Be ‘more sophisticated’ and focus on his investor-friendly policies, says Finance Secretary Carlos Dominguez III
By TREFOR MOSS
The Wall Street Journal
Sept. 27, 2016 8:05 a.m. ET
MANILA—Foreign investors unnerved by Philippine President Rodrigo Duterte’s bloody war on crime and combustible temperament should be “more sophisticated” and focus on the fast-growing economy and investor-friendly policies, said Finance Secretary Carlos Dominguez III.
Dismissing fears that recent foreign-capital outflows mean investors have already passed judgment on Mr. Duterte’s three-month-old administration, Mr. Dominguez said in an interview Tuesday that new investors—from Japan and China in particular—are lining up, encouraged in part by an ambitious plan to scrap foreign-investment limits.
“Some foreigners haven’t gotten used to the idea’’ of an outspoken Philippine president, Mr. Dominguez said. “We are in a period of change. Business likes a stable environment.”
“He is who he is, he says what he thinks,” Mr. Dominguez said of Mr. Duterte, who has gained international attention for vulgar attacks on foreign governments and the United Nations, often over criticism regarding human rights. More than 3,300 suspected drug dealers have been killed by police or vigilantes since he took office on June 30, according to police figures.
On Monday Mr. Duterte said interference from the U.S., an ally of long standing, had persuaded him to “open alliances with China and [Russia],” despite years of tensions with Beijing over the South China Sea.
“I am about to cross the Rubicon between me and the U.S.,” Mr. Duterte said. Mr. Dominguez said he has “no idea” what his boss meant.
Mr. Dominguez urged investors to look beyond bombastic remarks and focus on plans for tax cuts and infrastructure spending—developments he said will create investment opportunities in a global economy with fewer bright spots.
Mr. Dominguez, who served as agriculture secretary in the 1980s, is spearheading economic policy for his childhood friend. Mr. Duterte has said he knows little about economics, but has set benchmarks that include cutting the poverty rate to 17% by 2022 from 26% today; increasing government revenue by overhauling taxes and reducing corruption; increasing infrastructure spending to 5% of GDP; and raising the budget deficit to 3% to help fund government programs.
Mr. Dominguez said the foreign investors who pulled $590 million out of Philippine stocks in the past six weeks were taking profits from the market rally that followed Mr. Duterte’s election in May. He called ratings company Standard & Poor’s shortsighted for saying last week that “the stability and predictability of policy-making has diminished somewhat.” Macroeconomic policy remains unchanged, he said.
The Philippines suffers from a “perception gap,” said Eugenia Victorino, an economist with ANZ Research. Mr. Duterte creates anxiety with his eccentric statements, she said, despite an economic agenda she calls ambitious and well-conceived. She said there was “no economic driver” behind the peso’s recent fall—it hit its lowest level against the U.S. dollar in seven years Monday—only negative sentiment caused by Mr. Duterte himself.
Mr. Duterte hasn’t moderated his tone to allay investors’ concerns. “So be it—leave…What the hell,” he said in a speech last week. He was equally dismissive of foreign credit-rating companies: “I don’t care about you.”
The government will hit its target of 5% GDP spending on infrastructure by around 2018-19, Mr. Dominguez said, and concentrate development on neglected provinces. Narrowing the income gap between rich and poor regions is Mr. Duterte’s priority and explains “why we won,” he said.
Ms. Victorino said the administration deserved praise for being the first in recent history to continue the infrastructure programs of its predecessor. Mr. Dominguez said the Duterte administration has already approved 10 public-private partnership program projects initiated by the last government.
The program will be overhauled, Mr. Dominguez said, to end the requirement that private companies pay large premiums to secure contracts. That will ultimately reduce costs to the public and open up the program to a wider pool of bidders, including foreign companies without local partners, Mr. Dominguez said.
Foreign participation won’t make or break the administration’s economic plans, Mr. Dominguez said, given how low foreign investment already is by regional standards—$5.7 billion last year, compared with neighboring Vietnam’s $23 billion. Ms. Victorino noted that the Duterte administration raised $2.1 billion on the retail bond market earlier this month and could do so again thanks to an abundance of local liquidity.
“We’re in a good moment economically,” Mr. Dominguez said. “But of course, every bit counts; we would much rather [foreign investors] stick around.”
Write to Trefor Moss at Trefor.Moss@wsj.com
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