Political unrest could rattle financial markets

PHILIPPINE financial markets could face some volatility from the fallout of former president Rodrigo Duterte's having been arrested and sent to the International Criminal Court for alleged crimes against humanity, a former Bangko Sentral ng Pilipinas (BSP) official said on Wednesday.

Speaking to the reporters at the sidelines of a Management Association of the Philippines economic briefing, GlobalSource Partners analyst and former BSP deputy governor Diwa Guinigundo said the short-term market reaction would be negative, but the country's long-term economic prospects could improve given the view that the rule of law had strengthened.

The benchmark Philippine Stock Exchange index (PSEi), which plunged by 2.42 percent on Tuesday amid worries over a possible US recession and as Duterte was taken into custody, slipped by 0.18 percent. The peso, meanwhile, weakened by 13-and-a-half centavos to P57.36 to the dollar.

An escalation of the public reaction to Duterte's arrest, Guinigundo said, could "upset and disturb the financial markets ... if this continues, this is something that we really have to be prepared for."

Allegations of corruption versus Duterte's daughter, Vice President Sara Duterte, and claims that state funds were being misused are also widening the political divide and diverting the government's attention.

"The Supreme Court has [had] to intervene because of this transfer of funds from PhilHealth to the National Treasury," Guinigundo noted. "At the same time, we have the problem with the vice president, who was also accused of misuse of public funds."

He emphasized the importance of upholding the rule of law, which he said could lead to greater investor confidence.

"[T]he government will really have to do a lot of good communication to ensure that the market remains confident of the good macro fundamentals in the Philippines," Guinigundo said. "I think that's the most important."

"In the short run, maybe the financial markets will be disturbed. It can be upsetting. But over time, over time, people will realize that something can be done here in the Philippines," he added.

Continued communication will also be needed to mollify the general public, many of whom remain supporters of Duterte. "That's what we need to do. We need to communicate so that people will be pacified," Guinigundo said.

BDO Capital and Investment Corp. President Ed Francisco, meanwhile, on Wednesday also expressed concern over the impact of Duterte's arrest and impending trial, noting that the investment community likes "stability and peace."

"Ideally, I hope this fighting between the Marcoses and the Dutertes becomes quiet, because it's really causing concern even for foreign investors," he said.

Continued political instability, Francisco claimed, could even prompt the BSP to keep pausing from further rate cuts that could stimulate economic growth.

Philippine Dealing and Exchange Corp. President and CEO Antonino Nakpil said the disunity brought about by the feud between President Ferdinand Marcos Jr. and Vice President Sara Duterte had to be addressed.

Still, he said Filipinos were resilient and had gone through crises such as the EDSA Revolution in the 80s that saw the ouster of Marcos' father and the Asian financial meltdown of the 90s.

China Bank Capital Corp. Managing Director Juan Paolo Colet said that the PSEi's drop on Wednesday was still due to worries about a US slowdown and President Donald Trump's "erratic" trade policies.

"Based on today's trading, the arrest of former President Duterte has not had a material effect on our stock market and many large investors do not appear to be particularly perturbed by that issue," he said.

WITH A REPORT FROM EARL JOHN ALFARO