Duterte Is Looking for Friends in New Places

The president of the Philippines angers the West while tilting to Beijing.

Duterte

Photographer: Noel Celis/AFP via Getty Images

Since taking office at the end of June, Philippine President Rodrigo Duterte has managed to insult U.S. President Barack Obama, the U.S. ambassador, and United Nations Secretary General Ban Ki-moon. Speaking on Sept. 20 in his hometown of Davao City, Duterte found a new target, rejecting the European Union’s condemnation of his crackdown on alleged drug dealers, which has led to thousands of vigilante-style killings. “I’ll tell them, ‘F--- you,’ ” Duterte said.

Now the former crime-fighting mayor is looking for friends in new places and ramping up his attacks on domestic critics. On Sept. 27 he accused the U.S. of “undermining” the Philippines and said he will visit China and Russia to pursue what he called “new alliances” in trade. Duterte has also expressed interest in acquiring weapons from China, even though the two countries have been at odds for years over islands in the South China Sea (known in Manila as the West Philippine Sea).

At home, Duterte is tightening his control. After a terrorist attack in September killed 14, he declared a nationwide state of emergency. On Sept. 20, Duterte and his allies in the Senate ousted his critic Senator Leila de Lima from her post as head of the justice and human rights committee. “Our bill of rights is under threat,” de Lima said on Sept. 26 on Bloomberg TV Philippines. Speaking to reporters the same day, Duterte said he expected de Lima to be jailed for what he claims are ties to traffickers. “She screwed the nation,” he said. She denies his accusations.

Duterte seems to be betting his provocative actions won’t scare away businesses. When Benigno Aquino, his predecessor, left office, the economy was in the best shape it had been in in decades. Gross domestic product grew 7 percent in the second quarter from a year earlier, foreign reserves are at a record high of $85.9 billion, and inflation is tame at less than 2 percent. Fewer Filipinos than before have to travel abroad to seek employment, with the unemployment rate this year falling to 5.9 percent, according to a Standard & Poor’s forecast, down from about 7 percent from 2010 through 2013. As wage costs rise in India, the Philippines has become the destination for companies looking for an inexpensive emerging-market country with low-cost English-speaking workers. On Sept. 16, Visa opened a customer support center in Manila that will have 570 employees. Outsourcing operations of all kinds employ more than 1 million people in the Philippines.

The American Chamber of Commerce of the Philippines on Sept. 8 issued a statement expressing “growing concern over developments that could harm the long-standing optimism of American business to invest in the Philippines.” S&P Global Ratings warned on Sept. 21 of increased uncertainty in the country, saying extrajudicial killings since Duterte took office “could undermine respect for the rule of law and human rights.”

Foreign investors sold Philippine stocks for 27 days, the longest outflow since 2007. On Sept. 26 the Philippine peso sank to a seven-year low of 48 pesos to the dollar. The currency’s fall is “mainly due to politics with the Philippine president’s war on drug dealers and his intent to seem to alienate all of [the country’s] major trading partners,” says Jeffrey Halley, a market strategist at Oanda Asia Pacific, a provider of foreign exchange services in Singapore.

At a meeting of bankers in Manila on Sept. 15, Socio-economic Planning Secretary Ernesto Pernia said, “We need to counter this adverse international press because that will dampen the appetite of foreign direct investors.” To keep the business community on his side, Duterte is following through on a pledge to build infrastructure. On Sept. 14 the government approved projects worth 171.2 billion pesos ($3.5 billion), including plans to upgrade Manila’s airport. “As long as the economic team can push through with their plans, the economy will remain strong,” says Gundy Cahyadi, an economist with DBS Group in Singapore. “For the time being, we still think there [are] plenty of positives to look at.”
 
—With Ditas Lopez, Karl Lester Yap, and Y-Sing Liau

The bottom line: President Duterte can afford his gaffes as long as the solid economic foundations built by his predecessor are left in place.

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