ASIA PIVOT – THE PHILIPPINES: “ DUTERTE HARRY  VS. MRS. DOUBTFIRE” by Caleb Gibbons, CFA, FRM,– Originally at IBankCoin. Reposted with permission

It was a very big week for South East Asian politics.

Filipino Rodrigo (aka “Rody”, “Punisher”& “Digong”) Duterte Harry (71) is the presumptive 16th President elect of the Philippines. Washington broke protocol, offering congrats to Duterte Harry for the win on Thursday, even though an official winner has not been declared for the Monday May 9th General Election. The White House is  looking forward to deepening ties with Rody’s incoming administration.

Time magazine reserved considerable space to Duterte Harry this week, calling the Punisher “A wildcard in a pack of World leaders”.

Spanish rule of the Philippines ended in 1898 when it was ceded to the USA as victor of the Spanish-American war (US got the peach pit Puerto Rico as a result of the same conflict). Independence was eventually granted to the Philippines July 4, 1946 by the US, when Rody was a 1 year old. The Japanese briefly took control of the Philippines during World War II (1942-1945).

The Philippines has a population of 102 million (12th largest globally), with 12 million (12%) living in what Duterte calls “Imperial” Manila (he is the 1st President from the southern island of Mindanao). Per capita GDP is $2,800 ($233 per month). Duterte, a self described socialist, plans on changing the form of government from unitary to federal to facilitate more effective wealth distribution across the country. Manilla gets too much at present, in Duterte’s view. Wealth is highly concentrated in the Philippines, with the top 40 families controlling approx. 70% of its US$272bln GDP. Surprisingly, the GINI coefficient, a measure of the divide between the rich and the poor, based on income distribution, is not that much higher than the US (or Russia for than matter). Philippines GINI # is 43 to US’s 41.6 and Russia’s 41.1 (Canada is 32, as an aside).

Some liken Duterte Harry to Donald Trump as well, Asian Trump as it were, but our collective hope is they never get a chance to joust. Duterte got over 3 million “likes” of his Nov. 15? Facebook announcement that he planned to run for President (Twitter is not as big there where he has only 82,700 followers). It is said diplomacy is about saying “nice doggy” until you can reach a bigger rock. Duterte is no bark, all bite. He wants to reinstate capital punishment in the increasingly lawless Philippines and expects they could send over 100,000 criminals to meet their maker with the death penalty freshly restored. Human rights groups have noted the practices of the vigilante group Davou Death Squad (DDS) which have passed extrajudicial judgement on between 700-1,700 alleged criminals under Duterte’s watchful eyes as mayor of Davou City, formerly the murder capital on the Philippines. Open water allows little reprieve as the waters between Mindanao and Papua New Guinea are the 2nd most pirated in the World (Somali #1). Rody is currently Vice Major of Davou City, the Philippines 3rd largest city with his daughter now in the Mayor role. Unlike Clint Eastwood who served as Mayor of Carmel, CA for only 2 years, Duterte served for 21 years and he is the first lawyer/politician to become President directly from a City Mayor role. Duterte Harry, like the majority of Filipinos, a Catholic (although he recently literally cursed the Pope and has to issue a formal apology for it). He will officially enter the role of President as “single”, the 4th Philippine President to do so, as his common law spouse Honeylet (real knickname)  Avancena (46) can not officially act as First Lady, a role one of his daughters, Inday Sara will likely assume. The books on Duterte can almost write themselves, even before he takes the “Big Boy seat”. Some facts are hard to get confirmed, such as Rody spending 7 years in high school. A Bachelors Degree in Political Science followed by a Law Degree made those raucous teenage years a distant memory, I suppose.

Hillary has put her self in an admiral position, having kicked her “high touch” Asia pivot into high gear as Secretary of State, which included 2 trips to the Philippines (pic below of Cook Islands visit, a good shot of her I thought….hag).

 

DUTERTE HARRY
DUTERTE HARRY

The US recently had plans for a military drone base on Duterte’s home island of Mindanao (at the former Davou City airport), but Rody squashed the idea quickly and decisively. The US have not had a permanent military base in the Philippines since 1982 but they do cooperate with the Philippines on joint patrols in the South China Sea where Rody wants to show support for Palawan fishermen who have apparently been subjected to Chinese bullying (think naval bumper cars) . The Philippines has traditionally been one of the US’s strongest allies in South East Asia.

The President of the Unites States is also Commander in Chief, the role has never been more important. The Department of Defence (DOD) is the world’s largest employer at 3.2 million. There are US military personnel deployed in 150 countries at present (75% of World Nations). It has been reported that no military in the history of mankind has been deployed more widely, including Byzantine, Ottoman, Roman & British empires. China’s PLA employs 2.3 million in comparison, supporting 4x the population.

The recent activity in the South China Sea, with China asserting territorial claims and even going so far as to build new islands, has brought most to upgrade the geopolitical risk for Asia. Duterte’s election has likely resulted in the meter moving just a little bit higher.

Filipinos love the US and have a record high 92% favourable rating (World’s highest rating as per PEW report). Duterte, not so much. Stories attribute his distain to a 2002 incident/explosion in Rody’s home town of Davao City where an American involved was allegedly “sprung” by US Federal agents (extra Bourne Identity). Politically, Duterte is likely feeling the Bern right about now. Rody is tough on both crime and corruption and will likely have a dim view of the >$153 million (729 appearances at $210,000 a crack) the Clinton’s have extorted extracted on their combined speaking tours, through the piece. Duterte reports a net worth of PHP 23 million, US$483,000 (2.3 speeches) and has lived in the same modest house for over 2 decades.

DUTERTE HARRY
DUTERTE HARRY

The Philippines is solidly investment grade at BBB/Baa2. Duterte Harry’s 8 point plan is well thought out and has a good chance for success without unduly increasing debt as a % of GDP (an admirable 45% at present). Key points include a plan to spend 5% of GDP on infrastructure. Manila is probably 2nd to only Jakarta, Indonesia in the region in terms of the grid lock evident. Promoting foreign direct investment is another key arrow and the Philippines is a stand out in sectors like Banking where 100% foreign ownership is now allowed (for up to 40% of the overall market, hence 1st mover advantage is important). It is too bad that most banks with former global aspirations have befallen “pockets

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