Top technocrats will manage the economy but their success will depend on whether the new leader gets the politics right
MANILA – Philippine President-elect Ferdinand “Bongbong” Marcos Jr’s appointment of seasoned economists to run his key cabinet positions has been positively received worldwide, giving his incoming administration a veneer of technocratic credibility.
The controversial son of former Filipino strongman appointed leading technocrats such as Benjamin Diokno (Department of Finance), Arsenio Balisacan (National Economic and Development Authority) and Felipe Medalla (Bangko Sentral ng Pilipinas) to steer the country’s battered economy, which suffered five straight quarters of contraction during the pandemic.
The London-based think tank Capital Economics has even praised the president-elect for “picking competent economic managers” who could help “ease the concerns of investors, who have been unnerved by Marcos’s rise.” It welcomed the decision of the “new president to “follow the same playbook” as outgoing President Rodrigo Duterte, “who delegated management of the economy to competent technocrats.”
But Marcos Jr isn’t out of the woods by simply delegating the macroeconomic portfolio to respected experts.
His technocrats’ ability to steer the economy in the right direction will largely depend on how Marcos handles various hot-button political issues including investor concerns about corruption and nepotism, the twin pillars of his deceased father’s former dictatorship.
The Marcoses have been accused of amassing up to US$10 billion in ill-gotten wealth, while the incoming president faces an outstanding 23.3 billion peso real estate tax case.
Investor jitters were apparent just hours after his landslide win, with the Philippine Stock Exchange (PSE) Index ending 0.6% down at 6,720.93, its lowest close in nine months, on May 9.
Earlier, the PSE had fallen 3.1% in anticipation of his victory. The broader PSE All Share Index showed a 2.9% loss, erasing up to $9.3 billion. Up to 19 of the benchmark’s 30 components dipped, hurting major companies such as Robinsons Land Corp, AC Energy Corp and Converge Information and Communications Technology Solutions Inc.
To be sure, some of the losses tracked broader trends in the emerging markets amid new global economic disruptions, including rising US interest rates and an economic slowdown in China.
But Marcos Jr’s background and his vague policy platform throughout the presidential campaign has only reinforced investor worries over the direction of the country under his leadership.
Reflecting market expectations of nepotism and cronyism under the new president, the shares of Marcos-friendly businessmen have experienced a massive jump. PhilWeb Corp – an operator of bingo parlors founded by former Marcos’ ally Roberto Ongpin and now under the management of Marcos Jr’s brother-in-law, Gregoria Araneta III saw a 31% jump in its shares as soon as the election outcome became clear.
A pre-election Bloomberg survey of 28 leading investors and economists revealed broad concerns about the new president. With a paltry score of 46 (from a maximum of 140), Marcos Jr ranked almost at the bottom of the list of presidential candidates, well behind Vice-President Leonor Robredo (106), Senator Panfilo Lacson (91) and Manila Mayor Isko Moreno (81).
In a strongly-worded statement in February, Capital Economics warned of possible chronic economic underperformance under the new Filipino president.
“He has refused to participate in the traditional pre-election debates with the other candidates. We know nothing about his plans to help the economy recover from the pandemic, on fiscal policy or how to improve the business environment,” Capital Economics said in a February 11 report.
“If [Marcos] is elected, it would only reinforce our view that the economy will continue to underperform over the coming years,” Alex Holmes, Asia economist at Capital Economics Ltd, wrote in a February note, citing concerns over the then-presidential candidate’s dearth of personal achievements and an outstanding tax case.
To ease those investor and analyst concerns, Marcos Jr has appointed seasoned technocrats to key cabinet positions. But even an A-List cabinet can do only so much if the incoming president fails to address lingering concerns over the country’s governance that have been entrenched during the Duterte administration.
The Marcoses have been accused of amassing as much as $10 billion in ill-gotten wealth throughout their decades-long rule from the mid-1960s to the mid-1980s.
The Presidential Commission on Good Government (PCGG), which was specifically designed to hold the former first family accountable, was able to retrieve less than half of the estimated pilfered funds. The Marcoses also now face 203 billion pesos ($4 billion) in outstanding real estate tax.
In his first major press conference, Marcos Jr made it clear that he prefers to start with a clean slate, raising questions about whether the incoming leader intends to scrap pending cases against his family.
“Corruption? Let’s forget about the past. Let’s say, that’s not under my watch, that’s not me, I wasn’t the leader before. Now, it’s me, so that should stop,” the incoming Filipino president said.
His Press Secretary, Trixie Cruz-Angeles, a suspended-lawyer-turned-blogger, tried to clarify her principal’s point by arguing that “pending cases will continue because they’re pending [but] I think the approach, as he had expounded in previous interviews, is simply not to concentrate too much on fault-finding, not in the sins of the past, because in his words, and I quote, ako na ang namamahala ngayon (I am the one who’s in charge now).”
There are also concerns about how his administration will handle law and order issues in the country after six years of roughshod policies under the populist incumbent.
Outgoing President Duterte’s brutal drug war, which claimed the lives of thousands of suspected drug dealers, arguably only worsened the climate of impunity and disorder in the country.
Previously, Duterte had to suspend his counter-narcotics operation following the mysterious death of a South Korean businessman at the hands of police officers.
The international outcry over extrajudicial killings in the country partly explains a dip in foreign direct investments in recent years. In 2017, a year into Duterte’s scorched-earth campaign, foreign investment dropped by 90%.
During the Covid-19 pandemic, which triggered the country’s worst-ever economic contraction on record, Duterte further undermined the rule of law by weaponizing his emergency pandemic powers against rivals.
For instance, his legislative allies engineered the closure of ABS-CBN, the country’s largest media conglomerate, by refusing to renew its operating franchise. Soon thereafter, pro-government oligarchs took over the media outlet’s television frequency.
In response, the Philippine Competition Commission criticized the move, calling on the government’s telecommunications regulators to ensure proper public scrutiny and due process.
“The PCC recommends amending the rules to include it as approving body in the assignment of vacated or available frequencies,” the anti-trust body, led by the incoming NEDA chief, said in a statement.
“This is a practice done by many jurisdictions across the world, in consideration of the impact on competition of players over scarce public goods like frequencies,” it added.
To ease long-term concerns over rule of law and attract more foreign investment, Marcos Jr will have to revisit and ideally abolish many of the controversial and disruptive policies of the outgoing president.
So far, Marcos Jr has indicated he is willing to recalibrate the drug war by focusing more on rehabilitation and targeted operations against major drug dealers, rather than gunning down low-level users and dealers.
Marcos Jr will also have to clean up corruption-infested agencies by appointing competent figures to head other key departments such as the Department of Health.
Good governance reforms will also be crucial to ensuring the Philippines takes full advantage of new regional economic initiatives, including the Indo-Pacific Economic Framework (IPEF), as well as finalizing long-pending bilateral trade agreements with a range of partners.
Should the incoming Filipino president, who has repeatedly emphasized the need for “unity”, instead seek to impose authoritarian rule and indulge in divisive historical revisionism, he could trigger a political backlash in the highly polarized nation.
So the ability of his technocrats to effectively steer the economy will largely depend on Marcos Jr’s political decisions, especially with respect to corruption, cronyism and the rule of law.