China and Japan will pay to improve Philippine infrastructure
The economic policy of Philippine President Rodrigo Duterte, known as Dutertenomics, obviously copies the word splicing of Japanese Prime Minister Shinzo Abe’s Abenomics. The Japanese policy calls for inflation, currency depreciation and negative interest rates. Duterte’s economic ambition has just one major pillar: spend a big pile of money on infrastructure. Better if it’s someone else’s money, and two countries are willing because they want to be on Duterte’s good side for geopolitical reasons.
The president who took office in June proposes spending $161 billion on infrastructure over six years. Dutertenomics covers cuts in corruption and government bureaucracy as well as a new taxation strategy. But the core meaning of the made-up word is “build-build-build.” That’s because it would better connect the archipelago of about 7,100 islands with railways and ports, just two examples of what needs fixing. Today’s ports are congested, run down, or both, yet a lot of people travel between islands by speedboat. Railway lines speckle the larger islands, such as Luzon. But they’re out of reach for most of the country’s 102 million people, who are more likely to travel over land by long-distance bus.
Duterte’s predecessor Benigno Aquino stepped up infrastructure spending in 2016 to 5% of the country’s fast-growing GDP of $304.7 billion last year. The idea was to get foreign companies, such as Japan’s willing Shimano and Brother Industries brands, to open factories in the Philippines instead of expanding in China, the normal go-to-place for export manufacturing. Factories would in turn create jobs, another boon to a still largely impoverished country. Duterte outlined his ideas at the World Economic Forum in Cambodia last week and on Sunday at a foreign investment event in China.
China is starting to come through on some of the $24 billion in pledges it made to the Philippines in October in exchange for Manila backing its once aggressive opposition to Chinese sovereignty over a disputed tract of sea. A world arbitration court had ruled against the legal basis for China’s claim in July. The two countries have discussed Chinese loans or public-private investment from China to build an 830-km, 218 billion peso railway on the vast, ultra-poor southern island Mindanao. In January Beijing committed $3.7 billion for 30 projects in the Philippines but the two sides didn’t say what they were. The Sunday event in China extended Beijing’s Belt-and-Road policy of bankrolling infrastructure abroad to serve local as well as Chinese interests. In case anyone’s afraid China will demand something back from the Philippines, which has warmed toward Beijing only under Duterte’s term, trade and industry Secretary Ramon Lopez says don’t worry. “Even as we speak of ‘build, build, build’ and financing that growth and the infrastructure program, we are not really talking of loans that are so heavy,” Lopez said. “It will be budgeted.” And no accident about the earlier mentions of Japan.
Tokyo has cemented its friendship with the Philippines as well under Duterte to counter Chinese economic influence in Southeast Asia. The long-term investor and aid donor announced in January it would allocate nearly $9 billion for 11 projects in the Philippines, including three commuter railways in notoriously congested Metro Manila. The largely Japanese-funded Asian Development Bank has lent the country an average $745 million per year for poverty reduction since 2006, and Japan’s International Cooperation Agency calls the Philippines a chief benefactor of official development aid. In July shortly after Duterte took office, Abe offered a loan for 10 coast guard patrol ships as China was expanding at sea west of the Philippines.
“The low debt-to-GDP ratio in the Philippines gives Duterte considerable room to extend lucrative conditions to private sector infrastructure partners without compromising the stability of the economy,” says Maxfield Brown, business intelligence associate at the consultancy Dezan Shira & Associates in Metro Manila. That ratio is about 40%. China and Japan hope to “gain influence within the country,” he says, so they “have already shown that attracting state level investment will not be difficult.”