• An end to President Rodrigo Duterte’s offensive against Islamist extremists in the southern Philippine state of Mindanao does not seem imminent more than a month into the conflict. A drawn-out war would erode support for the president.
  • The country’s record does not breed confidence that economic reconstruction will be swift — and a slow and inefficient recovery would be damaging to Mr Duterte’s popularity, as it was for his predecessor Benigno Aquino following Typhoon Haiyan in 2013.
  • Though the immediate economic impact has been limited, a lengthy conflict would set back attempts to promote “inclusive growth”, and weaker support for Mr Duterte would probably hinder the implementation of his policy agenda, including his planned shift to a more federalised system.

The insurgency in the southern Philippine island of Mindanao, led by local Isis-linked terrorist group Maute, has rumbled on for just over a month. Nearly 400 people have been killed, including 71 state troops and 27 civilians, while thousands have been displaced.

The conflict is the biggest challenge yet for President Rodrigo Duterte, who swept to power just over a year ago on a wave of popular support, particularly among the country’s poor. While FT Confidential Research data has tracked a decline in support among the Filipino poor caught up in his much-criticised war on drugs, Mr Duterte has maintained strong support among his former constituents in his homeland of Mindanao (see chart).

If the conflict is not well managed, this could change and the president’s honeymoon period could be well and truly over. Risks for Mr Duterte arise from an extended conflict — continuing beyond the 60-day martial law period declared in the region on May 23 — and a poorly handled reconstruction process in the affected areas.

End to hostilities does not seem imminent

Bringing an end to the conflict before the 60-day martial law period ends on July 23 is beginning to look unlikely.

Two deadlines the military imposed upon itself to defeat the rebels — June 2 and 12 — have not been met and Mr Duterte has already said he is willing to extend military rule if necessary. The imposition of martial law has inflamed an older conflict with Communist rebels, who are still moving through a peace process with the government to end their own four-decade-old struggle in Mindanao.

Filipinos are wary of martial law, which was used for 30 years by former dictator Ferdinand Marcos Sr, known for violating human rights and amassing a personal fortune. The Communists, many of whom suffered torture under Mr Marcos, fear that martial law in Mindanao is a prelude to a nationwide declaration. Mr Duterte denies any such plan.

The Communists responded to martial law with an offensive against the military, while awaiting a decision from the Supreme Court on a petition they filed to nullify it. While tensions have since calmed, an extension of martial law could reignite them. This could jeopardise the passage of a peace bill that would grant greater political and economic autonomy to the Muslim region in Mindanao.

Longer-term economic worries

Mindanao is home to over 40 per cent of the country’s poor (see chart) and is a key target for the government’s “inclusive growth” agenda. This aims to spread economic development beyond the capital, Manila, by boosting infrastructure and social investment in other parts of the archipelago.

Fighting with Maute, so far contained in Marawi city, is unlikely to slow the country’s near-term economic performance in any meaningful way. But its impact on implementing development programmes is likely to hurt investment and retard the region’s growth.

Assistance and reconstruction will prove politically challenging for the government. It will be conscious of the backlash suffered by the preceding administration of Benigno Aquino for what was perceived as an inadequate response to Typhoon Haiyan in 2013 (see chart). While funds are not a problem, distributing them effectively is already proving difficult. Judy Taguiwalo, social welfare secretary, told FTCR that logistical issues made it hard to get aid to people living with relatives rather than in evacuation centres. “The problem is getting the aid to home-based evacuees. They are spread out in hundreds of communities,” she said.

Delays in providing emergency assistance do not bode well for the later, much bigger process of reconstruction and rehabilitation in war-affected areas, which could fuel public discontent and erode Mr Duterte’s political capital.

Weaker support to impact policy agenda

Weaker public support for Mr Duterte could put his allies in congress further on the defensive, spending as much time shielding him from criticism as pushing his economic agenda.

This has already become an issue. In his first year in office, continual congressional inquiries into his drug war have contributed to congress passing just four new bills, including the 2017 budget and the renewal of congressional franchises to media and telecoms firms.

The priorities of the administration, including a tax plan that aims to raise additional revenues while cutting personal income tax, have been delayed. The tax bill, which will be discussed by the senate next month, has already been diluted, with tax increases on fuel and vehicles to be phased in slowly. Lower revenue could limit the government’s planned infrastructure drive.

— Prinz Magtulis, Philippines researcher

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.
Copyright The Financial Times Limited 2018. All rights reserved.

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