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Philippines – Unpredictable Leader Causing Concern

Rodrigo Duterte continues to create concern internationally, while remaining hugely popular at home, as he pursues a pro-growth agenda and an unorthodox approach to combatting the evils of drug crime. During his first six months in office, he has declared the death of the country’s longstanding “special relationship” with the US, in favor of a policy of enhanced political and economic ties with China and Russia, and unleashed a campaign of state-sponsored vigilantism that has resulted in the killing of thousands of suspected drug dealers and users, to the great consternation of the international community and the Catholic church.
A leaked e-mail that allegedly provided evidence of Vice President Leni Robredo’s involvement in a plot to overthrow Duterte points to the potential for a power struggle within the upper reaches of the government that could result in actions that test constitutional boundaries, and could be indicative of building tensions among members of the political and military elite that create a risk of serious instability.
For the time being, Duterte remains very popular, with recent polls putting his approval rating above 70%. Although his PDP-Laban party won just three seats in the lower chamber, it has attracted dozens of defectors and previously unaffiliated lawmakers, and currently controls nearly 100 seats in the 294-member body. As long as Duterte maintains a lofty approval rating, he will claim a sizeable legislative majority, a factor that will afford him a significant degree of job security.
In contrast to Duterte’s decidedly unorthodox approach to diplomacy and security policy, the government’s economic policy program has been formulated with significant input from the public and multilateral organizations, and for the most part reflects a healthy respect for market principles. The five-year plan for the period to 2022 focuses on infrastructure development and the attraction of foreign investment in export-oriented manufacturing as key components of a strategy to increase employment and reduce poverty.
The immediate focus is a package of tax reforms that includes a reduction in rates on personal income, adjustments to excise duties on petroleum products and autos, the broader application of the VAT, and changes to estate and donor taxes. The government is pressing for final passage by mid-year, after which it will present a second package that will include changes to tax rates for corporate income, capital gains, real estate, and the mining sector.
The budget does include some notable nods to populism, including large pay raises for civil servants, which, in combination with a whopping 600% increase in the budget of the president’s office, has increased the urgency of securing approval of the tax reforms. The budget deficit is forecast to exceed 3% of GDP this year, despite strong economic growth, which could reverse the decline in the public-sector debt burden.
The government has clamped down on miners accused of causing environmental damage. Thus far, 10 of the 41 mines in operation have been shut down, and 20 more are facing suspension. At least one firm, Global Ferronickel Holdings, has indicated that it will challenge the legality of the government’s actions on due-process grounds.
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