Asian political risks continue to creep up; Taking stock of the Philippines with 1 year left on Duterte’s term

Highlights from the CAA Weekly Table:

• COVID and Asia: The renewed surge in infections will hurt economic activity but the impact will vary. Even as there are tentative signs that the worst is over in India, it will be a while before the pandemic is brought under control there: the near term prospects therefore remain dull. Similarly, Malaysia is struggling to cope with renewed infections. In Indonesia and the Philippines, economic activity shows signs of rebounding – but tepidly and off a very low base. Singapore’s new lockdown will, however, have limited downside effects as most economic activity will continue and external demand will help offset any domestic weakness.
• China confronts short term and long term policy dilemmas: We disagree with the view that recent monetary data shows that monetary policy is tightening. Weak credit demand rather than a policy-induced deceleration in credit supply is at the root of the slower monetary growth. China’s recently released census will, we believe, force quicker policy changes in areas where China’s leaders had preferred to move slowly. The demographic headwinds have turned awkward more quickly than they had anticipated. Economic growth need not decelerate markedly so long as successful efforts are made to boost total factor productivity. But this will entail a slew of possibly unpopular changes such as raising the retirement age, faster reforms to ease the plight of migrant workers and widening the fiscal base.

Asian political risks continue to creep up:

Conditions are falling into place for potential political frictions in two areas – territorial disputes and country-specific risks, particularly in Thailand.

• Territorial disputes: China has increased the number of its “fishing vessels” in Philippine-claimed waters, putting its relationship with the Philippines at risk, especially when President Duterte finishes his term next year. China’s reported occupation of a swathe of Bhutanese territory, if true, will be resisted by India which is Bhutan’s protector.
• Thailand – rumours about the health of the King cannot be verified with certainty but there is reason to believe that he has not been well. Given the more prominent role the King has taken in the nation’s politics, a health crisis would affect political stability. This is particularly the case given the lack of clarity on royal succession.

Taking stock of the Philippines with 1 year left on Duterte’s term: 

• Duterte has been a controversial president in many ways but his economics team has done a sterling job. The tax base has been decisively widened, which has allowed a sizeable increase in infrastructure spending, which will help the country overcome a major constraint on growth. Some other supply side reforms have been made including easing limits on foreign investment.
• However, progress has stalled, exposing some of the continued weaknesses in the country’s political economy. Resistance in the Senate to needed reforms is one example.
• Duterte’s political approach has, however, weakened national institutions and undermined democratic practices. This could compromise some of the gains that the country has made.

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