Carlos Dominguez: a reformer who reassures investors

The Philippine finance minister deserves credit for tax reform and infrastructure spending. The main point against him is the man he works for: firebrand President Rodrigo Duterte.

While many of the ministers discussed so far in our Finance Minister of the Year study owe their ranks to the fact they were not quite as bad as those lower down the list, today's entry can point to tangible achievements. In fact he may rank higher than the bronze medal spot it he kept better company ...


The presence of Carlos Dominguez as finance minister in the Philippine  government of firebrand president Rodrigo Duterte has been of some comfort to investors. Dominguez, a former chief executive of Philippine Airlines, was previously also agriculture secretary and natural resources minister under Corazon Aquino (1986-1992).

Of course, it’s easier to do a good job when the fundamentals are so favourable; Dominguez inherited accelerating real GDP growth – among the fastest in Asia. But Dominguez can take credit for advancing comprehensive tax reforms. These could boost historically low revenue generation and give the country some flexibility for much-needed infrastructure spending, which the government has budgeted to increase to more than 7% of GDP by 2022.

There are five tax reform packages in the offing. One of them, which the Philippine Congress approved in December, is expected to raise P92 billion ($1.8 billion) in revenues in its first year. The state has also been tough on tax dodgers, seizing cars and smashing them up. 

Dominguez has been a rational counterpoint to the populism associated with Duterte. Before taking office in 2016, he outlined an eight-point plan that gave investors and businesses greater clarity about what to expect from the incoming government.

In addition to infrastructure spending and tax reform, Dominguez promised to address bottlenecks in land registration and remove a 40% ownership cap for foreign companies. He also promised to boost state welfare and improve educational standards in the still poverty-stricken country (Only India has a lower-per-capita GDP among countries with a similar credit rating). 

This has resulted in the government’s 3.8 trillion pesos budget this year, the biggest ever.

The state under his watch continues proactively manage its debt, lengthening the average maturity to reduce refinancing risks and retiring higher-rate debt to cut servicing costs. Such sound management has meant the government has not had to squander its foreign exchange reserves, which still exceed external debt, providing a financial buffer against a potential sudden change in external financing conditions.

In recognition, international investors continue to lap up new Philippines debt, snapping up $2 billion-worth of 10-year US dollar bonds in January. New Samurai and Panda bonds look set to follow.

Less appealing is Dominguez’s support for Duterte’s tough line. The finance minister has argued that martial law on the island of Mindanao, for example, does not threaten the wider economy. While that may be so, FinanceAsia does not support the chipping away at the rule of law. Christian de Guzman at Moody’s also warns that a “prolonged focus on political matters could detract the government’s attention away from the reform agenda".

On green matters, Dominguez scores lowly too, having recommended Duterte lift a ban on environmentally destructive open pit mining.

Still, Dominguez’s steady hand and tax reform is partly why Fitch Ratings upgraded the Philippines to BBB from BBB- in December, bringing its rating in line with those of Standard & Poor’s and Moody’s. The task facing Dominguez now is to ensure the country’s strong growth continues. It is too early to tell whether he will live up to the legacy of Cesar Purisima, his predecessor and the award winner in 2016. But broadly Dominguez has made a good start.

Dominguez moves up from fourth place last year to third spot this year.

TOMORROW: The silver medal goes to a minister preparing his small country for a greying future

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