Philippines: assessing the ‘key man’ risk

Once Indonesia has finally got through counting the votes and has separated the two presidential candidates, it will have a new leader. That puts the nation of 250m people in good company. In Asia, in the last 18 months, countries with approaching a total of 3bn inhabitants – including China, India, Japan and South Korea – have changed their leadership. Even the Thais have a new man in charge, though he had to organise a coup to get there.

One country that has not altered its leadership is the Philippines. Benigno “Noynoy” Aquino, has been president for four years. By the standards of his perennially disappointing country of nearly 100m people, his time in office has been a roaring success. Growth has stabilized above 6 per cent, inflation is low and debt and budget deficits have been brought under firm control. The economy is even creating jobs – something it has sorely lacked for years – in the booming outsourcing sector. Call centres in the Philippines employ more people than ones in India. Ratings agencies have responded to improving macroeconomic conditions, upgrading sovereign debt to investment grade. Philippine conglomerates have started investing significant sums at home.

Benigno Aquino

All of this raises a question: what will happen when Mr Aquino goes? The nation’s constitution in line with other countries scarred by dictatorship – such as South Korea – limits the president to a single term. Mr Aquino, who has led a charge against corruption and given rein to gifted technocrats, will be gone by May 2016. The danger is that the country will slip back into its bad old ways.

Asked by the Financial Times in a recent interview about what has come to be known as the “key man” risk, Mr Aquino professes to be confident that his country’s improved performance will outlast him. Filipinos, he says, have learnt that good governance “produces tangible results”. His hope is that they will demand accountability from future administrations.

In truth, some of the macro-economic improvements have been the fruit of policy changes outside his administration, particularly at the central bank. Although his predecessor, Gloria Macapagal Arroyo, was deeply unpopular and accused of overseeing a corrupt administration, much of the improvement in economic fundamentals can be dated to her government.

Nor is growth being driven purely by policy. Very healthy levels of remittances from abroad and strong domestic demand mean the economy is shielded more than most from external shocks. The country, where half the population is 24 or under, is entering the sort of “demographic sweet spot” that saw other Asian nations prosper.

Of course, Mr Aquino could try to hang on anyway by changing the constitution. Single terms for a national leader are not the ideal constitutional arrangement. However, this is unlikely. Mr Aquino always professed to be reluctant to take up a job that was virtually handed to him on the 2009 death of his iconic mother Cory Aquino, who was also president. He shows very little interest in staying on. Pointing to his thinning head of hair, which he blames on the rigours of office, he says: “Every time I comb my hair, I remember why [I don’t want to continue]. From time to time, there has to be new blood.”