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Duterte's 'Game of Thrones' alarms Philippines investors

Federalism plan would boost president's hopes of staying in office

| Philippines

Filipinos love "Game of Thrones" as much as anyone. HBO's sweeping medieval fantasy drama about rival dynasties plotting for supremacy wins huge ratings in Southeast Asia's third biggest economy. But are the nation's 105 million people ready to be cast as extras?

The plotline came into focus Monday as President Duterte gave his third state of the nation address. Hours before a speech thick with menace and barely veiled threats of violence, a previous throne holder, Gloria Arroyo, staged a power play to become House of Representatives speaker.

Arroyo, a descendant of the Macapagal dynasty which ruled the Philippines in the 1960s, slammed the gavel on the House floor as Imee Marcos, daughter of former dictator Ferdinand Marcos, posed for the cameras just steps away. Imee is governor of Ilocos Norte province, where her mother Imelda, a former First Lady infamous for amassing a collection of more than 1,000 pairs of luxury shoes, serves as a congresswoman.

It is an open secret that the Macapagal, Marcos and other clans are plotting to return to power. Duterte, not one to take chances, hopes to retain control long after his six-year term ends in 2022. He is pushing constitutional change to create a federal system that would enable him to stay on.

His plan would create 18 regions not unlike the democratic model in the United States, enabling leaders to gerrymander power bases. Rich states with natural resources, or very wealthy families, could increase their share of national power -- and ability to force through other constitutional changes. One could be to abolish term limits on the presidency.

Moody's Investors Service is among those fearing the worst. In 2013, Moody's awarded Manila its first investment-grade rating, thanks to reforms introduced by former President Benigno Aquino, another dynastic family scion. Standard & Poor's and Fitch joined in. Although Aquino hailed from one of the biggest landowning families, he governed like a reformer from 2010 to 2016. He raised taxes on tycoons and went after tax cheats, increased transparency, put procurement and bidding online to cut out middlemen, attacked corruption and defied the powerful Catholic Church by championing artificial birth control.

When Duterte came along, his job was simple: build on Aquino's successes. Instead, Duterte switched to a bloody war against the drug trade.

Duterte's most quoted line from Monday's speech -- "Your concern is human rights; mine is human lives" -- was its most paradoxical. The extrajudicial killings Duterte encouraged have so far claimed at least 12,000 lives, says Human Rights Watch. In addition, the president's neglect of economic reforms threatens to hurt workers just as global economic headwinds start to buffet the Philippines.

Since June 2016, Duterte has profited from the momentum built up by Aquino's reform push and from heady global demand, with the Philippines growing at around 6.7%. Yet inflation is heating up. In June, it soared to 5.2%, exceeding government forecasts and accelerating a run on the peso. The Philippines currency is among Asia's worst performers, down more than 7% versus the dollar this year.

Runaway living costs, coupled with Duterte's game of keeping the throne, are raising alarm bells. "Policymakers face challenges in managing the current inflationary pressures," Moody's said on July 20. "In addition, domestic political developments and prospective changes to governance frameworks, including a shift to a federal form of government, present downside risks to the country's institutional and fiscal profile."

Duterte sees only upside. He claims that 18 newly federated regions would have greater power to choose economic development models and revenue-raising tactics. But many believe federalism is really a Trojan horse to enable Duterte, 73, to stay in the presidency past 2022 and engineer his eventual replacement. Most likely, a Marcos family member -- or an Arroyo.

The sheer number of disgraced dynasties fighting for the throne makes plotlines hard to follow. Joseph Estrada, for example, never quite goes away. The B-movie actor-turned-president was impeached in 2001 on corruption charges. Today, he is mayor of Manila and spoiling for a national comeback.

Estrada's successor, Arroyo, arrested in 2011 on election fraud charges, also is said to be eyeing Duterte's job. Nominally, she is a Duterte ally, but only out of expediency. Then there is Ferdinand Marcos Jr., who until June 2016 was a senator. In 2007, he assumed a House seat vacated by his sister, Imee. When he left that seat in 2010, his mother Imelda took it.

This might be entertaining if it were not for Duterte's ties to the Marcos clan. Duterte even floated the idea of dumping Vice President Leni Robredo in favor of Ferdinand Jr. That would put a scion of the 1965-1986 dictator who left office with an alleged $10 billion of state funds one step from the presidency.

Yet even if Duterte clings to power, credit raters would have every reason to rethink Manila's investment-grade status. Federalist systems have backfired in India, Iraq, Nigeria and elsewhere, doing more to exacerbate ethno-communal tensions than to narrow wealth gaps.

Such electoral structures also tend to further entrench political dynasties.

The good news for investors is that Duterte's act may be wearing thin. His approval rating is rapidly moving in the wrong direction. While inflation and poor job growth dent support, voters seem increasingly aghast at his erratic behavior.

Duterte upset many last month by kissing on the lips a young Filipina asking him a question at a speech in South Korea. Nor does calling God "stupid" tend to go down well in a devoutly Catholic nation. Duterte's deference to China, regardless of its territorial claims, strikes many as naive.

The realm for which Duterte should be fighting involves economic progress. Yet the president's federalist gambit will do more to deepen the socioeconomic fault lines he was elected to close. It also strengthens the hand of titans fighting for a throne that should belong to the people, not a handful of families consolidating their economic power.

William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades." He was given the 2018 prize for excellence in opinion writing by the Society of Publishers in Asia, for his work for the Nikkei Asian Review.

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