In a policy pinch, Duterte looks to Arroyo

President Rodrigo Duterte is losing a grip on the Philippine economy as inflation gallops, the currency slips and growth slows. In crisis mode, he is looking to a surprise source to steady the situation: ex-president and current House of Representatives Speaker Gloria Macapagal-Arroyo.

Arroyo, a US-trained economist and controversial former leader hounded during her tenure by corruption allegations, has virtually overnight become Duterte’s chief confidante, advising the populist leader on technocratic issues, economic matters and even foreign policy, government insiders say.

Her hand was seen in new measures announced on August 28 aimed to ease fast-surging inflation, including a move to reduce tariffs on certain food imports such as poultry. The policy shift was announced after a meeting of economic managers at which Arroyo was believed to play a decisive role, the same sources say.

The insiders say Duterte has become increasingly dependent on Arroyo’s counsel and support, coincident with rising concerns about the incumbent president’s health. As a former provincial mayor, Duterte has neither a powerful political party nor a strong network of trusted backers among the Manila-based elite to bolster his weakening position.

Drawing on her wide and well-established political network, carefully built and preserved throughout her decades-long experience in national level politics, Arroyo has emerged as a crucial ally to Duterte amid rising political and economic problems.

With her rising influence becoming more openly apparent, Arroyo is now even being described by some political observers as the Duterte administration’s “co-president.”

Last month, the former president launched a surprising legislative coup against Pantaleon Alvarez, a key Duterte ally, to become the country’s first female Speaker of the House of Representatives.

She now presides over around 300 legislators who represent the bedrock of legislative support for Duterte’s policies. She is also expected to play an outsized role in economic decision-making, as witnessed with the recent tariff policy decision.

Analysts say Arroyo’s return to power is likely her last chance to redeem her tarnished legacy. Her nearly decade-long presidency (2001-2010) is remembered widely as a period of political instability, electoral fraud and rampant corruption. Coup attempts and nationwide protests also dented her legitimacy throughout the mid-2000s.

During president Beningo Aquino’s administration (2010-2016), she was placed under house arrest and faced the prospect of long-term imprisonment on charges of misusing state lottery funds. To avoid prosecution, she ran for congressional office in her home district of Pampanga, becoming the first former president to seek such a position.

She ultimately weathered the legal storm when the Supreme Court cleared her of most charges upon Aquino’s departure from office. Under Duterte’s presidency, she quickly reemerged as a major powerbroker, though initially from behind the scenes.

In recent months, however, she has become an increasingly visible force in Philippine politics and economics.

“There is a new Speaker and it’s good because Gloria [Arroyo] is an economist. She was the one who called me about two weeks ago to do something about the inflation,” Duterte said in late July, shortly after Arroyo formally assumed her new leadership role in the Philippine Congress.

In late July, Arroyo met Duterte’s top economic managers, including Finance Secretary Carlos Dominguez, central bank chief Nestor Espenilla, Socioeconomic Planning Secretary Ernesto Pernia and Budget Secretary Benjamin Diokno, to discuss rising economic troubles.

She was accompanied by her congressional colleagues, including Majority Floor Leader Rolando Andaya, Congressman Joey Salceda and Arthur Yap, who was a Cabinet minister during her Arroyo’s presidency. Reports from the meeting indicate Arroyo projected herself as an experienced technocrat empowered to steer Duterte’s Cabinet.

In July, inflation surged 5.7% nationally and 6.5% in Manila year on year. That was the highest level in the region and way above the government’s targeted 4% upper band limit. The Bangko Sentral (central bank) responded with its biggest single interest rate hike (50 basis points) in a decade, representing the third benchmark rate rise this year.

The impact of rising prices has been asymmetrical, with inflation hitting the Filipino poor especially hard, official statistics show. According to the Philippine Statistics Authority, the prices of basic necessities for the poorest 30% of households rose 6.5% in the second quarter.

The price of fruits and vegetables rose by 7.5%, while the price of corn increased by as much as 10.8% over the period. Increases in the price indices of fish and meat respectively reached 11.1% and 6%, the official statistics showed.

With the urban poor representing the country’s largest electoral constituency, Duterte’s administration is clearly concerned about potential political fallout, especially ahead of next year’s midterm elections which many believe will serve as a de facto referendum on Duterte’s rule.

The inflationary surge has been driven by a combination of rising global oil prices and the impact of newly implemented tax reforms that have driven up consumer good prices. The Philippines’ falling currency, now at its weakest level in 12 years, has compounded the problem by driving up the cost of imported goods, especially food and oil.

The government is now considering whether to expand measures already in place to help poor households, including fast-tracking the disbursal of so-called unconditional cash transfers (UCTs).

It is also reportedly deliberating whether to increase cheap fuel imports, liberalize the rice trade and reduce tariffs on other meats apart from poultry.

If the measures are implemented and succeed in containing inflation, Arroyo could claim the mantle of economic savior and potentially run for the Senate in next year’s elections, as she will have reached her term limit in the Lower House.

There are concerns, however, that the proposed trade measures could have adverse long-term economic effects, especially on domestic food producers and poor farmers who won’t be able to compete on price with the cheaper imports.

The tariffs in question were initially imposed to protect Filipino agrarians against cheaper produce and goods from countries known to subsidize their farmers.

“It will reduce prices definitely but at what cost to our local producers?” said independent Senator Panfilo Lacson, a top critic of Arroyo during her presidency.

Arroyo’s skeptics are concerned that she will push for other stop-gap measures which may help her and Duterte in the political short-term, but come at the expense of an already mounting budget deficit and the country’s long-term fiscal health.