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The Philippines:
Year in Review and the Year Ahead
January 16, 2018
Executive Summary
• Early instability in Cabinet hampered cohesive policy pushes.
• Focus on personnel changes rather than procedural reforms to combat corruption was combined with a
lack of uniform accountability.
• President Duterte’s unwillingness to arbitrate disputes between allies slowed down priority legislation
and threatened their passage going forward into 2018.
Leadership Instability
The first full year of the Duterte administration was marked by unprecedented removals and Congressional
rejections of various senior executive appointees despite his heavily touted supermajority in the legislative
branch, at a rate not reflected in previous administrations. By the end of 2017, five of the president’s cabinet
appointments had been thumbed down by the Commission on Appointments—rejections that Duterte did not
meaningfully contest. The president himself also relieved at least four other senior-level cabinet members and
various agency heads and officials—some fueled by allegations of corruption.
Nearly all his Left-leaning appointees have been ejected from office, most prominently Department of Agrarian
Reform Secretary Rafael Mariano and Department of Social Welfare and Development Secretary Judy Taguiwalo.
This, along with Duterte’s cancellation of peace talks with communist rebels, seems to signal the end of the
president’s honeymoon period with the Leftist bloc, a group whose sympathies he wooed during his presidential
campaign, and which had advocated vocally for new restrictions and regulations on private sector activities. The
removal of the Left-leaning faction indicates a shift towards the more neoliberal policies spearheaded by the
Economic Development Cabinet Cluster, led by Finance Secretary Carlos Dominguez.
In the midst of these developments, former military and police leaders retained or gained positions in the
overhauled cabinet: former Armed Forces of the Philippines (AFP) chief of staff Hermogenes Esperon, who also
served as peace process adviser to former president Gloria Macapagal-Arroyo, was appointed National Security
Adviser. Another former AFP chief of staff, Eduardo Año, was appointed Department of the Interior and Local
Government (DILG) Secretary. Department of Environment and Natural Resources (DENR) Secretary Roy Cimatu,
also a former general, replaced controversial former secretary Gina Lopez, despite having no prior experience in
environmental science and management.
Esperon, Año, and Cimatu join the ranks of other ex-Philippine generals appointed by Duterte, including
Department of National Defense (DND) Secretary Delfin Lorenzana and National Irrigation Administration (NIA)
head Ricardo Visayas. Besides raising concerns on the militarization of the Cabinet, these appointments seem to
affirm the president's keenness on strengthening his connections with the military, primarily by building political
relationships with top-ranking figures in the armed forces. On its part, the AFP, and especially DND Secretary
Lorenzana, have shown a willingness to publicly but subtly dissent from administration policies, such as
opposing the necessity of martial law and the realignment towards China, without crossing the line into
insubordination or suggesting a loss of civilian control.

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The Philippines:
Year in Review and the Year Ahead
January 16, 2018
Uneven Anticorruption Efforts
Since the beginning of his campaign, Duterte has employed searing rhetoric against corruption, and has vowed
to exact accountability from all erring public officials. Some of his cabinet firings in 2017 appear to signify
Duterte's no-tolerance approach to corruption: high-ranking appointees, including Department of Interior and
Local Government (DILG) Secretary Ismael Sueno, Presidential Commission on the Urban Poor Chairman Terry
Ridon, and NIA Administrator Peter Laviña—who was President Duterte’s campaign spokesperson and close
ally—were fired due to corruption allegations. Duterte also reportedly asked Department of Information and
Communications Technology (DICT) Secretary Rodolfo Salalima to resign over allegations that the latter favored
major telco Globe Telecommunications.
However, certain political personalities connected to his close allies accused of large-scale corruption have
escaped scrutiny. The president’s cabinet includes officials affiliated with former presidents Arroyo and Joseph
Estrada, whose terms were marred by serious allegations of graft and corruption. These include Department of
Budget and Management Secretary Benjamin Diokno, Department of Education Secretary Leonor Briones,
Department of Health Secretary Francisco Duque, Energy Regulatory Commission Chair Agnes Devanadera, and
Cagayan Economic Zone Authority Administrator Raul Lambino.
Duterte himself has kept close and friendly ties with Arroyo, Estrada, and most visibly, the Marcos family, casting
doubt on the sincerity of his anti-corruption campaign. In addition, perhaps reflecting the president’s personal
style, the campaign has focused on personnel adjustments rather than procedural or structural adjustments
as its approach to limit corruption. Until the president can support his bold reform statements by demanding
uniform accountability and establishing reform policies that produce real results, the administration's tough
stance against corruption will remain little more than political posturing.
Swift Retribution for Critics
The year 2017 also saw the president and his allies retaliate against his foremost critics, who have either been
vilified or denied access to political resources. Senator Leila de Lima, a vocal critic of the administration’s human
rights abuses, was jailed most of the year on drug trafficking charges and is currently still detained. Commission
on Human Rights Chair Chito Gascon has been at the receiving end of Duterte's verbal attacks for the
commission's criticisms on the war on drugs. Supreme Court Chief Justice Maria Lourdes Sereno, who opposed
martial law in Mindanao and the drug war, is currently facing impeachment proceedings in the House of
Representatives.
The president has also pushed for the impeachment of Ombudsman Conchita Carpio-Morales, whose office
probed money laundering complaints against Duterte and his family, though so far to no effect. Outside of
government, two media outlets that have consistently run critical coverage of the government have come under
fire. The president threatened to reject the franchise renewal for television news network ABS-CBN, and the
license to operate of news website Rappler was revoked by the Securities and Exchange Commission in January
2018.
Nonetheless, the president remains the most trusted government official in the country and has an 82-percent
approval rating, according to December survey results from Pulse Asia, which may allow his legislative agenda to
retain Congressional support. This support will only diminish when Duterte’s approval ratings slip, but this is

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The Philippines:
Year in Review and the Year Ahead
January 16, 2018
unlikely to happen in 2018, based on average approval rating trends enjoyed by previous Philippine presidents,
as well as the durability of the president’s popularity in the face of several major incidents in 2017.
Stymied Legislative Agenda
The Duterte administration has been vocal about its policy agenda, but has failed to deliver on most of its
priorities in 2017. Duterte's stated legislative priorities at the beginning of his term included tax reform, ease of
doing business, and emergency transport powers. Among his priority measures, tax reform is arguably the
administration’s only major legislative achievement of 2017, and some major early policy priorities have
seemingly been abandoned, specifically emergency transport powers. In the second half of the 2018—when the
campaign season for the 2019 elections unofficially starts—lawmakers may be deterred from pursuing or
supporting controversial measures to an extent, thus constraining the administration's political space to pursue
other priority items.
Comprehensive Tax Reform
The year ended on a high note for the administration, as the Department of Finance (DOF) shepherded the first
legislative package of Tax Reform for Acceleration and Inclusion (TRAIN) to passage. The changes to the national
tax code will lessen the tax burden on most wage earners while increasing excise taxes on several key sectors—
including the automotive, fuel and coal, and beverage industries—which may have a negative impact on
consumption and produce an inflationary result.
The enactment of TRAIN has been welcomed warmly by market observers. Fitch Ratings, in bumping up the
Philippines’ credit rating in December, cited the tax reform measure as a positive track for continued economic
progress. If the government reaps as much revenue as it expects from TRAIN’s implementation, the market can
anticipate increased fiscal space for the delivery of key government services—especially the administration’s
ambitious “Build, Build, Build” infrastructure program.
TRAIN implementation is still vulnerable to challenge; members of the opposition in the lower house have filed
a petition with the Supreme Court for the nullification of the tax reform package and a temporary restraining
order (TRO) against it. Whatever the merits of the petition, however, the Supreme Court has consistently ruled
in favor of the administration to date and may continue that trend in 2018, with Chief Justice Sereno facing
impeachment hearings in the House. TRAIN is likely to continue unimpeded, paving the way for the succeeding
DOF-designed tax reform packages. A serious legal challenge, though, will threaten DOF’s ability to steer the
second package of the administration's tax reform program through Congress as they did for TRAIN, given
their limited personnel resources.
Ease of Doing Business and Increasing Competition
Measures to create an environment more conducive to business were also labeled as 2017 priorities, but
although some progress had been made in the past year, Congress ultimately failed to pass bills to create a
friendlier investment climate. The Expanded Anti-Red Tape Act is in the advanced stages of legislation but
remains pending in Congress, and the measure has not yet been reconciled in the bicameral conference
committee. The proposed legislation aims to streamline procedures, but does not reduce the actual number of

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The Philippines:
Year in Review and the Year Ahead
January 16, 2018
procedures or agencies that are required to process documentation in its current form.
A bill to liberalize specific sectors by removing limits on foreign ownership of public utilities via amendments to
the Public Service Act is still pending as well. While the House passed a bill reducing the number of identified
public utilities, most notably removing telco services, its counterpart in the Senate did not make significant
headway in 2017.
The PSA amendments would allow improved competition in the telecommunications sector—an agenda that
cleaves closely to Duterte’s goal of introducing a third telco provider within the first quarter of 2018. In
November, the president offered China the opportunity to become the third telecommunications operator in
the Philippines, a move that is expected to bust the longstanding duopoly of telecommunications giants Globe
and Smart.
Federalism
The proposed revision of the government structure to a federal system, requiring a change in the country’s
charter, is a stated public priority for the administration before 2019. Earlier in 2017, the president argued that
federalism was needed to allow local governments to keep more of their own funds, thereby addressing the
underdevelopment in Mindanao and other poor regions that, in turn, fuels extremism. Public opinion has not
coincided with the president’s urgency on the matter, however. In December, Duterte lamented that Filipinos
are “not ready for federalism”, observing the lack of enthusiasm in the Visayas and Mindanao, hypothetically the
areas with the most to gain from the proposed change.
Nonetheless, the ruling party’s think tank, the PDP-Laban Federalism Institute, submitted a draft charter at the
end of September for a proposed form of federalism, including a revised presidential term of five years with
possible reelection. Congressional leadership has said that they will prioritize federalism and charter change in
2018. The composition and implementation of a constituent assembly to pursue charter change, however,
remains a major stumbling block for the two houses of Congress. With no clear constitutional answer to the
question of the houses meeting separately or jointly, the impasse is unlikely to be resolved without Duterte's
intervention, which he has so far declined to provide.
Balancing China and US Relations
In his second State of the Nation Address, the president claimed that foreign relations under his administration
would be based on an independent foreign policy centered on the national interest. Through his cultivation of
relations with China and the United States, it appears that Duterte defines "national interest" in limited terms of
domestic security and financial assistance, and is willing to change his tone if it suits his agenda.
Duterte has so far avoided antagonizing China on territorial disputes, opting instead to forge closer ties with
Beijing. The Philippines chairmanship of the ASEAN Summit in 2017 set a conciliatory tone, paving the way for
negotiations under a pending Chinese-supported South China Sea Code of Conduct. Duterte remained pliable to
Beijing’s territorial claims and gave the greenlight to joint exploration activities in contested areas in Reed Bank,
with the Department of Energy later endorsing Philippine-Chinese activities in Service Contract 57, an island
northwest of Palawan.

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The Philippines:
Year in Review and the Year Ahead
January 16, 2018
But legal barriers loom over prospective joint efforts to natural gas and oil deposits in both islands. The
constitution prescribes 60-percent Philippine ownership of offshore joint explorations, a condition that China is
apt to reject. Yet in the face of these risks, private sector interests have backed the proposal to kick off joint
explorations in Reed Bank. Manny Pangilinan-led PXP Energy, which holds rights to oil- and gas-seeking activities
for the concession block, will be keen on any opportunity to develop its long-delayed commercial agenda in
Reed Bank, even if it means sharing space with China. Critics argue that joint exploration will endanger
Philippine sovereignty and impair future efforts to secure oil and gas reserves.
Arguments have also been made against ODA from China, which has a notorious track record of leaving
recipient countries struggling to repay their debt. Nevertheless, the administration remains receptive to
Chinese aid, and has in some occasions shown clear preference towards it over alternative financing options.
China has also gone so far as to offer to construct two bridge projects in Metro Manila for free, but the
construction of both bridges, originally slated to begin in the fourth quarter of 2017, has now been rescheduled
to 2018. Meanwhile, in September, Beijing said that they intend to increase development assistance, even
though China had already pledged an unprecedented US$24 billion economic package in 2016.
While remaining on good terms with China, Duterte has toned down his anti-US rhetoric. On a personal level,
Duterte has found a sympathetic character in American President Donald Trump, who has praised Duterte’s
drug war, and whom the Philippine president was visibly friendly towards during the November ASEAN
Summit—in stark contrast to Duterte's reception of former US president Barack Obama. On a national level, the
Battle of Marawi in the southern island of Mindanao created an unexpected opportunity for smoother relations
between the United States and the Duterte government. The US channeled billions of pesos worth of military
equipment to the Philippine armed forces; this seems to have softened Duterte's antagonistic stance toward the
US, enough for him to claim in 2017 that the US and the Philippines remain "best friends."
Conclusion: A Failure to Capitalize
The administration’s initial senior leadership picks reflected an uneasy coalition of factions between left-leaning
appointees in social sectors, technocratically focused economic managers, and patronage appointees of close
allies. The volatile mix, in combination with some early missteps in Duterte's appointments, hampered progress
on the administration’s agenda as rifts erupted between executive agencies, such as the DOF-DENR conflict over
the mining ban in early 2017. These conflicts played a factor in the administration's inability to capitalize on the
president’s strong early public support and translate it into legislative or policy victories, with major policy
pushes being reversed, delayed, or seemingly abandoned. The president’s apparent reluctance to intervene in
these early internecine conflicts significantly delayed the formation of a unified administration vision, and
consequently hindered movement on administration priorities.
Rounding into 2018, senior leadership in the executive branch seems to have consolidated into a cohesive core,
which may improve the administration’s ability to pursue a coherent set of policy priorities. The economic
cluster especially looks poised to continue efforts from the past two administrations to improve market
openness, government fiscal space, and macroeconomic fundamentals without a significant counterweight
from the now-removed leftist bloc. Two major threats to these efforts loom on the horizon: the potential for
high levels of bad borrowing from China, and a Supreme Court challenge to TRAIN. Significant levels of Chinese
debt may return the country to the same shaky fiscal ground that had begun to stabilize under the past

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The Philippines:
Year in Review and the Year Ahead
January 16, 2018
administration, while a serious challenge to TRAIN, which appears to have very strong evidentiary basis—
including publicly available video supporting the challengers' claims—may force the DOF onto the defensive to
protect the administration's only major policy reform achievement, and further derail the already-delayed tax
reform legislation timelines.
In the legislature, Duterte continues to show his reluctance to play arbiter between conflicting allies, which
will threaten his legislative agenda and his push for federalism. This reluctance to intervene between his allies
severely weakens his ability to capitalize on the broad support he enjoys both with the public and amongst
legislators, and will be both more difficult and more politically dangerous to address than his executive
appointees. Generally, Philippine presidents’ polling support, legislature backing, and political capital erode over
the course of their administrations, and the window for broad policy changes is usually limited to the first two to
three years as political momentum wanes. The next six to nine months of 2018 will be a crucial period for major
policy items, as election season ramps up in the second half of the year. The administration will have to move
quickly in the first half of 2018 to drive its priorities through to avoid wasting the newfound cohesiveness in
the executive branch from being put to good use, and potentially putting many policy priorities beyond reach.
In foreign affairs, if US-China relations deteriorate this year—a development that is not unthinkable, given the
erratic nature of President's Trumps public pronouncements of foreign policy via Twitter—President Duterte
may be forced to choose a side. In this case, Duterte’s increasingly militarized cabinet may prove to be a critical
factor in his decision as the AFP has historically had strong personal and professional ties with the American
military, and has arguably played a role in softening the president’s stance towards the United States by
cooperating heavily with American forces in Marawi.
Duterte began his presidency with high expectations from the public, based on his reputation as a maverick
willing to forgo formalities in favor of decisiveness. He built a campaign focused on populist concerns, such as
reducing crime, poverty, and corruption, but he likewise appealed to the business community with promises of a
more efficient bureaucracy, significantly less red tape, and increased market competitiveness. However, in
nearly all sectors where lofty promises were made since his inauguration, the Duterte administration has so far
fallen short of its commitments, and 2018 may be his best remaining chance to deliver on many of those
promises. Despite the president's much-trumpeted campaign promise to exercise forceful political will, he has
demonstrated an unwillingness to decide between disagreeing allies, and this decisiveness would have been
critical in driving a cohesive effort. Duterte has shown a readiness to attack enemies but a strong aversion to
choosing between—and potentially losing—friends, even at the cost of administration priorities.
In 2018, the administration will have a narrower window to turn its governance reform agenda into concrete
measures, specifically in the form of congressional talks on federalism, expanded tax reform, and the other
priority agenda items. To reach those goals, however, the president will have to show more resolve in
adjudicating disputes between administration allies than he did in 2017. The lack of both tangible progress
and a proven ability to marshal disparate allies to a common goal contradicts the image Duterte has carefully
cultivated as a decisive leader who can guarantee quick action, and this may be a threat to his popular support
and his administration’s policy priorities moving into 2018.