by Bill O’Grady
(There will be no report published over the Thanksgiving holiday. Part 2 of this report will be issued on December 5.)
In May, Rodrigo Duterte was elected president of the Philippines, winning 39% of the vote. He is the first resident of the island of Mindanao to hold the office, making him a political outsider. An unconventional political figure, he is considered populist in the mold of Turkish leader Recep Erdogan or Indian PM Narendra Modi.
Although Philippine economic growth has been generally strong, with per capita real GDP rising 4.2% last year, the general feeling was that only the political elites were benefiting from the growth. Crime and poor infrastructure were the primary concerns of the election and Duterte promised to address both of these issues.
In fact, on the former, Duterte has unleashed a crackdown on drug dealers with such fury and lack of due process that he has been facing criticism from the West. Duterte’s response has been to vigorously reject these charges and, in general, opinion polls suggest the policy is popular with the general public.
Perhaps the most controversial action Duterte has taken has been to embrace China and reject its long-standing ally, the United States. If this rupture in relations continues, it will significantly change regional geopolitics.
In Part 1 of this report, we will begin with an examination of the geography of the Philippines, discussing its geopolitical importance. From there, we will offer a history of U.S./Philippine relations. In Part 2, we will use this history to discuss Duterte’s recent foreign policy moves. It does appear that Duterte is moving his country to at least a neutral stance and downgrading the American relationship. If true, it would seem that one of the signature foreign policy goals of the Obama administration, the “pivot” to Asia, has essentially failed. We will conclude with the potential impact of Duterte’s actions and their prospective effects on financial markets.
 He described President Obama in derogatory terms, leading to the cancellation of a one-on-one meeting. See: https://www.washingtonpost.com/news/worldviews/wp/2016/09/06/the-son-of-whore-story-is-about-so-much-more-than-dutertes-dirty-mouth/.