Aquino Faces an Uncertain Legacy

08.27.15

Aquino Faces an Uncertain Legacy

08.27.15
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By Laura Southgate for Global Risk Insights

On 27 July, Philippines’ President Benigno ‘Noynoy’ Aquino gave his last State of the Nation Address to the Philippines Congress. Because Filipino law prevents a President from running for a second term, Mr. Aquino’s address marks the final stages of his six-year presidency. As the international community looks ahead to his potential successor, we consider whether the Aquino administration has lived up to its 2010 election promises.

Aquino’s Promises

President Aquino won a landslide victory in June 2010, promising action on poverty and corruption. In his inauguration speech on 30 June 2010, Aquino promised to transform the Philippines’ government “from one that is self-serving to one that works for the welfare of the nation.”

Extolling the belief that, “if no one is corrupt, no one will be poor,” he confirmed his foremost duty was to “lift the nation from poverty through honest and effective governance.” The first step to achieving this was “to have leaders who are ethical, honest, and true public servants.”

In addition to tackling poverty and corruption, Aquino also promised to make the Philippines “attractive to investors” through economic reforms. He confirmed he would, “cut red tape dramatically and implement stable economic policies.” He would also “level the playing field for investors and make government an enabler, not a hindrance to business.”

Aquino’s Economic Record

By all accounts, the Aquino administration has had a strong economic record. The Philippines is an emerging economy, which has steadily grown under Mr. Aquino due to the inflow of foreign direct investment (FDI).

FDI has been rising steadily in recent years, and between January and November 2014, FDI flows reached USD 5.7 billion, which represents a more than 60% increase compared to 2013. Most of these investments went into manufacturing gas, steam, and air-conditioning supply, finance and insurance, transportation and storage, and professional, scientific and technical activities.

Moreover, the economy is reported to have grown by 6.1% in 2014. Whilst this was slower than the 7.2 % growth in 2013, and was short of the government’s 6.5 to 7.5% target, it was still the second fastest in Asia during the period. However, critics argue that economic growth has failed to raise living standards.

Official figures confirmed that 25.8% of Filipinos were living below the poverty line in the first half of 2014, just 0.5% less than in 2009. According to Carl Baker, director of programs at the think tank Pacific Forum CSIS in the United States, “much of the employment growth has been in the services sector, which tends to generate fewer high-wage jobs and less spin-off small business opportunities than large manufacturing.”

Jonathan Ravelas, chief market strategist with BDO Unibank in Manila suggests that the Philippines needs at least seven years of growth at 6% to impact the “grassroots” level. The government is hoping to hasten this process by bringing in more manufacturers.

Aquino’s Record on Corruption

According to the Official Gazette, the official government journal, the country has undergone a radical transformation under the Aquino administration. In an attempt to enhance transparency and accountability, the government claims to have improved upon good governance reforms, which includes “strengthening the mechanisms necessary for the swift and efficient delivery of services.”

The government also credits itself with reforming “procurement and budgeting processes to promote efficiency and reduce opportunities for corruption.” This has allowed the government to channel funds into social services, health, and education.

However, a recent opinion poll cited in The Economist suggests that 46% of Filipinos believe Mr. Aquino has failed to curb corruption, while just 13% said he has succeeded. This high figure may be due to continuing controversies regarding the Disbursement Acceleration Program (DAP) and Priority Development Assistance Fund (PDAF).

The DAP, a program intended to speed up public spending and boost economic growth, and the PDAF, designed to allow legislators to fund small-scale infrastructure, have both been accused of misusing public funds.

Economic Impact

Whether Mr. Aquino’s policies and reforms will prove to be successful in the long term will now hinge on his successor, and who will decide to carry them forward or abandon them.

Frederic Neumann, co-head of the Hongkong and Shanghai Banking Corporation (HSBC) Asian Economic Research, has confirmed that investors are increasingly worried about whether the next administration will continue Mr. Aquino’s reforms. According to Neumann, investors are most cautious about the energy sector and the infrastructure projects under the public-private partnership (PPP) scheme, as these require a large amount of funds, with profit often hinged on government policies. This might cause some to postpone potential investments.

Filipino economist Arsenio Balisacan believes expansion plans of local corporations and conglomerates are evidence that the business sector is confident in the Filipino economy. He is, therefore, positive that investor confidence will extend beyond the 2016 elections. Similarly, Reginaldo Cariaso, managing director of the investment house unit of the Bank of the Philippine Islands, has stated that investor confidence in the Filipino economy would continue to drive reforms and positive market change.

Despite election uncertainty, it seems there is cause to be optimistic that the Philippines’ economic growth will continue, at least for the short-term.

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