%, below the government’s target. However, a stronger second half reflected Duterte’s commitment to high levels of government spending, mainly on infrastructure, to stimulate the growth needed to fund social programmes. In particular, he needs to pay for the new universal healthcare initiative that he signed into law early in 2019 to fulfil a major 2016 campaign promise. Despite his popularity, Duterte’s pro-Beijing stance continues to put him at odds with public opinion, creating a potential political vulnerability. Part of his thinking may be to push Beijing into speeding up provision of the tangible economic assistance that it has been promising since Duterte backed Chinese claims to the South China Sea during his first election campaign. Weighing the impact on relations with Beijing may be one reason that he has yet to take up President Trump’s invitation to visit the White House, although a more important factor may be that Trump’s offer of a free trade agreement made in late 2017 seems to be no longer on the table. The influence of Islamic State in the southern Philippines has reminded Manila of the need to retain the US alliance for counterterrorism assistance, but its recent suggestion that it should have greater control over US visiting forces, similar to that granted to Japan and South Korea, has gained little interest in Washington. After previous failures, Manila’s efforts to provide effective relief after Typhoon Phanfone hit the central Philippines in December will be closely watched.
The country hopes to remain largely insulated from the effects of the trade confrontation between Washington and Beijing, with Manila expecting the dispute to reduce GDP by no more than 0.1% in 2020 as domestic demand rather than exports remains the main driver of growth. The environment minister of the Bangsamoro interim authority suspended all mining operations in the region during the latter half of 2019 while it conducts an environmental audit of the industry. The Philippines is the second-largest producer of nickel ore after Indonesia, with much of its high-grade nickel ore exports coming from Bangsamoro's Tawi-Tawi province and going to China. This means that the country is well placed to benefit from Indonesia’s ban on exports to promote its domestic smelting sector. However, President Rodrigo Duterte has frequently condemned the environmental impact of mining, setting up possible tensions over the issue during 2020.
TREND ► OUTLOOK ▲
Public concern about Chinese competition for jobs now far outstrips the actual scale of the problem, but it has added to a discernible rise in anti-Chinese sentiment. This is increasingly running counter to Duterte’s determination to deepen Chinese involvement in the economy, and another incident in the South China Sea could see significant protests against Beijing. Final confirmation of greater autonomy for the Bangsamoro region should boost foreign investment into Mindanao, which Manila hopes will counter the ongoing Islamist presence there.
President Duterte has apparently decided against extending martial law on Mindanao during 2020 on the grounds that the army has done enough to degrade the operational capacity of the Islamic State (IS)-aligned Abu Sayyaf Group (ASG). Without a military presence, local attacks by communist insurgents as well as Islamist militant groups are likely to increase, and there were more bomb attacks in December. However, Duterte sees this as an acceptable price for ending a situation that has deepened Muslim Mindanao’s alienation from the island’s Christian majority and the country more generally.
TREND ► OUTLOOK ▼
Inflation rose during the second half of 2019 on rising food prices to end at 2.5%, but this is still comfortably within the central bank’s target range of 2-4% and well down on the 2018 high of 7%. The bank has made some small cuts to its interest rate, bringing it down to 4% while continuing to reduce the reserve ratio requirement. Under its new governor, who has been brought in from the budget ministry to encourage growth, further cuts are likely in the coming months. The peso strengthened slightly against the dollar during 2019 and should remain steady during the first quarter of 2020.
TREND ▲ OUTLOOK ►
The current account, which was comfortably in surplus as recently as 2015, reached a deficit of 1.2 billion dollars by mid-2019 before slowing slightly. Duterte’s policy of pushing double-digit growth in public spending continues in the 2020 budget and the fiscal deficit looks likely to creep above last year’s 3.2% of GDP. However, the debt to GDP ratio is now below 40%, reserves are above 85 billion dollars, the country has a stable investment rating, and the government was able to issue a 750-million-euro Eurobond in 2019 with little difficulty. Much now depends on Duterte’s ability to raise more revenue from a slowing economy.
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