The Philippines’ relationship with the US

President Rodrigo Duterte is keen to move away from the US. However, this may be reevaluated with a new administration at helm in the US, led by Donald Trump.

As noted earlier in the series, Trump has more in common with Duterte than Obama had. Given the strategic and geographic importance of the Philippines (EPHE), the new US government may want to appear friendlier than the previous one. In a conversation between Trump and Duterte in December, Trump had indicated that the US (SPY) will not interfere with the Philippine government’s methods on the crackdown on drugs.

On his part, Duterte may find that being cordial with the US may be helpful when it comes to the booming outsourcing business in the country which brings in 10% of the GDP (gross domestic product) and gets 70% of its revenue from business from US firms. The allowance to the US to upgrade its military bases in the Philippines, which we had explored in the third article of this series, may be a step in more genial relations with the new US government.

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However, a lot of the approach towards relations with the US may depend on what happens with the country’s new found liking for China.

The Philippines’ relationship with China

A new friendship carries with it an infectious enthusiasm and mutual respect. That is what the Philippines and China (MCHI) are experiencing. Both administrations don’t take criticism of domestic affairs lightly and have their own reasons for discomfort with the US.

However, their issue of disputed territories in the South China Sea remains. In a move away from the US, the Philippines may concede more freedom to China in those territories. The Philippines ending joint naval exercises with the US will also be beneficial to China. But in time, the Philippines may feel the need to make its case for the territories.

Economic prospects

While the Philippine government expects economic growth to be in the 6.5%-7.5% range in 2017, research houses have varying views.

HSBC revised its economic growth estimate for the Philippines to 6.5% in 2017 from 6.3% earlier. S&P Global Ratings also nudged up its growth forecast for the country to 6.4% from 6.3% earlier.

However, Swiss finance major UBS expects the economy to grow by just 5.6% in this year. This is compared to the 6.8% growth for 2016 reported by the country recently. It sees a slowdown in domestic demand which would lead to reduced economic activity. The firm believes that even if the infrastructure spending push is provided by the government, the effects may not be seen on economic growth as early as 2017.

Though the country is not at a crossroads where it has to choose either the US or China to continue growing, it will need to prefer one over the other as the new government in the US sets in. Will China ‘Trump’ the US on this one remains to be seen.

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