The Philippines risks undermining economic relations with the US because of President Rodrigo Duterte’s sudden shift in foreign policy priorities, a London-based think tank warned over the weekend.
Capital Economics, in its Emerging Asia Economics Update, said the Philippines’ shift toward closer ties with China was unlikely to bring many economic benefits for the country.
The think-tank’s comment came after Duterte, in his third day state visit in China on Oct. 20, announced a separation of military and economic ties from the United States.
“And by upsetting the US, there is a risk that President Duterte undermines a much more important bilateral relationship,” Capital Economics senior Asia economist Gareth Leather said.
The Philippines exports nearly 50 percent more to the US than it does to China, according to Capital Economics. US companies are the main investors in the booming business process outsourcing sector, which now accounts for around 10 percent of GDP and employs more than 1 million Filipinos. Remittances from overseas Filipinos living in the US are equivalent to around 5 percent of the economy.
Duterte’s economic team, however, was quick to clarify the president’s rhetoric, saying Duterte had meant to say “rebalancing” the county’s ties across all nations.
“An influx of Chinese money as well as expertise could make a difference, but we are doubtful that it will lead to a huge improvement,”Capital Economics said.
Duterte witnessed the signing of $24 billion worth of agreements in his visit to China. These included $15 billion worth of proposed investments and $9 billion worth of credit facilities.
Capital economics said the most likely form of assistance China would offer the Philippines was low-interest loans.
It said that given the Philippines’ strong fiscal position and current low borrowing costs, the Philippines had no problems accessing capital markets for itself.
“It is also worth noting that China’s track record in improving infrastructure in other developing countries in Latin America and Africa is decidedly mixed,” it said.
Unlike other parts of Asia, notably Hong Kong, Vietnam, Korea and Taiwan, the Philippines had had little success in integrating its economy with China, according to the think tank.
Exports to China are equivalent to less than 3 percent of the country’s gross domestic product. Foreign investment from China is tiny, while the Philippines receives far fewer Chinese tourists than other countries in the region.
“Given how little the Philippines has benefited from China’s emergence as the region’s most dominant economy over the past decade or so, closer ties could provide a boom to the country,” it said.
Having initially promised a “separation” from the US, Duterte clarified that he would look to maintain trade and economic ties with the US.
“The uncertainty generated by Duterte’s sudden shift in foreign policy priorities, will at a minimum, raise questions in the minds of potential investors from the US and could jeopardize future economic ties,” it said.