Two years into Rodrigo Duterte's presidency, the Philippines' once-celebrated economy is beginning to display vulnerabilities. Inflation has breached the government's target, the peso is in free fall, and the country is suffering its largest current-account deficit in 18 years.
Amid deepening concerns over the rule of law as well as regulatory predictability, foreign investors remain unenthused. Western investors have described the Philippines as a "tough sell," thanks to Duterte's unpredictable policies, including the sudden shutdown of the resort island of Boracay this year, and the persistence of extrajudicial killings and corruption.
The economic jitters have begun to affect public opinion as a growing number of Filipinos openly question the government's macroeconomic management. Duterte is far from invincible and his administration will need to reassure foreign investors, restore confidence in the country's institutions, and encourage economic managers to operate as independently and professionally as possible.
Otherwise, Duterte risks his presidency, amid rising public discontent, while the country's economic growth could peter out and, eventually, lead to public investment crisis.
Shortly before Duterte's ascent to presidency, many business executives and technocrats in the Philippines saw him, quite ironically, as a breath of fresh air. Despite his strident populist rhetoric, Duterte came across as a maverick politician who might be able to shake up the country's economy, which had been bedeviled by oligopolies, weak infrastructure and regulatory nightmares.
Paradoxically, it was precisely his admission of ignorance about economics that raised hopes that the new president would rely heavily on the advice of seasoned economic managers. Moreover, Duterte won praise for his bureaucratic reforms in the southern city of Davao, where he presided as mayor for more than two decades.
The city, the commercial heart of the southern island of Mindanao, posted one of the fastest growth rates in the country, while often topping "ease of doing business" indices, thanks to a reduction in red tape and Dutetre's hands-on approach in curbing institutionalized corruption.
Time and again, Duterte made it clear that aside from his pet project, which was the restoration of law and order through an all-out war on drugs, his technocratic deputies would have complete control over their respective agencies.
Shortly after wining the presidency, his economic team drafted a 10-point economic agenda, which reiterated the new administration's commitment to adhere to the responsible macroeconomic reforms of its predecessor. In 2017, the Philippines grew by 6.7%
Concerns over the rule of law, amid the scorched-earth drug war, as well as policy predictability have since severely undermined foreign investment sentiment.
"We strongly believe in the importance of the rule of law, due process and the respect of human rights in all countries, including the Philippines. Security is the issue investors are most concerned with when they decide and choose a place or country," said Lee Ho-ik, president of the Korean Chamber of Commerce of the Philippines earlier this year. "To be frank with you, to date ... the Philippines is not a safe country."
During the first half of 2017, there was a 90% year-on-year drop in new investment pledges from $1.45 billion to $141 million. During Duterte's first year in office, South Korean investments plunged by 93%, while American investment dropped by 70%. Meanwhile, the ranking of the Philippines in the global corruption index hit a five-year low in 2017. During the first quarter of 2018, new investment pledges dropped by 38% on a year-on year basis, reaching the lowest level since 2010.
In a worrying sign, even some of Duterte's seasoned ministers and technocrats have given in to rhetorical flourish and provocative statements, which have raised concerns about their professionalism and reliability. Budget Secretary Ben Diokno has often courted public controversy with his dismissive rhetoric. When asked about rising inflation, which has hurt ordinary people, he recently retorted: "We should be less of a cry baby."
Months earlier, the Department of Finance came under fire when one of its deputy ministers suggested that the Philippines should reject all foreign aid, especially from the West, amid disagreements on human rights issues.
Meanwhile, the Philippine Central Bank, arguably the most respected state institution in the country, is also coming under criticism for its delayed adjustment of interest rates amid an upsurge in inflation as well as a historically weak peso.
The National Economic Development Authority, another highly respected institution, recently provoked a public backlash when it claimed, in a hypothetical study, that a family of five could lead a "decent" life on less than $200 dollars per month.
This was immediately criticized by leading legislators. Senator Panfilo Lacson, sarcastically said that his family could live on such miniscule budget if it "will eat only once a day, won't brush our teeth nor take a bath, walk every day to and from our place of work but avoid perspiring so we won't wash our clothes.''
The widespread public ridicule of the economic managers reflects diminishing confidence in the country's technocratic institutions. It is not clear whether certain agencies are under political pressure to stick to the present course or are genuinely unwilling to make necessary policy adjustments despite deteriorating macroeconomic conditions.
Under Duterte's watch, market watchers have gradually begun to even question the independence and reliability of Duterte's economic team.
Critics claim that a recently passed tax reform package to finance Duterte's infrastructure projects has raised the prices of basic goods and commodities way beyond the government's early estimates. This has been exacerbated by the rising cost of imports, including oil and rice, thanks to the peso's fall to a 12-year low, currently Asia's worst performing currency.
With the implementation of new tax measures this year, which have raised real estate and office costs as well as eliminating tax breaks in certain sectors, the country's booming business process outsourcing industry is beginning to lose steam. Leading business groups have openly opposed various aspects of the tax reform package.
Although the tough-talking Duterte remains popular, deteriorating economic conditions for the average Filipino could ultimately undermine his base of support. In the latest survey by Pulse Asia, one of the two leading poll agencies in the country, half of the respondents in March identified an increase in wages as their most urgent policy priority, while 45% saw inflation as their primary concern.
In addition, other leading economic concerns among a third of the respondents included a reduction in poverty and more job opportunities. Without a massive influx of investments and a recovery in the peso, the country will struggle to address concerns over inflation, unemployment, wages and poverty.
Absent in most people's priority list was law and order, whether in terms of crime rates or the spread of illegal drugs, which has been Duterte's primary policy concern. Almost all the country's presidents have maintained high approval ratings half way into their terms, but the public later tends to become more critical, especially if it concerns bread and butter issues.
Consequently, it is high time for the Duterte administration to competently and honestly address growing concerns over the rule of law, policy predictability, and inflationary tax reforms, which are hurting millions of ordinary Filipinos struggling with a hand to mouth existence.
Above all, it is important for Duterte to restore business confidence by avoiding abrupt policy decisions, including the sudden shutdown of Boracay; revisit the implementation of new tax measures; end extrajudicial killings and the continued assault on free press and independent statesmen; and allow technocrats to make macroeconomic decisions based on facts and careful deliberation rather populist pronouncements.
This is not only about Dutetre's political capital, but also about the Philippines' immense economic potential that remains largely untapped.
Richard Heydarian is a Manila-based academic, columnist and author; his latest book is "The Rise of Duterte: A Populist Revolt Against Elite Democracy."