What a Ferdinand Marcos Jr Presidency Will Mean for Foreign Investors in Philippines
Ferdinand Marcos Jr is set to become President of the Philippines and Sara Duterte, the daughter of the current President, Rodrigo Duterte, is set to become Vice President. Foreign investors are expected to resort to a wait-and-see approach since the President-elect has not made his economic policies clear. The immediate challenges facing Marcos Jr include the Philippines’ high budget deficit, income inequality, and balancing relations between the US and China. Putting the colorful family legacy aside, a question on everybody’s minds is whether Marcos Jr will continue some of Duterte’s flagship economic programs, such as infrastructure spending under the Build, Build, Build program.
On May 9, 2022, Filipinos went to the polls to choose their next president and vice president in what has been touted as the most significant election in the country’s history. Unofficial results show that Ferdinand ‘Bongbong’ Marcos Jr, son of former strongman President Ferdinand Marcos Sr, captured 31 million votes, double that of his closest rival, the current Vice President Leni Robredo who had some 14 million votes. Some 67.5 million were eligible to vote in this year’s elections.
Foreign investors are expected to resort to a wait-and-see approach, particularly since the President-elect has not made his economic policies clear. What is clear is that the new President will inherit a country with immediate and long-standing challenges, which include an economy battered by the pandemic, a record national debt of PHP 11.7 trillion (US$232 billion), deep poverty, and increasing inequality.
The Marcos family legacy
President Ferdinand Marcos Sr was elected in 1965 before declaring martial law in 1972 to suppress the threat of a communist takeover and civil strife following a series of bombings in Manila. Though it was formally lifted in 1981, the powers granted under martial law continued to be granted to the President for the duration of his presidency. Allegations of human rights abuses and mass corruption led to a People Power Revolution in 1986, which removed him from power. He and his family fled to Hawaii where hundreds of criminal and civil cases were filed against him and his family as they were accused of amassing a fortune worth about US$10 billion through ill-gotten gains.
Under his presidency, the Philippines saw a growth rate rise, peaking at nine percent in 1973 and 1976. He pursued an aggressive infrastructure program, funded by foreign debt that would lead to an inflationary crisis in the latter years of his presidency. The economy contracted by as much as 7.3 percent in 1984 and 1985. External debt ballooned from US$599 million at the start of his presidency to over US$28.3 billion when he fled into exile — amounting to 80 percent of the GDP.
Ferdinand Marcos Sr died in Hawaii on September 28, 1989.
Ferdinand Marcos Jr is no stranger to politics
Bongbong Marcos was elected as Vice Governor of Ilocos Norte province in 1980, a stronghold of the Marcos family. He became Governor of the province in 1983, before the revolution, taking over from his aunt who had held power for over a decade. Upon the family’s return to the Philippines, Bongbong was elected to the House of Representatives in 1992, from where he began his decades-long effort to attain the presidency. He suffered a setback in 2016 when his Vice-Presidential bid came up short to the current Vice President Leni Robredo.
Bongbong Marcos filed a protest to the country’s Supreme Court to contest the results. The Supreme Court dismissed his protest.
What are his economic policies?
The Marcos campaign has offered little in terms of policies on how to tackle the myriad of problems in the Philippines. The benchmark Philippine index dropped amid a selloff as investors wait for Marcos Jr’s economic plans. The selloff erased as much as US$9.3 billion on May 10, 2022. The Marcos Jr campaign has focused on the theme of ‘unity’. Bongbong snubbed invitations to partake in pre-election debates, and rarely gave interviews; even his campaign website contains no clear overview of any policy pledges.
He has sought to avoid a repeat of his Vice-Presidential bid in 2016, where he was barraged with questions over his father’s rule and corruption tied with the family. The lack of a concrete plan will continue to feed into investor uncertainty at a time when the Philippines economy has not fully recovered from the effects of the pandemic.
Marcos Jr did, however, in one interview in late 2021, state that he wanted to continue with President Duterte’s ‘Build, Build, Build’ (BBB) infrastructure program, and channel part of the Internal Revenue Allocation (IRA) to strengthen local micro, small, and medium-sized enterprises. The BBB program was the centerpiece of the Duterte administration and aims to address the country’s infrastructure gap. As of 2022, the total number of flagship projects under the program was revised to 119 from the original 100.
Further, Bongbong Marcos’ own history of governance can fuel this ongoing uncertainty. According to the New York Times, during Bongbong’s time as a Senator, he helped pass laws to protect older citizens and expand emergency relief to children. However, 70 percent of the 52 laws he pushed were related to renaming highways, designating holidays and festivals, and reapportioning cities and provinces.
Balancing China and the US
As tensions between the United States and China prolong, countries in ASEAN, including the Philippines, are caught between the two powers. The Duterte government sought closer ties with the US in the wake of Chinese incursions into Filipino territory in the South China Sea. The Philippines is the US’ oldest trading ally in Asia.
However, the US is a vital security partner for the Philippines.
Moreover, any hard pivot towards China will be difficult for Marcos Jr domestically, since public opinion against China is generally negative, and the security establishment has a traditionally pro-US stance. Part of Beijing’s reluctance to spend big in the Philippines compared to other ASEAN countries is due to the US-Philippine military drills. In March 2022, the two countries conducted the largest-ever joint military drills, signaling a deepening alliance between them.
Bongbong Marcos will need to leverage relations with each of them without antagonizing the other.
Was online misinformation used as a tool to win the presidency?
Supporters of Marcos Jr have been accused of spreading misinformation through a variety of social media platforms, particularly as more than half of the eligible 67.5 million voters are millennials and members of Generation Z; many were not even born during the revolution that toppled Marcos Sr.
The Philippines remains top in social media usage worldwide, spending an average of four hours per day on social media platforms. As such, the Marcos family has been waging a largely successful online PR campaign to rehabilitate their image, with many accounts on YouTube, TikTok, and Facebook pushing for a softer version of the family’s past, describing Marcos Sr’s time in office as ‘the golden years’.
What about Rodrigo Duterte’s legacy?
Rodrigo Duterte became President with much fanfare, particularly for his promise to wage a war on drugs. According to the UN’s human rights body, over 8,000 people were killed during his presidency due to this policy.
However, Duterte did find some success under his BBB program, dubbed, the ‘golden age of infrastructure’. The program consists of around 20,000 infrastructure projects nationwide, consisting of roads, railways, airports, hospitals, schools, and seaports, among others. The government had allocated the equivalent of US$167 billion for its budget for the 2017-2022 period.
Infrastructure spending amounted to 5.8 percent of GDP in 2021, up from the average of 2.6 percent over the past six administrations. Of the 119 infrastructure flagship projects, seven were completed in 2020, including the PHP 14 billion (US$266 million) Clark International Airport Expansion Project; five in 2021, which includes the PHP 21 billion (US$399 million) MRT rehabilitation project; and two in 2022. Some 100 flagship projects are left for the next administration.
Policies that encourage foreign investment
The Duterte administration also issued several important policies to make the Philippines an attractive investment destination.
The first was the issuance of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE Act), which reduces the financial burden on foreign and local businesses through tax incentives. Under CREATE, the corporate income tax rate will be gradually reduced to 20 percent by 2027.
Further, the government amended the Retail Trade Liberation Act, which reduces the minimum paid-up capital requirements for foreign retail enterprises from US$2.5 million to US$500,000, making it easier for foreign retail companies to engage in the sector.
Another amendment in the Senate was passed to allow for 100 percent foreign ownership in public services. However, to protect national security, the Act contains safeguards that limit foreign ownership in public services classified as critical infrastructure.
Finally, the government amended the Foreign Investment Act, to allow international investors, for the first time, to set up and fully own domestic enterprises (including micro and small enterprises) in the Philippines.
Under the amendments, foreign nationals can own an MSME with a minimum paid-in capital of US$100,000 if they meet the following conditions:
- Utilize advanced technology;
- Are endorsed as startup enablers or as a startup in accordance with the Innovative Startup Act; or
- The company hires no less than 15 Filipino employees.
What does it mean for businesses?
Marcos Jr will inherit a huge budget deficit, increasing inequality, and soaring food and fuel costs, which will need to be addressed quickly. The Philippines posted better-than-expected GDP growth of 8.3 percent during the January-March period this year, ahead of the forecast 7.7 percent.
A key watchpoint for investors would be if cronyism and corruption worsen under the new presidency – already a notable risk for foreign businesses in the country.
However, investors should feel mildly optimistic if Marcos Jr’s plans are to continue with infrastructure spending under the BBB. The next government, will, however, need to pursue further tax reforms and boost tax revenue in order to tackle the public debt caused by heavy borrowings to finance the pandemic measures.
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