Philippines: Marcos Jr. vs Robredo: Economists prefer Robredo despite Marcos Jr.'s poll lead, but fiscal largesse likely regardless of winner
April 26, 2022
The Philippine general elections are set to take place on 9 May. All eyes will be on the presidential contest, which has become a two-horse race between “Bongbong” Marcos Jr., son of the late dictator Ferdinand Marcos, and vice president Leni Robredo. Marcos Jr.’s substantial lead in opinion polls has narrowed slightly in recent weeks. Elections in the Philippines are generally decided based on the candidates’ charisma and personalities rather than their economic platforms, with the country’s mostly sound macroeconomic policy framework unlikely to change drastically regardless of who wins. That said, the election is already having a macroeconomic impact. Uncertainty remains regarding the candidates’ exact policies, which is likely restraining investment. Moreover, investor perceptions of Marcos appear weak, raising market jitters; in a recent Bloomberg poll, most economists preferred a Robredo premiership given Marcos Jr.’s poor record during his six years as senator. Furthermore, a pre-election spending ban will be further dampening demand.
Perhaps the most salient aspect of Marcos Jr.’s economic policy platform is its lack of clarity. The candidate has refused to conduct traditional pre-election debates and has participated in few interviews. The website for his candidature contains no clear overview of his policy pledges. Meanwhile, his record in office is generally considered to be poor—nearly 70% of the laws he pursued in the Senate were connected with festivals and holidays, renaming roads and redrawing borders of provinces and cities, according to the New York Times. This suggests the potential for lackluster governance if elected and could feed into investor uncertainty, dampening private investment.
This said, he is likely to broadly continue the policies of current president Rodrigo Duterte, offering some clarity for the market ahead. Sara Duterte–daughter of the current president—is running for vice president as Marcos Jr.’s running mate. Furthermore, Marcos Jr. supports Duterte’s ongoing “Build, Build, Build” infrastructure program, to which USD 23 billion was dedicated this year—around 5% of GDP—thus ensuring strong ongoing public investment and construction activity. In a recent interview, Marcos Jr. appeared to downplay the country’s public debt level, suggesting that overall fiscal policy will remain expansionary. While this would boost economic activity, a failure to consolidate the currently high budget deficit would increase pressure on the external balance and the currency as well as threaten a possible sovereign debt ratings by Fitch Ratings given the agency’s current negative outlook.
Meanwhile, the policy platform of Leni Robredo—who as vice president rolled out a major anti-poverty program and managed part of the government’s Covid-19 response—contains far greater detail. Some of Robredo’s key policies are cracking down on corruption, reducing red tape and strengthening the antitrust watchdog in order to improve market competition and the ease of doing business. Her pledges also include boosting investment in climate change adaptation and high-tech companies—suggesting a forward-looking agenda—plus beefing up the unemployment insurance scheme. Like Marcos Jr., she supports the “Build, Build, Build” program and has downplayed the public debt level in several comments to the media. This suggests that a Robredo presidency would be similar to a Marcos Jr. presidency infsofar as ongoing fiscal largesse will likely continue, risking a debt ratings downgrade. However, under Robredo, the funds are likely to be better targeted given the candidate’s greater policy experience and detailed pro-market policy proposals, which would bode more positively for investment and productivity growth ahead.
On the probable continuation of President Duterte’s current macroeconomic policies, Fitch Ratings said:
“Presidential elections scheduled for May 2022 […] create uncertainty around the post-election fiscal and economic strategy, although we assume broad policy continuity will be maintained given the Philippines' record of a generally sound policy framework.”
Meanwhile, Nomura’s Euben Paracuelles and Rangga Cipta note the potential for a sovereign debt rating downgrade following the elections:
“On the elections, the latest credible opinion polls still show a large lead for Marcos Jr., who we think is less market-friendly than Vice President Robredo. Fitch kept its negative outlook, and we still believe the likelihood of a rating downgrade is likely to rise later this year, owing to an uncertain medium-term fiscal consolidation path.”
Author: Matthew Cunningham, Junior Economist