The Philippines’ economy has often struggled to get credit for its solid performance in the past decade. Now, a massive corruption scandal is sapping growth at precisely the wrong time and making for an unhappy start to the year.
With Asia likely to find the going harder this year, Manila needs to find its footing quickly. As officials try to frame their message, terms such as “goldilocks” and “sweet spot” ought to be banished. When the Philippine central bank chief uttered those words in August last year, the outlook was promising: inflation was receding, the expansion was ticking along and interest rates were on the way down. Growth was headed for another respectable annual increase and poised to outperform Malaysia, Singapore, Indonesia and even China.
That narrative has been undermined by revelations that billions of dollars allocated to flood control projects had been misused, and in some instances, vanished. The task before the Philippines is to restore confidence — if policymakers and their political masters can. The scandal has sparked outrage across a nation highly vulnerable to deadly typhoons and flooding.
Testimony at a Philippine Senate inquiry in September last year suggested widespread collusion between government engineers, politicians and private building contractors, who allegedly pocketed hefty kickbacks. Much of the state-funded infrastructure was found to be defective, or, in some cases, not even built.
Losses could amount to more than 1 trillion pesos (US$16.89 billion), according to one official estimate. At that magnitude, it would surpass the US$10 billion in ill-gotten wealth allegedly amassed by the late Philippine president Ferdinand Marcos — father of Philippine President Ferdinand Marcos Jr — and his cronies during his dictatorship.
Forty years into the democracy era that followed the elder Marcos’ ouster, Filipinos vote freely for leaders. However, they failed to shake an underlying problem. The archipelago routinely scores poorly in global corruption indices, sharing the neighborhood with places such as Panama and Sierra Leone.
That alone did not stop years of rapid economic development, especially since the turn of the century.
It sometimes looked like commerce and politics, the latter dominated by jockeying among a handful of powerful families, were on different planets. The point was that things were generally getting better. While the country missed the 1980s and 1990s boom in manufacturing supply chains, it plowed ahead in services.
When it comes to shortcomings in governance, the Philippines is hardly the only sinner. Despite some improvement from the Suharto era — when corruption in Indonesia reached epic levels and the autocrat’s children controlled vast monopolies — malfeasance still bedevils the nation. Former Malaysian prime minister Najib Razak is in prison for crimes related to investment fund 1Malaysia Development Bhd. China and Vietnam launched crackdowns on wrongdoing.
However, it is not often that you see such an impact as the fracas that is rocking the Philippines. Growth slowed dramatically in the third quarter last year. GDP rose just 4 percent in July to September, compared with a year earlier, well down from the 5.5 percent clocked in the prior three months. Spending slumped, and investment and construction contracted. Officials attributed the downdraft to stricter guidelines before cash was released for public works.
While it is commendable that contracts get greater scrutiny, business confidence has been shaken. The peso was one of the worst performers last year, weakening about 2 percent against the US dollar, in contrast to the strong gains notched in Malaysia and Thailand. The benchmark index fell more than 7 percent.
Would any of this improve this year? The starting point is not great. Overall, growth in Asia would probably slip to 4.1 percent from an estimated 4.5 percent last year as the region faces challenges from US tariffs, the IMF says.
Times would feel harder in the Philippines, which has become accustomed to doing better than regional peers. It was a star coming out of the COVID-19 pandemic, clocking an expansion of almost 8 percent in 2022, the year Marcos Jr was elected.
The Philippine president inherited a thriving economy. At the time of his victory, there were fears that the country would slide back into authoritarian rule and turn away from the US, with which it has a close security partnership. Those concerns were misplaced, but this scandal would be a blight on his record.
At the end of last year, Filipinos marked the passing of Juan Ponce Enrile, a former defense minister and political chameleon who turned against Marcos Jr’s father. In that rupture, Enrile joined with then-Philippine army chief Fidel Ramos, who later served as president. Obituaries of Ramos, who died in 2022, pointed to economic reforms that countered the “sick man of Asia” epithet that had dogged the nation.
Every economy catches cold, but the country’s contemporary ills come at a particularly inopportune moment.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor for economics at Bloomberg News. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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