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Poverty Porn Isn’t Much Help in This $1.25 World: William Pesek

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Benigno Aquino, Manuel Villar and Joseph Estrada
A combination photograph shows from left to right, Benigno Aquino, speaking during an interview at his house in Quezon City, Manuel Villar answering questions during an interview in Manila and Joseph Estrada speaking to supporters in Quezon City. Photographers: Edwin Tuyay/Bloomberg, Jay Directo/AFP/Getty Images

May 3 (Bloomberg) -- None of the above.

That’s how many Filipinos responded recently when I asked who they planned to vote for in the May 10 presidential election. Their ambivalence seems equally directed at frontrunner Benigno Aquino III, his closest rival Manuel Villar and Joseph Estrada, who’s third in surveys.

Here we have a nation where one in four lives on less than $1.25 a day, infrastructure is antiquated, corruption is rampant and leaders have one of the worst records in Asia for delivering on promises. Strong growth in China, India, Indonesia and South Korea is leaving the Philippines behind.

The choices to revive things: The son of a former president (Aquino); a lawmaker Forbes estimates is worth $530 million, who was ousted from a leadership role amid graft allegations (Villar); a movie star-president tossed out of power and jailed for corruption (Estrada).

Even Imelda Marcos, wife of the former dictator, is running for Congress, as is boxer Manny Pacquiao. You can’t make this stuff up.

As the Philippines becomes more of an investor-beware economy than usual, get ready for interest-rate volatility.

Candidates in the Philippines are skilled at exploiting what development economists call poverty porn. They’re great at shanty-town photo opportunities and promising prosperity. A fresh sense of betrayal sets in as leaders return to the business of enriching their cronies or doing little.

Investors Beware

No one can say Aquino or Villar will fit this pattern. I strongly hope the Philippines’ next leader doesn’t. The track record is bad, though, and investors should be wary.

The big concern is competence. Aquino’s family name -- he’s the son of beloved former leader Corazon Aquino -- doesn’t ensure he’ll be a capable reformer. Villar says his rags-to-riches life story makes him the best candidate to right the economy. Estrada thinks he was unfairly ousted in 2001 and that he’s ready to save the day.

Why, it must be asked, is a nation with so much potential turning to a group of untested men to repair its long-neglected economy? That’s a question investors should be asking early and often as the Philippines heads into a potentially market-shaking election.

The results are one big worry; the process is another.

Filipinos are abuzz with conspiracy theories about the more than 80,000 automated machines that they’ll use to pick their next president. Will the election be stolen electronically?

National Paranoia?

In a recent interview, Aquino said that “if we have a correct counting of the votes I think we will be very victorious.” If not, and “the people’s will is frustrated,” he added, demonstrations could make recent protests in Thailand seem “mild” by comparison.

What a breathtaking comment. It seems as if the election favorite is saying that if he loses it will be because of fraud and the nation’s 100 million people should revolt. Such risks help explain why Standard & Poor’s rates the Philippines’s foreign-currency debt three levels below investment grade.

The Philippines frustrates me. I absolutely love visiting the place, and its vast potential dates back decades when it was tipped to be the Japan of Southeast Asia. It’s got ample natural resources, a rapidly growing, largely English-speaking population and a physical beauty that borders on the otherworldly. It’s well positioned geographically to harness Asia’s rapid growth.

Perennial Underperformer

And yet, it perennially underperforms. True, the economy weathered the global crisis better than feared. To me, the credit for that goes to central bank Governor Amando Tetangco and his team. Even so, the Philippines is growing at a 1.8 percent rate year over year, compared with 13.1 percent in Singapore, 7.8 percent in Korea, 5.8 percent in Thailand, 5.4 percent in Indonesia and 4.5 percent in Malaysia.

Also, let’s be honest about what’s shoring up Philippine consumption: human exports. Remittances totaled $17.3 billion in 2009, meaning that 10 percent of gross domestic product is people working overseas, away from their families, and sending wads of cash home. The government isn’t doing its job of creating enough good-paying jobs.

Few investors will be sad to see Gloria Arroyo leave the presidential palace. The opposition has been trying to impeach Arroyo since 2005, accusing her of corruption, voter fraud and human rights abuses. Not that she’s going away quietly; Arroyo is running for Congress.

Pampered Oligarchy

Arroyo’s main achievement -- bringing some semblance of sobriety to fiscal policy -- is being eroded. The global crisis hit government coffers, leaving Arroyo’s successor squeezed between the need to alleviate poverty and the lack of funds to do it.

The Philippines needs a seriously focused leader -- a skilled policy wonk to attack the corruption that keeps economic growth from benefitting all. Instead, voters are choosing from politicians who hail, in different ways, from the pampered oligarchy that holds so many of them back.

Filipinos need and deserve an able and inspiring leader. Judging from the cast of characters running, it doesn’t seem like they’re about to get one. This is one of those times when I’d love to be wrong. Investors, too.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

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To contact the writer of this column: William Pesek in Manila at wpesek@bloomberg.net

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

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