Business confidence, economic outlook may take a hit amid corruption probe

The Philippine government must deliver swift and credible results in its investigation into allegations of corruption in flood control projects, to avoid hurting growth prospects and losing the confidence of investors and the business community, experts said.

Department of Economy, Planning, and Development  Undersecretary Rosemarie G. Edillon said investor confidence can be restored if the probe into alleged irregularities in some projects is conducted swiftly and impartially.

“We have to show results. We have to demonstrate credibility. Maybe, that’s what (investors) need to see,” she told BusinessWorld on the sidelines of an event on Wednesday, noting that the capital market tends to be “flighty.”

Financial markets have been rattled by the widening probe into corruption in flood control projects. Separate investigations by Congress, the Ombudsman, and the Independent Commission for Infrastructure are looking into alleged collusion among Department of Public Works and Highways officials, contractors, and even lawmakers to divert billions in funds meant for flood control projects.

Ms. Edillon also said waning investor confidence should be viewed in the context of broader global market, including US tariff policies that continue to weigh on sentiment.

However, she noted that ensuring political issues do not seep into the economy is a “big challenge.”

Economists and business groups also warned that the Marcos administration’s graft probe is now becoming politicized and lacks substance, stoking unease among the private sector.

Foreign Buyers Association of the Philippines President Robert M. Young said the government-wide probe has devolved into a “circus” and became politicized, citing abrupt leadership changes in both the House and Senate, as well as the creation of a new infrastructure oversight body.

“This is lacking a clear roadmap or a plan,” Mr. Young told BusinessWorld over the phone on Wednesday. “All these are making the businessmen jittery and nervous. They have a feeling of pessimism and withdrawal to conduct business, which explains why the stock market has this week-long slump.”

He also noted the peso weakness is also dampening business sentiment.

“As the Senate hearing progresses, revealing the extent of corruption done by key legislators’ reckless impunity, the government has lost the trust of the private sectors. This negative sentiment has weakened business confidence and will take time to regain,” Philippine Chamber of Commerce and Industry Chairman George T. Barcelon said in a Viber message.

Ateneo Center for Economic Research and Development Director Ser Percival K. Peña-Reyes warned that unless key figures are prosecuted, investor sentiment will continue to deteriorate.

“The big fish, as it were, should be held accountable,” he said in a Viber message.

Mr. Peña-Reyes also said capital flight is possible similar to the debt crisis in the early 1980s during the time of the late President Ferdinand E. Marcos, Sr.

Meanwhile, Foundation for Economic Freedom President Calixto V. Chikiamco said the flood control mess only adds to the bearish investor sentiment in the capital market.

“However, a disruptive political event, such as a military takeover, will fuel economic chaos and massive capital flight,” Mr. Chikiamco said.

Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said the Philippine economy is in a “holding pattern.”

“Growth is slowing, confidence is shaky, and corruption is clouding the outlook. The fundamentals are there — but we’re not firing on all cylinders. The steep discount to our peers reflects doubt,” he said.

GlobalSource Partners Country Analyst Diwa C. Guinigundo said political uncertainty linked to corruption in some infrastructure projects “could undermine investor confidence and sustain depreciation pressures on the peso.”

Meanwhile, Ms. Edillon warned that the country’s growth outlook faces downside risks as concerns over corruption are weakening investor sentiment.

Asked if this would have an impact on the economy, she said: “We don’t know yet. We have to wait for the results of the investigation.”

The government is targeting 5.5% to 6.5% growth for 2025.

Investment inquiries

Meanwhile, Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) President Danilo C. Lachica said investments are still coming in the country.

“Well, even if (investors) don’t verbalize it, I’m sure there will be concern. But then again, let’s be realistic, there is some level of corruption in whatever country you’re in, right? It’s just how much is exposed,” he said at a conference on Thursday.

“But in terms of investments, there are still some that come in. In fact, Murata is expanding, and I’m going to Cebu to (see) another company for their expansion. So, there are some that are still happening. It’s not that the faucet has been shut off, but we could do better,” he added.

Mr. Lachica said corruption is a concern for the industry, noting its direct effect on investments due to ghost projects that could have addressed flooding issues and eased the flow of goods.

Office of the Special Assistant to the President for Investment and Economic Affairs Undersecretary Ma. Angela E. Ignacio said they continue to receive inquiries from investors.

“We’re really just focusing on promoting our investments. We continue to get very promising inquiries from a lot of the countries still very interested in investing in the Philippines, because, as we’ve said, there are a lot of reforms that have been put in place over the past three years,” she said.

“So, I think they’re only finding it very attractive now to go into the Philippines, even our tariff situation. We’re still in a good place, as we’re actually in the low regime for the tariff, so many are still looking at us. We haven’t had any concerns,” she added.

First Philippine Industrial Park Head of External Affairs Ricky A. Carandang said issues on corruption may not immediately result in loss of investor confidence in the Philippines.

“The decisions made by the locators tend to be long term, so an event like this will make them concerned, but it is not going to immediately lead to a change of plan,” he said. “For example, if they have plans to expand, that is not going to stop just because of this.”

Mr. Carandang also said investors are giving President Ferdinand R. Marcos, Jr. the benefit of the doubt.

“He has done a lot for investors. And I think they are watching to see how this is resolved, and if the Marcos administration is perceived to be doing the right things in light of the crisis, I think it can be something that will benefit the country,” he added. — Aubrey Rose A. Inosante and Justine Irish D. Tabile, Reporters