Crossroads (Toward Philippine economic and social progress)
Philippine Star, 26 October 2016

“I announce my separation from the United States, both in military, but economics also,” so spoke President Rodrigo Duterte as he ended his speech before an audience of Chinese officials and businessmen last week in Beijing.

These words unleashed a tsunami of great strength in Manila and in other capitals, most especially in Washington D.C.

Had the same words been spoken in Manila before a home crowd, they would not have sounded as dramatic and seismic in impact. They could simply pass for domestic political rhetoric.

But spoken during a State Visit in Beijing, the capital of China, and literally before the world through television, they seemed to announce a transformative change in Manila’s foreign policy. As a result, they foretell a larger cloud of uncertainty in the geopolitic relationships of countries in Asia and the Pacific.

Damage control. Immediately upon the unleashing of these statements, the Philippine government went on damage control. Responsible senior Cabinet officials and government spokesmen have come out to explain and to limit the damage.

They have stressed that “separation” is not “divorce” or “breakup.” It is “realignment” or “rebalancing.” In short, there is no intention to breakup relationships or to denounce existing treaty commitments.

President Duterte had to explain what he meant when asked upon arrival home. He clarified that he did not mean to cut ties with the US. He further added:

“It’s not severance of ties. Severance of ties is to cut diplomatic relations and I cannot do that. It is in our best interest that we maintain these relations.”

It would seem from these attempts at clarifying what he meant in Beijing that it was an unfortunate and wrong choice of word.

In which case, if the words were not spoken, would he have still achieved the same amount of success in the visit to China? (During the visit, a total of investment projects covering $15 billion equivalent and $9 billion of development financing equivalent were concluded.)

Since the speech was a kind of final act, after all the agreements had been arrived at and signed, it would have been easy not to say much more.

The fact that President Duterte insisted on stating the sentence means that it was a well-thought-out decision to say those words. They were said there for political effect.

The President, as he had before contemplated, had finally crossed the Rubicon! (In this analogy, the Rubicon is the mythic forbidden border of Philippine foreign policy which veers off the US line.)

There are some factors that probably pushed for this act. First, there is the open criticism rather than support that the United States tried to make on the war on illegal drugs – on the issue of killings and human rights. This has irritated him no end because it is the main action program of his presidency.

Then, there is the need to involve China’s cooperation in the country’s economic development efforts. The South China Sea problem and the antagonistic relationship with China on a lot of economic issues had to be dealt with pragmatically.

Going deeper. As expected, Foreign Affairs Secretary Perfecto Yasay, had to find an explanation for the shift in foreign policy direction. Yasay, in a Facebook posting, said: “[B]reaking away from our closest friend, only military ally and strategic partner would not be in our best national interest.” Separation from our former colonial master is demanded in pursuing our independent foreign policy…. It implies breaking away from the debilitating mindset of dependency and subservience [that has] perpetuated our ‘little brown brother’ image to America. Separation did not mean ‘severance of relationship’ or terminating the special bond between the two nations [but] simply means letting go of the disguised chains that continue to hold us captive to foreign interests in order to enable our people and duly elected leaders to address our urgent problems and needs in the light of our priorities, experiences and values without undue outside interference.”

Rebalancing toward Asia.  There is a strong case for the Philippines having to “rebalance” its relations with Asia and, in particular, China, the new economic power which has been a steady engine of growth in the region. The Philippines has been behind some of its regional neighbors in realizing this, although there already exists an extensive economic relationship, through trade and production, that still has the potential for more growth.

The world’s supply chain for industrial production is mainly based in Asia and China is a major component of this through its extensive, export intensive economic power.

There is much to be gained in strengthening the Philippine position with the Asian region. Yet, despite its participation in this supply chain, the Philippines is not yet a strong component of this chain, compared to some of the country’s neighbors.

Even before the China visit of President Duterte, the two senior economic managers, Secretary of Finance Sonny Dominguez and Economic Planning Secretary Ernesto Pernia had issued a joint statement on the subject of integration within the region of Asia.

They announced the government “will maintain relations with the West, but we desire stronger integration with our neighbors…The Philippines is integrating with ASEAN, China, Japan and South Korea. In a way, Asian economic integration is long overdue….”

This direction is highly desirable. But it does not mean trade and investment relations with the rest of the world, the United States and Europe included, would end or should diminish.

This much was in fact immediately conveyed by Trade and Industry Secretary Ramon Lopez, as he was asked questions about the immediate implications of what President Duterte had just said in Beijing.

With respect to the importance of China in the Asian region, Dr. Pernia said: “China is a major player in this growth area. And for a long time, we have not taken very seriously our economic relations with China. This time, we feel we should really engage with China stronger… In effect, we are really broadening our investment and trade base from too much dependence on the West to greater attention to the Asian region. So it is a rebalancing. It is not a separation. It is a rebalancing of economic relations to a broader base of trade and investment relations.”

(To be continued: Impact on macro economy)