As election nears, investors reassess the Philippines after Aquino

MANILA - The Philippines' election is still six months away, but already investors are seeking reassurance that whoever replaces outgoing President Benigno Aquino will honour his clean and competent style of government.

Aquino must step down next year, after reaching the end of the single six-year term permitted by the constitution, and 130 candidates have nominated to replace him, including one who claims to be an extraterrestrial ambassador.

Aquino sees Manuel Roxas, until recently his secretary of interior, as the candidate most likely to sustain his legacy.

Roxas is currently third in opinion polls. Second is current vice-president, Jejomar Binay, who is from a different political party to Aquino and faces corruption charges.

First is Grace Poe, a senator known mostly for being the adopted daughter of a famous actor. She may face disqualification over citizenship and residency issues.

Aquino's two predecessors were both convicted of corruption, and there is concern about who could follow. "The problem is you don't have any more Aquinos waiting on the sidelines," said Kenneth Akintewe, a fund manager at Aberdeen Asset Management in Singapore, overseeing US$4.5 billion (S$6.3 billion) in assets.

"There is a big question mark over how sustainable the reform momentum is going to be."

Aquino's mostly steady, scandal-free administration has driven 6.3 percent average growth of the US$285 billion economy, the fastest of Southeast Asia's five main economies, and the World Bank expects it to remain the region's pacesetter in 2016-17.

In Philippines' politics, personalities matter more than barely distinguishable parties or policies.

Steven Rood at the Asia Foundation, a think-tank, says investment often dips before elections - reflecting concerns that contracts already in place could be reviewed and re-awarded by an incoming administration. "Definitely there will be problems of instability given how personality-driven Philippine politics and government are," he said.

Probably most at risk is longer-term foreign direct investment in the Philippines, which hit a record US$6.2 billion in 2014, but Rood saw little prospect of a serious contraction.

"I don't expect that current overall levels of investment will fall, since there are still opportunities to make money in the Philippines."

DEBT MANAGEMENT

Aquino's economics team swapped short- and medium-term debt for longer maturities, lowering foreign exchange exposures, and cutting the budget deficit - consequently winning investment grade status from credit-rating agencies.

Inflows from migrant workers' remittances and outsourcing contracts, worth some US$3 billion a month, raise personal income and consumption, driving the Philippines' robust annual growth and buffering the balance of payments.

Foreign reserves are ample, equivalent to more than 10 months' imports, while the Philippine peso has fallen just 4.6 percent against the U.S. dollar, less than any other Southeast Asian currency, in the emerging market volatility of late.

Manila's stock market is the region's best performer, and investors rate the government at a lower risk of debt default than all its neighbours, except Singapore.

This is a striking turnaround from the time Aquino took office, when Philippines' debt was seen as most likely to default.

So could the winner of next May's poll sustain this level of progress?

Soo-Hai Lim, director of Asian equities at Baring Asset Management, would like assurances that Aquino's successor won't reverse policy improvements. "You want to see those processes that he has put in place to improve transparency, to ensure that contracts are awarded on a consistent basis, are continued by the new administration," he said.

Richard Li, chairman and chief executive of Pacific Century Group, an Asia-based long-term private capital firm, told a conference the May 2016 election was pivotal to the Philippines remaining an attractive place to invest. "The Philippines looks very exciting indeed - as long as the next government is clean, has good governance, and strong leadership," he said.