The country’s economy has
done well, but this year faces some serious challenges.
For the
past five years, the Philippines, which long lagged behind faster-growing Asian
economies like Thailand, Malaysia, Vietnam, and Indonesia, has posted some of
the highest annual growth rates in the region. Although the Philippines’ boom
has not received as much attention from investors and the international media
as one might have imagined, the numbers are impressive. ANZ Bank projects the
country to grow by 6.1 percent in 2016. In 2014, the country’s economy also
grew by over six percent, and in 2015 it grew by 5.8 percent, according to
World Bank data.
There are
several reasons for the boom, which has occurred on the watch of President Benigno
Aquino III. The potential for real peace in the southern Philippines has
boosted the economy of Mindanao, with aid and investment pouring in to the
island. Aquino’s high-profile efforts, early in his term, to combat corruption,
made an impact on some investors. Although the president’s anti-corruption
campaign has not quite lived up to its promises, it did help make investors
reconsider the country as a destination. The Philippines has risen in
Transparency International’s Corruption Perceptions Index on
Aquino’s watch, and investment and sounder fiscal policies have paid off,
allowing the Philippines to borrow at better rates. The country’s debt is now
ranked as investment or above-investment grade by Moody’s, Standard and Poor’s,
and Fitch.
Still, in
2016 the Philippines face several major challenges, all of which will be
inherited by Aquino’s successor after this spring’s presidential election. The
Philippines remains one of the most vulnerable countries in the world to
climate change, and the government has not demonstrated that it can effectively
handle the aftermath of another devastating typhoon like 2013’s Typhoon Haiyan.
Tension with China is rising, and could spike later this year with the results
of the Philippines’ South China Sea claim currently being heard in The Hague.
China has refused to recognize the tribunal’s power, but a result in The Hague
that goes against Beijing’s claims in the South China Sea could well lead to a
strong show of force by China. In fact, Chinese leaders already have made clear
that China will, if anything, be even more assertive in the South China Sea
this year than last. Beijing reportedly is ready to deploy a new “monster”
coast guard ship in the South China Sea, a boat that is the largest coast guard
vessel in the world. The ship seems more like a warship than a coast guard
vessel. According to The Diplomat,
the monster “appears to be first and foremost a coercive instrument for such
encounters and will help to advance China’s territorial claims in the South
China Sea.”
Some of
the leading contenders for the Philippines presidency, like Davao mayor Rodrigo
Duterte, have limited experience in foreign affairs. Their inexperience could
make any potential crisis with China worse, and might embolden Beijing’s
actions in the South China Sea.
The
Philippines’ economy also still faces serious challenges, revealing structural
problems that persist through the end of the Aquino era. The country’s physical
infrastructure still lags badly behind those of competitors like Malaysia,
Thailand, and Singapore, and investment in Mindanao’s infrastructure could be
undermined if the peace process fails. The education system, although capable
of producing English-speaking graduates, still does not produce enough skilled
workers for the country to move into higher-value industries, and unemployment
remains stubbornly high in regions, in part because of the Philippines’
substantial birth rate. Corruption continues to cut into growth, and one of the
leading presidential candidates, current Vice President Jejomar Binay faces a
wide range of corruption allegations that could make him an unlikely figure to
continue Aquino’s anti-corruption campaigns.
In
addition, though a lasting peace in the south appears near, serious obstacles
remain. Extremist groups, some pledging allegiance to the
Islamic State, appear determined to puncture a permanent cease-fire
in the south. These groups disdain the Moro Islamic Liberation Front (MILF),
the biggest rebel group in the south, for entering peace negotiations with the
government. The Philippines’ legislature still has not passed the Bangasmoro
Basic Law, the legislation critical to devolving political and economic powers
to the south—and to making the peace deal stick. If the legislature does not
pass the law by February, the proposed legislation could easily become a major
topic in the final days of the presidential campaign, which might lead candidates
to embrace major changes to the Law that would undermine the entire peace
process.
The May
2016 general election itself could further undermine growth. Philippine general
elections have tended to be unruly and bloody affairs, and the
already-combative campaign could wind up harming the legitimacy of the ultimate
winner. Senator Grace Poe, who appeared to be the front-runner last year, has
been prohibited from running by the election commission, which held she has not
been a citizen of the Philippines long enough to be a presidential candidate.
The Philippines’ top court is scheduled to decide on Poe’s candidacy the week
of January 19, and if Poe is disqualified, many of her supporters might refuse
to recognize whoever wins the election. If twenty to thirty percent of the
public, the current level of Poe’s support, does not accept the results of the
election, the Philippines could be in for serious turbulence.
Joshua
Kurlantzick is a fellow for Southeast Asia at the Council on Foreign
Relations. This post appears courtesy of CFR.org.
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