Duterte Could Turn Philippines Into The Land Of Easy Money And Build, Build, Build
by Panos Mourdoukoutas
President Rodrigo Dutere could turn the Philippines into the land of easy money that will end up financing his ambitious Build, Build, Build agenda.
That’s a massive construction plan that is expected to drive the country’s growth for years to come , and create jobs for the Philippines labor force.
Early this week, President Duterte appointed political ally Benjamin Diokno to head of the country’s central bank, Bangko Sentral ng Pilipinas (BSP).
That’s unusual for the Philippines and any modern democracy, where the tradition is for neutral appointments. And it could mean the end of the independence of the country’s central bank, and the paving of easy money in the form of low interest rates and runaway government deficits.
At least that’s the interpretation of financial markets that have been unsettled by Diokno’s appointment.
For years, an independent (BSP) has been a big asset for the Philippines economy. It provided the macroeconomic conditions to let the Philippines economy grow at rates that parallel those of China.
High growth rates, in turn, helped elevate the country’s standard of living. The Philippines’ per-capita GDP was last recorded at an all-time high of $2,891.36 in 2017, according to Tradingeconomics.com . That’s well above the average of $1,627.98 for the period 1960-2017.
If it comes true, the end of BSP independence could change the game for the Philippines economy. It could bring back macroeconomic instability in the form of soaring government deficits, and inflation–one of the country’s old villains.
To be fair, inflation has been coming down recently. Consumer prices rose at 3.8% in February of 2019, down from 4.4% in the previous month.
That’s thanks to restrictive policies of BSP last year. But the situation could change if BSP’s independence is compromised, and the new leadership shift s from a restrictive policy of fighting inflation to an accommodating policy that will bring it back.
Inflation will add to the country’s other problems – l ike corruption, which is getting worse, according to Transparency International. Then there’s the ongoing drug war, which continues to divide up the country.
And there are Duterte’s South China Sea flip-flops, which raise rather than reduce the prospect of war in the region.
Inflation – together with social unrest, corruption, and violence – has suspended Philippines economic progress before, and it will do it again, if they aren’t addressed effectively.
That’s why investors have every reason to be concerned with Duterte’s unusual choice for a central bank chief.