Some leadership gaps and uncertainties

I am pleased to share with readers the political section of our latest quarterly outlook report for Globalsource Partners (globalsourcepartners.com), a subscriber-based network of independent analysts in emerging market countries, with headquarters in New York. Christine Tang and I are their Philippine Advisers.

President Ferdinand Marcos, Jr. gave himself a pat in the back for picking the “best and the brightest,” when asked about accomplishments in his first 100 days. Those in business circles would readily agree that he made inspired choices, not only in the core economic departments but also in key line agencies critical to unlocking the economy’s post-pandemic growth potential. Nevertheless, the general sentiment is that his cabinet is a mixed bag and many would be quick to add the hope that he will be able to find a suitable health secretary soon and a replacement for himself in the Agriculture department.

By now, political observers have come to the realization that the President is contented to give free rein to his cabinet in overseeing their respective portfolios. For departments led by any one of the “best and brightest,” this may well be something welcomed. Indeed, one could see the positive outcomes in, for example, financial markets’ buy-in of the fiscal consolidation program, the private sector’s backing of the revised PPP rules, the re-centering of foreign policy after the past two administration’s excessive pro-US then pro-China stances, and the swift actions on the energy front to encourage investments in oil exploration and power generation for energy security.

But while good results go with good leadership, the reverse appears true as well. Regrettably, soaring food prices has put the limelight on the President’s turf, the Agriculture department. Early hopes that he would use his abundant political capital to hold sway over competing entrenched interests in the sector and exert a positive influence on bureaucratic inertia have faded away. Food prices have gone up by nearly 1% per month between the time he took office in July and October, and the price of sugar, the subject of an importation order he called illegal, increased 44% during the four-month period. Even now, we are told that decision makers in the agriculture sector are bickering unendingly over the size of import volumes for specific crops that are in short supply.

In the meantime, over at the Health department where the President has bafflingly said he would appoint a secretary after the health crisis is over, the vaccination drive appears to have lost momentum and it is unclear what the roadmap is for the highly under resourced sector. Currently, both the Health department and PhilHealth, government’s struggling health insurance corporate vehicle, are headed by caretakers who are not empowered to take strategic policy reform decisions.

Given the mixed performance of the administration, dependent as it is on the leadership of individual cabinet members, the question of how President Marcos’ cabinet will evolve in six to 12 months’ time arises. The question has come up not only because the agriculture and health sectors feel rudderless at the moment but also because of two forthcoming developments. One, by mid-year, those who ran and lost in the May elections, who are not allowed by the Constitution to be appointed to government positions within a 12-month period, will become eligible. This will give the President an expanded pool of, possibly, electoral teammates to choose from, and, obversely, open the floodgates to hard lobbying by more political, less qualified office seekers. Two, crucial in a time of financial turbulence, BSP (Bangko Sentral ng Pilipinas) Governor Felipe Medalla, who has won the acclaim of the financial and broad business sector, is merely serving out the remaining term of his predecessor which expires end of June next year. Hopes have been pinned on his appointment to a full term to continue the excellent navigation during this time of global financial turbulence.

Adding to the uncertainty in the business environment is a widely publicized rumor suggesting that the economic team, especially the finance secretary, has lost the confidence of the President. The rumor, possibly orchestrated, followed the sudden appointment of a new chief in the powerful internal revenue bureau, Romeo Lumagui, Jr., a close family associate of the President. Mr. Lumagui replaced Secretary Diokno’s choice, Lilia Guillermo, after less than five months on the job. Ms. Guillermo is a 30-year veteran of the tax bureau, whose last post was as assistant governor in the BSP after serving as undersecretary in the Budget department, both under Secretary Diokno.

The rumor was put to rest after the heads of the leading business organizations, the Makati Business Club, the Management Association of the Philippines, and the Philippine Chamber of Commerce and Industry, expressed full confidence in Secretary Diokno and the entire economic team, and the President subsequently dismissed it as fake news.

Nonetheless, speculations about changes in the composition of the economic team continue. It has not been lost on financial market players that the most prominently mentioned rumored replacement for Secretary Diokno is a close associate of former president, now congresswoman, Gloria Macapagal-Arroyo and the vice-president and daughter of the former president, Sara Duterte.

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And we also made a cautionary observation on a bill being rushed now in Congress.

The hotly debated congressional bill to create a sovereign wealth fund through the pooling of resources of government financial institutions will add to Philippine financial and fiscal risks. The proposal is poorly timed, with external balances under stress and government debt and borrowings elevated, and it raises the specter of Malaysia’s 1MDB scandal, traced ultimately to poor governance.

Romeo L. Bernardo was finance undersecretary from 1990-1996. He is a trustee/director of the Foundation for Economic Freedom, the Management Association of the Philippines, and the FINEX Foundation. He also serves as a board director in leading companies in banking and financial services, telecommunication, energy, food and beverage, education, real estate, and others.

romeo.lopez.bernardo@gmail.com