The Philippine political-business cycle

 

Smartmatic/TIM PCOS machines: Will they work to contract specifications today?

The Philippine Star reports today that “foreign investors have adopted a wait-and-see attitude, putting on hold or temporarily withdrawing their investments in the Philippines due to jitters over today’s elections, according to Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo.

Gunigundo is quoted saying: “We continue to see inflows from the external markets. Perhaps if there will be – we don’t have the numbers yet – it is because of election jitters”.

He also pointed out that foreign investors could have adopted a wait-and-see attitude because of the uncertainties brought about by the May 10 elections.

Guinigundo said the jitters could have forced investors in the financial and equities markets to temporarily pull out their investments in the Philippines.

What Gunigundo had observed are signs of the political-business cycle in the Philippines, a phenomenon identified years earlier by UP School of Economics dean Noel de Dios.  Post-1987, the cycle theoretically repeats every six years, that is, every time a new president is elected.  Since the Philippine president is restricted to a single term, investors apparently adopt a wait-and-see stance in the early months of the term of the new president to discern his (or her) general policy preferences and programme.  Then as the policy landscape firms up, investments (including portfolio) will come back in.

Investors may also opt to exit before the presidential elections so they may not be forcibly locked in during the early term of the incoming national chief executive.  This is insurance in case the new president adopts policies unfriendly to capital.

It is an empirical matter whether the cycle was observed since the year 2000.  If we may recall, President Estrada’s grip on power started slipping when his erstwhile ally, Gov. Chavit Singson, started singing about jueteng payolas in late 2000.  Then it was almost a fast break to his derailed impeachment and his eventual ouster in January 2001.  I surmise that capital left the country in late 2000 and adopted a cautious attitude through the first three quarters 2001 as President Gloria Macapagal-Arroyo had to consolidate her grip on power in the light of the challenge of the poor people uprising of April-May 2001.

I also hypothesize that capital adopted the same wary stance prior to the May 2004 presidential elections.  It would be curious to find out how capital behaved in response to the 2003 Oakwood mutiny , the ‘Hello Garci’ revelations and the political crisis generated in the middle of 2005 and the attempted coup of February 2006.  May I call on Noel de Dios to do the appropriate study.

If today’s elections will be concluded successfully, investors will have no cause for alarm because a presidency either by Noynoy Aquino or Manny Villar will mean the adoption of orthodox or centrist business policy.  Investors may be quite wary of a new Estrada presidency given the latter’s demonstrated propensity to give preference to his midnight cronies.

To be fair, investors may also be cautious about allegations regarding Villar’s use of governmental powers in favor of his own business interests.  If Villar wins the presidency, he will have to assign his assets to a blind trust or to divest completely and convincingly to avoid tremendous conflict-of-interests issues.

Of course, if elected president, Noynoy must likewise disclose his assets, assign them to a blind trust or divest, and assure the electorate that he will not use or will not be used so his clan’s control over Hacienda Luisita will continue or that the Supreme Court will rule on the long-standing temporary restraining order against the Presidential Agrarian Reform Council’s ruling for distribution of Luisita land to its farm workers.

The last time we heard news about Hacienda Luisita is that it is heavily indebted.  Thus, we have to be assured by Noynoy that if he gets elected president, the estate will not get preferential credit especially from government financial institutions.

What exercises investors’ worries more than who will be the successor in the presidential palace are grave concerns regarding the automated electoral system adopted for the first time (without any piloting) amid all these news regarding malfunctioning PCOS machines, undelivered and untested flash cards, non-independently-verified machine source codes, and the like.

The worry list is quite long.

Hence the prudential behavior of capital.