In matters of economics, as in other realms, Rodrigo Duterte, the president of the Philippines, is more than capable of flamboyant, populist gestures.
Earlier this month, to the consternation of much of his cabinet, he signed a law abolishing tuition fees for students in state universities. When asked how the government would pay for this, he replied, "I don't know, we'll have to see."
By the same token, he has promised to restrict severely the sorts of temporary contracts under which around 30 percent of Filipinos are employed. He has pledged allegiance to China in exchange for investment in infrastructure. And, in April, he announced a plan to suspend imports of rice to help local farmers.
Economists point out that abolishing university tuition will be more of a subsidy for the rich than the poor, since just 12 percent of students come from the poorest 20 percent of families. It could also cost 30 billion pesos ($588 million) to 100 billion pesos a year, according to different politicians. And it is causing alarm at private institutions, which fear a sudden slump in enrollment.
But most of Duterte's radical economic policies get watered down or shelved by underlings before they cause such upheaval, said Filomeno Sta. Ana of Action for Economic Reforms, a think tank. "The economic managers usually neutralize the president's populism," he said. As a result, for all the big talk, economic policy during Duterte's first year in office has been sober.
The Philippine economy is one of the peppiest in Southeast Asia. Last year, it expanded by 6.8 percent, overtaking those of Singapore and Malaysia in size.
The World Bank expects it to grow at a similar pace this year and next. A large, youthful population at ease with the English language is a spur to growth. Filipinos working abroad as maids, nurses and waiters, among many other jobs, send back about $31 billion a year — equivalent to more than 10 percent of GDP.
Western firms also outsource vast amounts of office drudgery to the Philippines. The country is a bigger player than India in call centers; its largest private employer, Convergys, an American telecoms firm, has 63,000 Filipinos on its lines. Workers at other firms have the unpleasant task of checking sites such as YouTube and Facebook for vile content, flagging videos of beheadings and orgies. In the past 15 years, the industry of "business-process outsourcing" has grown from nothing to about 9 percent of GDP.
The cabinet and bureaucracy have so far dissuaded Duterte from rocking the boat too much. When he said he would suspend imports of rice, officials at the National Food Authority, which is charged with ensuring an adequate supply of staples and with keeping prices stable, pointed out that all Filipinos eat rice, but relatively few grow it, so curbs on imports would hurt more people than they helped. In the end, Duterte simply changed the rules on imports to reduce the role of the state. Similarly, the government's labour-market reforms have been much less radical than originally promised, targeting only the most blatant abuses of short-term contracts. And the talk of aligning the Philippines with China has produced little tangible change so far.
The goal on which the president and his more levelheaded lieutenants seem to agree is tax reform, to pay for investment in infrastructure. Many businessmen and workers spend hours sitting in Manila's traffic jams each day instead of making money.
One banker said that when foreign investors come to town, she parks them in posh hotels and has local bosses visit to prevent the visitors squandering time and goodwill in traffic. Poor roads and rundown airports elsewhere in the archipelago present similar problems.
Duterte wants to increase spending on infrastructure from 5.2 percent of GDP last year to 7.4 percent of GDP in 2022. His plans include a new railway in Mindanao, a troubled southern island blighted by insurgencies, and the revamping of Clark airport, to the north of Manila.
Carlos Dominguez, the finance minister, has raised the budget deficit from 2 percent of GDP to 3 percent to support such investments. In the longer run, extra funds will come from a package of tax-reform bills, which is supposed to raise 375 billion pesos a year by 2020.
The first bill was passed by the lower house of Congress in May; the upper house is expected to follow suit by year's end. It raises the threshold at which Filipinos will have to pay income tax to 250,000 pesos a year, letting four-fifths of them off the hook. But the rate for those earning 5 million pesos or more will rise from 30 percent to 35 percent.
Taxes on vehicles and fuel are to rise too — a squeeze on richer Filipinos given that less than one in ten owns a car. Taxes may also go up on alcohol, cigarettes and sugary drinks. The second bill would shrink the corporate-tax rate from 30 to 25 percent, while closing expensive loopholes. The third will focus on property taxes and the fourth on mining, income from investments and perhaps junk food.
Duterte's star power should speed the passage of these reforms. But his unpredictability makes politicians, executives and investors wary. The peso is among the few currencies in the region to have weakened since the beginning of the year, partly because of the growing budget deficit and worsening current-account balance. The president inherited a prospering country. Almost a year later, the Philippines is still one. This suggests that for all his damn-the-torpedoes rhetoric, Duterte occasionally listens.
