In the clearest indication yet of his preference for maintaining warm relations with Beijing, President-elect Ferdinand Marcos Jr. has described China as the Philippines’ ‘strongest partner’.
Speaking to the Association for Philippines-China Understanding (APCU) this month, Marcos made it clear that he would prioritize a network of “partnerships and alliances” to boost the Philippines’ development, but single out China as crucial. for maintaining “the stability of our economic recovery” amid the ongoing Covid-19 pandemic.
In fact, the incoming Marcos regering government has identified economic recovery and growth as a top priority in the first year of his term in office. It also has underlined his commitment continue ambitious President Rodrigo Duterte”Build, Build, Build” infrastructure development initiative.
And China, which has included the Philippines in its massive Belt and Road initiative, will no doubt become an even more crucial partner for the incoming president in the face of dark economic clouds gathering over the horizon.
On the international front, the World Bank warned of global “stagflation” amid a sudden spike in energy and food costs due to the ongoing conflict in Ukraine and the ongoing disruptions to global supply chains amid the ongoing pandemic. All major international financial institutions have significantly revised their global economic outlook accordingly.
In response to external shocks and rate hikes by the US Federal Reserve, the Bangko Sentral ng Pilipinas (BSP) his first major policy decision in three years by raising the key rate by 25 basis points to 2.25% to tackle rising inflation at home. Later this month, the BSP Monetary Board is expected to raise the benchmark rate by another 50 basis points.
Apart from rising inflation and interest rates, the Philippines are also: struggling with rising debt stockwhich rose from 10,991 trillion pesos (US$220 billion) last year to 12,679 trillion pesos ($260 billion) this year, an increase of nearly 20%.
The outgoing finance minister Carlo Dominguez warned that his successors will need to generate 249 billion pesos ($50 billion) in additional annual revenue over the next decade to cover 3.2 trillion pesos ($60 billion) in additional debt incurred during the Covid-19 pandemic. But the incoming Marcos administration has rejected calls for belt-tightening in favor of continued spending on infrastructure and sustainable economic recovery.
“We can only do it with our partners — and our strongest partner in that regard is always our closest neighbor and our good friend, the People’s Republic of China,” Marcos Jr told Sino-Filipino businesspeople during his APCU speech this month. † He thanked China for its massive donation of Covid-19 vaccines and vowed to uphold Duterte’s “independent” foreign policy of reducing dependence on the West in favor of new strategic partnerships with China.
“This is what we think is best in the national interest and I think it is beneficial not only for our friends in China, but for all our friends around the world,” the incoming president said, celebrating how he hopes for future ties. between the two countries that are “developing in many ways”.
He described relations with China as “very important” and “beneficial”, promising to find optimal ways to overcome “difficulties and differences” and to “continue to communicate and remain frank in the interest of each of our countries” in the light of the ongoing disputes in the South China Sea.
Former Philippine strongman Ferdinand Marcos Sr was one of the first regional leaders to normalize ties with Maoist China in the 1970s. And his family, which is the dominant force in the northern province of Ilocos, maintained warm commercial ties with Beijing over the decades that followed.
Over the past six years, Duterte has actively pursued Beijing’s favor in return for large-scale investment from China. Yet the Asian power has barely fulfilled its pledge of $24 billion in major investments in the Southeast Asian country.
Even Benjamin Diokno, the current BSP governor who is about to become Marcos Jr.’s finance minister, has publicly complained about China’s lack of concrete investment.
“There were many promises, but [not] a lot has been delivered”, Diokno admitted in a mixture of Filipino and English after his appointment as the next finance chief. As Duterte’s budget secretary, he was a staunch supporter of massive infrastructure spending, which has nearly doubled in recent years. Diokno nevertheless expressed hope that China will deliver on its earlier commitments, including the construction of a rail system in the southern island of Mindanao, in the coming years.
As a former budget secretary, the veteran technocrat oversaw a nearly doubling of infrastructure spending under the Duterte administration. Diokno, the incoming financial secretary, has pledged to continue the outgoing government’s “Build, Build, Build” projects.
But the fiscal outlook doesn’t look promising. The Philippines has suffered five quarters of the economic contraction between 2020 and 2021, while the debt-to-GDP ratio reached its 16-year high after a 20% jumped into borrowing last year.
Outgoing finance chief Carlos Dominguez has warned the government will need to move to fiscal consolidation, including higher taxes, to “continue spending on socio-economic programs, preserve our creditworthiness and grow out of debt”. But his successor has rejected any belt tightening.
“Traditionally, in such a problem, it would dictate cutbacks. I don’t believe in that idea. I think we need to continue our Build, Build, Build program and because of the pandemic I think we need to keep investing in human resources,” Diokno said in response to the call for fiscal consolidation.
“There shouldn’t be any cuts to our spending plan, I think we really need to focus on raising enough taxes,” he added. Diokno said he was confident that continued economic growth and more efficient tax collection will succeed.
In April, the Ministry of Public Works and Roads (DPWH) said only 12 of the 119 flagship infrastructure projects (IFP) had been completed. completed to date. The Marcos Jr administration will inherit 88 large-scale infrastructure projectstwo-thirds of which will be ready next year or in the first implementation phase.
The total price tag for the infrastructure projects is 5.08 trillion pesos ($100 billion), underscoring the need for the Philippines to seek foreign financing, especially from China.