Right leader to boost economy

The election of Narendra Modi as India’s new Prime Minister has done wonders for the country’s economic prospects. All of a sudden economists and analysts are speaking of India with confidence and admiration that would seem odd just less than a year ago.

 It doesn’t matter that Modi’s party is the Hindu nationalist Bharatiya Janata Party (BJP) which would normally signal a more inward Hindu supremacist regime. Modi has been praised for his economic policies, which are credited with creating an environment for a high rate of economic growth in Gujarat.

In Indonesia, the election of Jokowi Widodo as its new president has likewise garnered positive reviews from economic watchers. The popular Jakarta governor, who won a narrow victory over the former son-in-law of the late President Suharto, is expected to boost confidence in the political stability of Indonesia’s democratic government, and by extension its economy as well.

The positive reviews of Modi and Widodo reminds us of the election of P-Noy in 2010. P-Noy’s reputation for honesty almost single-handedly boosted international business confidence in the country. Indeed, even in the absence of more concrete achievements over the last four years, ratings agencies and analysts are banking on P-Noy’s personal honesty for their positive outlook for the country.

That makes the choice of P-Noy’s successor that much more crucial to retaining the good graces of fund managers and other investors. The health of our stock market and the economy in general rests on how the character and ability of our new leader will be perceived.

A recent memo to investors written by an analyst of a foreign investment management firm underscored the importance of having the right political leader on economic prospects. “In the world of emerging markets, it rarely pays to underestimate the critical role that political leadership plays.

“Generally lacking many of the entrenched and counter balancing pillars of power that are inherent… to developed world societies (independent courts of law, central banks, professional bureaucracies, unions like the EEC), political leaders in emerging markets can be capable of exerting a far greater influence on policy, direction and change than is usually the case elsewhere.

“This can be the catalyst for great good and terrific change; but just as often it is the precursor to long periods of corruption, cronyism, stagnation and disappointment. It will not surprise that many bouts of individual country stock market outperformance or underperformance are closely associated with their leaders at each particular time.”

The same investor memo argues “that the upcoming May 2016 election could yet prove momentous for the Philippines. Political continuity is the relevant issue. What excites us is less the choice of candidates…Instead, what excites us is that for the first time in 50 years, there is the distinct possibility of a competent president being constitutionally followed by someone who may be as, if not even more, competent than his predecessor.

“Fidel Ramos remains the most highly-rated Philippine president by foreigners and Philippine business people alike, but much of his legacy was lost when Pres. Estrada took office. Continuity is critical if changes are to be consolidated. Which is why it is so important that whoever succeeds the current incumbent, is himself someone who can build upon the present legacy.”

The paper asserts that “it is necessary to understand the Philippines has been so often let down by its political classes and hence why it has under-delivered. It is also necessary to have a better understanding of Jejomar Binay’s track record in order to understand what he might be capable of achieving…

“We think it crucial for investors to understand that after decades in which political leadership has proved the Achilles’ heel, politics may be starting to work in the Philippines favor.  If so, investors need to take this on board and focus on those corporates best positioned to reap the benefits of a prolonged cyclical upturn with effective restructuring and improved governance.”

The memo states that the “current leadership has made almost all the right moves. President Aquino’s reforms have been across the board. Pres Aquino’s achievements are commendable, but he should raise the bar as he enters the last phase of his term. The government should step up the privatization process via PPP projects. The pork barrel issue needs to be solved during Aquino’s term.”

The memo was hopeful about Jojo Binay. “Next leader is critical to sustaining the Philippines rerating. VP Jejomar Binay wants to be the next president. His performance as Makati mayor has been good. Applying the same strategy he used for Makati would lift the country.”

The memo points out that “over the past few decades, political turbulence in the Philippines has been a drag on its fortunes and attitudes. Political continuity into 2022 would make a tremendous positive difference to the country’s prospects. With the right leader, the Philippines will continue to outperform its Asian peers. Better infrastructure and institutions are critical to its development.”

What is key, the memo points out, is the need for 12 years of good governance. “Should this occur, and there are a lot of ifs as there always are in the world of politics, then investors can start to countenance what the effects of a combined 12 years of good governance will have across the country as a whole.

“Such a timeline would be sufficient to change various institutions, attitudes and personnel on a scale that would challenge many of the preconceptions that have bedevilled the country. What is being contemplated is a restructuring of the economy which could lead to a significant easing of bottlenecks and regulatory red tape.

“What is needed is for that progress to be built upon, expanded and cemented across the archipelago. Achieve that, and there will be very few investors wishing to claim the market is expensive when set against its potential growth trajectory.”

Here are the implications for the economy and market, according to the analyst:

 “If reforms continue after 2016, multi-year real GDP growth of 8 per cent is achievable. From a nominal GDP of $305 billion in 2015, the country is likely to see GDP grow to $525 billion by 2020. This will sustain the market rerating as well as corporate profitability, cashflow and returns.”

The analyst likes consumer, gaming, infrastructure and banking sectors. The analyst forcasts PCOMP to hit 13,530 by 2022, almost double current levels.

The investor memo is not worried about a Binay presidency. In fact, it all but welcomes it, pending more definite announcements from other potential rivals. Here is what it said about Binay:

“When VP Binay became mayor, Makati was inefficiently managed and in debt. He quickly improved its finances, paring its debt and focusing on improving its infrastructure, healthcare, education, social services and law and order.

“During his last three terms, Makati was the richest and most socially responsive city in the country... it helps that most multinationals and large corporations have located their HQs there, in the CBD that Ayala Land built.

“In 2010, Binay moved up from city mayor to be the country’s vice president, his first national post. As VP, Binay oversaw the affairs of OFWs, trafficking and illegal recruitment and the housing sector...

“A long uninterrupted career in public service highlights Binay’s strong leadership skills and street smarts. His ascent to the country’s second-highest post may have surprised many, but his success on a national scale clearly took years of careful planning and preparation. By utilizing Makati’s rich coffers to help other cities nationwide, the VP managed to build a grassroots base that catapulted him to national prominence.

“While managing a city is nothing compared to running a country, strong leadership skills and a no-nonsense approach are qualities that make the job easier. Sifting through Binay’s campaign platform, the focus remains on infrastructure but on a broader scale...”

The message is clear… many of us may be worried about 2016 but this investment and funds management analyst is bullish. The analyst likes Binay’s competence and his ability to produce results. It seems business would prefer a competent and action oriented Binay to a Mar Roxas and his teka teka ways.

Questions will be raised about corruption, but unless the Ombudsman and the Sandiganbayan act quickly enough, VP Binay will simply be able to dismiss such accusations as politically motivated. Unless the pork barrel cases are also resolved soon, corruption accusations against Binay will not sting enough to hurt him on election day.

Still, it is good to remember that unless we are able to elect someone the world would see as a good leader, our economic prospects could be compromised. We need the right leader to boost the economy and in 2016, it may well be make or break.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco