Political Risk Defined
Political risk is a type of risk faced by investors. It refers to the possibility of investments suffering because of developments in the political system. These may range from outward conflict, regime change, or changes in laws and regulations.
Elections are a source of political risk. New leadership may mean new policies which may affect businesses and operations. This is particularly true in the Philippines, where winning candidates often rise to the Presidency after an antagonistic campaign against their predecessor.
Investors and businessmen are now looking for signs as to how President-elect Ferdinand “Bongbong” Marcos Jr. will govern the country. Marcos Jr. made little-to-no mention of concrete policies during his campaign. His campaign hammered down on Marcos Jr. as a leader who would “unite” the country.
But as former New York Governor Mario Cuomo said: “You campaign in poetry. You campaign in prose.”
While “Unity” was beautiful of poetry, investors are looking for the prose of governance. The appointments of the Secretary of Finance, the Secretary of Budget and Management, and the Secretary of the National Economic and Development Authority, are all crucial.
Key Economic Risks
The outgoing economic team of President Duterte recently released a report detailing their recommendations on how to handle our national debt. Debt to Gross Domestic Product (GDP) has recently risen to 60%.
To keep the debt to GDP ratio manageable, the economy must continue to grow at a rate higher than 6%. Higher or new taxes, and “targeted” spending on infrastructure as opposed to non-priority items are some recommended measures.
These recommendations are politically unpalatable. it will be interesting to see how the first majority President of the 5th Republic will use his political capital to achieve these goals.