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June 4, 2020

PHILIPPINES: Why Duterte may struggle in an economic downturn

BY Bob Herrera-Lim

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( 5 mins)
  • President Rodrigo Duterte’s signature law-and-order narrative may become less valuable politically should a serious economic slowdown ensue.
  • While this will not manifest in immediate instability, it could weaken the government’s ability to pass legislation and throw open the 2022 presidential race even more.

The narrative that catapulted President Rodrigo Duterte to the presidency and sustained his popularity over the past few years focused mostly on his decades-long success as the mayor who brought law and order and effective government administration to the southern city of Davao. He complemented this by emphasizing his status as an outsider politician, not beholden to the dominant political and economic elites in Manila.

For Duterte, there was no hesitation in taking on these topics, especially with his controversial anti-drug campaign, and attacks against broadcast network ABS-CBN or the country’s top two water concessionaires. With growth relatively robust and consistent, especially in the urban areas, Duterte appeared content to leave the broad economic messaging and policymaking to Secretary of Finance Carlos Dominguez.

However, over the next year, public expectations may shift away from law-and-order as the key governance priority, to the management of a potential economic downturn, especially one that could be the worst since the mid-1980s under former President Ferdinand Marcos. Duterte has very limited experience in national economic policymaking, and he could struggle in communicating his government’s economic priorities and desired outcomes with the same confidence as he did with his law-and-order campaign. Even with the Covid-19 outbreak, he found it difficult to convey policy decisions and key outcomes related to the pandemic, often relying on the cabinet — which has become a problem because of the widespread distrust of the Secretary of Health. Meanwhile, the private sector is visibly frustrated with the lack of government capacity and leadership on testing and in rebuilding public confidence about their safety from future waves of infection.

As has been the case the past few years, the relevant signals on government priorities will continue to come from the economic team, particularly Secretary of Finance Dominguez, Acting Economic Planning Secretary Karl Chua and central bank (BSP) governor Benjamin Diokno. But these economic officials will spend more time communicating with targeted audiences in the bureaucracy, legislature and business community as they try to push specific programs, rather than the broader public.

Duterte may struggle to build broad economic confidence

Therefore, the government may struggle to improve broad public confidence in an economic rebound over the next few months, while Duterte attempts to find his bearings. Duterte’s communication style focuses more on identifying threats, highlighting risks, followed by off-the-cuff remarks that emphasize his non-elite or “common folk” credentials. For instance, less than two weeks ago he said schools would remain closed and that children should just go out and play until a vaccine becomes available, an unrealistic statement that government officials eventually had to vaguely walk back to mean that holding of classes in person would not take place until domestic risks from the virus decreased.

The weak narrative on public health and Duterte’s predilection for control caused Manila to implement one of the world’s longest and most stringent lockdowns (especially considering that the number of diagnosed cases is 20,000 and the official fatality rate stands at about 1,000). The stimulus package is so far one of the smallest in the region relative to GDP, which may signal an under-appreciation by the administration, including Duterte, of the risks that lie ahead. A larger stimulus package is pending before congress but seems unlikely to be approved until well into the third quarter, at the earliest.

Should he struggle to align his political narrative with what will likely be growing public concerns over the economy, then not only may it frustrate his economic team’s ability to rebuild economic confidence, but his popularity may drop after having proven resilient the past four years. This is unlikely to happen immediately (and the health environment may make credible polling difficult) or have an immediate effect on political stability — the opposition has over the past few years been incompetent in exploiting Duterte’s vulnerabilities. It remains leaderless, incohesive and unable to offer alternative personalities and programs that broadly resonate with the public.

Consequences for policy and 2022

Nonetheless, this may only be temporary comfort for Duterte. Initially, it could manifest in greater reluctance by the legislature to cooperate with his remaining agenda, including further phases of his tax reform program. For instance, on the legislative table is a bill that reduces corporate income taxes, but which also potentially restructures the system for granting incentives to investors to reduce leakages in the system and align their grant to industrial policy goals. However, changing the incentive system is unpopular with exporters, particularly those in electronics, and the Business Process Outsourcing (BPO) sector. Duterte can push it once the legislature resumes session in July, but this window may close quickly if he weakens politically and is unable to pivot to effective messaging on economic recovery and growth. An inability to pass it could be an early indicator of declining clout. This may not all be negative for the country’s elites as it could reduce his willingness to generate controversy, either domestically or with foreign policy.

Eventually this weakness could result in reduced legislative cooperation, leading to the perception that Duterte is becoming a lame duck. The politics around Duterte is highly personalistic, which is why his daughter Sara and top aide, Senator Bong Go, are possible candidates for the presidency or vice presidency, if Duterte remains popular. But a decline in the president’s popularity would not only affect their chances, but that of a partnership with the Marcos family as well. Should the perception that he is a lame duck start to take hold next year, and given the current opposition’s incoherence, it would throw the 2022 elections into greater uncertainty.

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