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Crisis Brewing in the Philippines

Chris Kuehl, Ph.D.

It was inevitable that opposition against President Rodrigo Duterte would emerge, but those who would try to unseat Duterte have been afraid of what would happen to them. The first real opposition that has faced Duterte in the Philippines is coming from former Justice Minister Leila de Lima, who is now a senator.

She has been attacking Duterte as a tyrant and a dictator, and he has responded by asserting that she has taken money from drug dealers and should be arrested and put in prison. That she had a well-deserved reputation as a law and order justice minister from 2010 to 2015 makes the charges all the more absurd. She has denied the accusations and is defying the Duterte regime; de Lima has started to lead a group of those who want Duterte out of office.

The attacks on de Lima are extreme and unwarranted. Her defiance is courageous and now it is time for others to stand with her. However, they have been afraid of what can be done to smear their reputations and even fear that family members will be attacked and vilified.

Duterte is presiding over an economic collapse that will eat into his popularity sooner than later. Investment is drying up and capital has been fleeing even as laws have tightened against it. Big projects that were supposed to underpin growth in the next few years are stalled, and foreign business interests have been withdrawing. Those who monitor credit assert that payments are slowing drastically, and many companies have stopped paying altogether as cash hoarding has expanded.

The impact of the Duterte government goes beyond the reaction in the Philippines itself. When he was elected, the country was reacting to the corruption and crime that had taken over the nation. His nickname was “Dirty Harry” when he was the mayor of Davao City. His tough reputation reassured the voters that he could deal with the drug gangs. He may have made a dent in this problem, but his tactics have alienated most of the business community and foreign investors. Now the population is suffering from the economic crisis. His failure has given other voting populations something to think about. There has been a steady decline in support and enthusiasm for the populist approach in other countries.

 

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A Look at Chile

Dr. Hans Belcsák

Massive forest fires, covering an area greater than that of Rhode Island and the worst in Chile’s history, caused more than a million acres in the center and south of the country to go up in flames. The damage has not yet been fully assessed in terms of the impact on the economy as a whole. Promoted by tinder-like conditions fostered by historically hot conditions and an almost decade-long drought, they have hurt the cellulose and forestry industries and have caused some damage to agriculture (especially wineries), not to mention that they have destroyed an estimated 1,500 homes.

The government, though, estimating that the devastation will cost roughly USD 333 million, can allocate USD 100 million from the current budget, according to Finance Minister Rodrigo Valdes, and can take USD 233 million out of the rainy-day fund it maintains for such emergencies. The forest industry, one of the nation’s principal export sectors, should be able to cope with the USD 350 million in losses it is estimated to have sustained.

Even without the added problems, economic growth has remained sluggish in recent months, with the primary sector, in particular, finding it difficult to make any headway. Activity as measured by the Central Bank’s IMACEC (Monthly Indicator for Economic Activity) was up just 1.2% in December over a year earlier, and this gain could be registered only because advances in the services and commercial sectors offset contractions in mining and manufacturing. True, the business confidence index (Indicador Mensual de Confianza Empresarial or IMCE), published by the Universidad Adolfo Ibanez, rose last month to 44.9 from 41.5 in December, offering the best reading in almost a year. But the rise still left it substantially below the 50-point level marking the threshold between pessimism and optimism.

This was no doubt one of the reasons prompting Banco Central (CB) to cut its policy interest rate to 3.25% from 3.50% at its Jan. 19 meeting. Another was that while consumer prices ticked up a relatively hefty 0.5% in January over December, annual inflation was just 2.8% and thus had increased only marginally from 2.7% in December. Monetary erosion is, and will likely remain, well within the CB’s target range of 2%-4%. Heralding a further policy easing down the road, the Bank accompanied its January rate cut with a statement to the effect that “if the recent trends of the economic scenario persist, and so do their implications for the medium-term inflation outlook, it will be necessary to boost the monetary impulse.” For all of 2016, the IMACEC registered just 1.5% growth, the worst showing since 2009. On present indications, the outlook for 2017 is not much better.

From a socio-political perspective, it should not be overlooked that a number of the many forest fires that caused so much devastation have been the result of arson by left-wing extremist groups. Even the government admits this. It has arrested at least two dozen people in the course of an investigation. Officials like to claim that by far the majority of the blazes were caused by accidents and by homeless people, but Interior Minister Mario Fernandez has conceded that the government is not ruling out terrorism “in some cases.” This is an alarming development that the strongly left-leaning administration of President Michelle Bachelet does not appear to view with the necessary seriousness. Chances are she will continue to downplay the extremists, who claim to represent the indigenous Mapuche. This is, after all, the time when political parties are selecting their candidates for the presidential election next November, in which Bachelet’s left-oriented reform agenda will hang in the balance. So, left-wing terrorism at this point is a rather inconvenient reality.

This Week’s New Postings


New Resources

FCIB Interactive Credit & Collections Survey Map (FCIB Login Required)

Presentations from FCIB’s 2018 International Credit and Risk Management Summit (FCIB Login Required)


New Survey Results

October Credit and Collections Survey of Asia Results
(Hong Kong, India, Japan, Singapore, South Korea) (FCIB Login Required)


News & Updates from Credit Risk Insurers & Banks


Strategic Global Intelligence Briefs

October 9-October 13


 

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Trump Could Help Decide Next Iranian Election

Whether the U.S. presidential election will inadvertently change the previously expected outcome of Iran’s May 19 presidential race remains to be seen. As Iranians head to the polls for the 12th time in Iran’s history, an Observer article questions whether voters will elect a “tougher” president now that Donald Trump is in the White House.

In a survey “conducted in Iran before Trump’s election, [President Hassan] Rouhani was the hands down favorite for president” according to the story “Will Iranian Voters Elect a Tougher Mullah to Confront Trump?” Newer polls, indicate that the incumbent, who by Iranian standards is considered a political moderate, could face “a potentially difficult race for another term,” the media outlet reported. It will be about two months before it is clear who Rouhani’s opposition will be, however. Candidates have from April 10 to 14 to register. The final list will be published April 24, and campaigning will run from April 27 through two days prior to the election, it noted.

Iran is one of five countries being surveyed in the current FCIB Credit & Collections survey. The latest survey is comprised of the top-five most-requested countries that were not covered in 2016. (The last question of every survey asks participants to list countries they would like FCIB to survey.) Other countries on the list include Kuwait, Nigeria, Panama and Qatar.

In 2014, Iran was the 51st largest importer worldwide. The country’s imports “increased at an annualized rate of 4.2%, from $43.8B in 2009 to $53.8B in 2014,” according to data compiled by the Observatory of Economic Complexity, an MIT Media Lab project. That same year, Kuwait came in 62nd, with imports increasing at an annualized rate of 19.3%, from $14.3B in 2009 to $34.6B in 2014. Nigeria took 52nd place, as imports rose at an annualized rate of 3.2% (from $44.6B to $52.3B); Panama, 68th up 1.9% ($26B to $28.5B); and Qatar, 65th, up 14.8% ($16.5B to $32.8B).


Election Calendar


March 7 – Federated States of Micronesia, Congress

March 15 – The Netherlands, Second Chamber

March 20 – Democratic Republic of Timor-Leste, President

April 2 – Ecuador, President

April 9 – Serbia, President

April 23 – France, President

May 19 – Iran, President



Global Roundup

Ecuador to hold runoff in tense presidential election. Ecuador will hold a runoff election to choose a successor for President Rafael Correa, the country’s electoral commission ruled, in a vote being closely watched around Latin America. The announcement on Wednesday confirmed earlier indications that the governing party candidate, Lenín Moreno, and conservative former banker, Guillermo Lasso, would face off in a second round on Apr. 2. (New York Times)

What challenges lie ahead for Egypt’s economic reforms? As Egypt prepares to receive the second tranche of a $12 billion International Monetary Fund loan, the country is facing continued political and economic challenges. While economic reforms are starting to yield results, the combination of inflation, popular discontent and security threats could affect the government’s ability to woo back foreign investors. (Global Risk Insights)

Mexico maintains policy response as uncertainty continues. Mexico's recent interest rate increase highlights the authorities' pro-active response to peso weakness and volatility related to the uncertainty arising from the new U.S. administration, Fitch Ratings said. The potential for spillover effects from U.S. policies on trade and migration flows into the Mexican economy is reflected in the negative outlook on Mexico's 'BBB+' sovereign rating, which is supported by a track record of disciplined policies that anchor macroeconomic stability. (FitchRatings)

Mexico threatens U.S. corn import ban. Mexico is considering the introduction of a ban on U.S. corn imports as a way to increase its leverage in trade negotiations with its neighbor, but such a measure would be both difficult to implement and harmful to the economy. Last week, Senator Armando Rios Piter announced that he is planning to introduce legislation banning corn imports from the U.S. and replacing them with corn produced in Brazil and Argentina. (Global Trade Review)

EU pushes for 2017 conclusion to free trade talks with Japan. The European Union (EU) should be able to conclude a free trade agreement with Japan this year after failing to hit an end-2016 deadline. A trade deal between the two has taken on added significance after U.S. President Donald Trump’s withdrawal from a planned Trans-Pacific Partnership (TPP) trade alliance, which includes Japan, and as the EU looks beyond America for trade partnerships. (EurActiv)

French election: Odds and poll numbers improve in favor of Le Pen. Tensions and anxiety are on the rise in the Franco-German bond market as the latest poll numbers show that the National Front leader Marine Le Pen is set to win the first round of the French presidency with a much higher margin than previously estimated. She is set to get 27% of the votes, whereas her closest rivals, Emmanuel Macron and François Fillon, are expected to receive 20% of the votes. All polls released so far, predict that Le Pen is set to lose in the second round. (EconoTimes)

The new world order: China is now Germany’s largest trading partner. As China steps into the role of globalization’s biggest supporter—a position vacated by the U.S. since Donald Trump was elected on an “America First” platform—Europe is shifting its focus East. Last year, China unseated the U.S. as Germany’s largest trading partner. An added insult is that the U.S. fell to third place, behind France, in the trade rankings with Europe’s largest and most powerful economy. (Quartz)

Restructuring an island’s economy: The case of Puerto Rico. Ricardo Rosselló, the newly appointed governor of Puerto Rico, treads deep water as he attempts to navigate an ever-worsening fiscal crisis. He assumed office with a promise to restructure Puerto Rico’s $70 billion debt, following a hostile few years between the island’s representatives and bondholders. To Puerto Rico’s citizens, Rosselló pledges to institute bold reforms, while allowing Washington to continue playing a large role in fiscal oversight. (Global Risk Insights)

 

 

Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations

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