Malacañang’s Dilemma: Align with the East or West?

Featured May 25, 2017 on Inquirer.net

Right after Fidel Ramos became the 12th President of the Republic, he immediately embarked on a mission to promote international trade and encourage foreign investments.  With a total of 69 foreign trips during his tenure, this era marked not only the start of the Philippines’ recovery as a potential economic force in the region, but more importantly to the rest of the world, an affirmation of its commitment to Democratic principles particularly in the light of the first EDSA revolution.

Foreign Direct Investments (FDIs)

President Ramos’ commitment to democratic ideals promotes the socio-economic belief that freedom leads to prosperity.  FDIs, privatization and trade agreements were the cornerstones of his vision for the Philippines.  One needs money to create money, and for a developing country like the Philippines, FDIs are the primary tool to stimulate the economy, as demonstrated by Japan rising from the ashes after World War II.

However, after the bungled presidencies of Estrada and Arroyo, the Philippines is still playing catch-up with Thailand and Indonesia when it comes to FDIs as shown below.

investment-inflows1.gif

The Economic Impact of New Alliances:  East vs West

With President Duterte recently concluding his meeting with President Xi Jinping, flying to Russia for a 5-day trip, and snubbing President Trump’s invitation to visit the US, the pivot of Asia’s oldest democracy will set-back the Philippines years, if not decades of economic growth.

Despite the country’s potential, investments will continue to lag behind its neighbors under President Duterte, who could not contain his abhorrence for the US and his open admiration for China.  A populist president with a myopic and misguided focus on drugs, he has forgotten lessons from recent history.  Countless experiences — from Macri’s election in Argentina as the first non-Peronist president to Rouseff’s ouster in Brazil last year due to corruption charges — have proven that populism and authoritarianism are not sustainable models for governance.

Comparing the Net FDI of US and China the past few years, it is the first time that China has outstripped US investments in the country, as illustrated in the first two months of 2017: net FDIs 2

Filipinos may not have realized it yet, but US investors have been pulling their money out of the country, notably in the last 12 months.  Sadly, the rest of the world typically follows where the US goes, especially flourishing democracies such as the OECD countries.

Could China fill the economic gap?  Even if it could, a study by Human Rights Watch “You’ll be Fired if you Refuse” illustrates that this type of investment comes with strings attached: China is exporting its practices of blatant disregard for safety, human rights, quality and sustainability.

Worker injuries and deaths, shoddy practices, subpar quality and corruption from China’s money-diplomacy practices have been well-documented in recent years in Ethiopia, Kenya, Zambia and other countries in the African Continent.

However, the greater impact will only be felt in the aftermath:  the loss of confidence on the Philippines by the global financial community, resulting in the further erosion of investments that drive growth, jobs and prosperity.

A Deteriorating Republic

The Philippines is at a crossroads.  It is still a young country which relies on stronger economies for trade and finance – for which China seems to be happy to provide with a paltry million dollars so far in 2017, as long as we turn a blind eye to the encroachment of the South China and West Philippine Seas.

Building a strong Republic requires leaders who will stand up for its people.  These used to exist with the likes of Magsaysay, Salonga, Diokno and Manglapus, now replaced by the likes of Sotto, Ejercito, Binay and Pacquiao….

This is a new era – the Philippines is shifting alliances towards the new Eastern giant with an unproven, even questionable capacity to provide political and economic stability for the Region.  And the country is now led by leaders without the integrity reflecting democratic principles.

I do not have a crystal ball, but once a nation’s values erode, everything else falls apart.  Early economic indicators from the new alliance are crystal-clear:  inequality and poverty are here to stay for decades to come.

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