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Investors worry about the Philippines’ Rodrigo Duterte

It has been two years since Rodrigo Duterte took office in the Philippines. The economy is growing at over 6% a year, and incomes are rising. But could there be turbulence ahead?

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The president has got the Philippine economy running

It has been two years since Rodrigo Duterte took office in the Philippines. The populist president, who is known for peppering his speeches with profanities, has led an anti-drug war that has killed thousands of people.

Duterte harnessed the power of fake news months before Trump followed a similar course. Like Trump, he has managed to dominate the news cycle by making outrageous off-the-cuff remarks, says John Reed in the Financial Times. But the economy has been booming. "The jury is still out if that's because, or in spite of him," say Andreo Calonzo and Ditas Lopez of Bloomberg.

Spend, spend, spend

The Philippines' economy is growing at an annual pace of over 6% and rising incomes have contributed to the president's popularity. He has lowered income taxes and raisedlevies on sugary drinks and oil products. As a result government revenue has been boosted by 19% in the first five months this year. He has poured nine trillion pesos ($170bn) into his flagship programme "Build, Build, Build" to expand the road network, upgrade Manila's airport and improve rail links to its provinces, which has created more jobs.

Tax collection and infrastucture are two areas where the Philippines has tended to lag the rest of Asia, so this is pretty good news. It builds on structural improvements under previous leaders, notably debt reduction and a clampdown on corruption. A more predictable business environment has bolstered foreign investment and confidence.

For instance, the country's English-speaking workforce has helped the economy develop a strong foothold in business-process outsourcing, or back-office administration. In just 15 years this sector has mushroomed from nothing to 9% of GDP. Meanwhile, a young 100-million strong population bodes well for future consumption. But could there be turbulence ahead?

The peso has hit a 12-year low against the dollar. Investors are worried about the rising current-account deficit, a result of imports related to investment in infrastructure, while inflation rose to a nine-year high of 5.2% in June, thanks partly to new taxes. The central bank has been slow to raise interest rates from a record low.

A descent into full-blown populism in the next four years remains a risk given Duterte's erratic track record and he could be tempted to stay in office beyond the six-year term limit. As The Economist points out, he didn't mind gaming term limits when he was the mayor of a provincial town. Nepotism helped: through a combination of spending time as a local congressman and serving as a vice-mayor while his daughter was the mayor, "he held the job for 23 years".

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