IN INTERNATIONAL view, the PH corruption crisis requires structural reforms. Otherwise, it will be prolonged by managed damage, or weak governance may spark major civil unrest.
Currently, the behind-the-façade international view is that the Marcos Jr. government is managing the crisis politically, not yet resolving it structurally. Cynics believe that the pattern increasingly resembles selective accountability rather than systemic correction.
The realities are more nuanced, but the likely scenarios vary from highly challenging to detrimental over time and to civil unrest.
Scenario 1: “Credible Cleanup”
Investigations pave the way to actual high-level prosecutions, which move forward. Real procurement reforms are implemented at the Department of Public Works and Highways. Reports by the Commission of Audit show recovery of funds or cancellation of anomalous projects. Executive and Congress align on anti-corruption legislation.
International observers make a note on the progress. Among credit rating agencies, S&P affirms the country’s BBB+ rating and restores momentum toward an A- upgrade, with a positive outlook. Fitch and Moody’s follow in the footprints, highlighting “strengthened governance trajectory” in their reports. Corruption in the Philippines is no longer seen as a structural decline. It is framed as a corrected shock.
In markets, the risk premium demanded by investors to hold Philippine bonds decreases by 0.30% to 0.50%, allowing the country to borrow money at a lower interest rate. As market confidence improves, peso volatility moderates.
Investors favoring Environmental, Social & Governance (ESG) criteria begin to cautiously return. Foreign direct investment (FDI) recovers toward 2% of GDP. It’s still modest, but the trendline is improving. Infrastructure Public-Private Partnerships restart with MDB co-financing. In aid and climate finance, MDBs scale up lending with governance conditionality relaxed over time. Climate funds resume approvals, citing reforms.
Reputational damage begins to reverse. The corruption crisis triggers long-anticipated structural reform, not further decay.
It is a wonderful scenario. Unlike Disneyland, it is possible, but not probable.
Scenario 2: “Managed Damage”
Investigations continue, but with few top-level convictions. Administrative reforms are announced, yet unevenly implemented. Political incentives foster damage control, not full accountability. Flood control spending resumes with rebranding, but without redesign.
Credit agencies’ ratings remain investment-grade but stagnant. S&P opts for BBB+, but the outlook is revised from positive to stable. The ratings of Fitch and Moody’s remain stable, but governance is cited as a binding constraint. Agencies probably lament: “Corruption risks limit upside.”
In markets and credit costs, sovereign spreads remain elevated but stable. 10-year bond yields hover around 5.8%–6.2%. Investors price the Philippines as higher-risk than Indonesia and Vietnam, but not distressed.
With foreign investment and portfolio flows, the FDI stays around 1.3%–1.5% of GDP; that is, below ASEAN peers. Long-term infrastructure investors demand higher risk premiums. ESG funds remain underweight due to the continuing governance risks.
With aid and development finance, MDB funding continues, but with tighter procurement audits, slower disbursement, and ring-fencing of funds. Bilateral donors quietly downgrade the Philippines as a priority in climate finance pipelines. The country’s systemic corruption is acknowledged but is politically contained – for now.
In this scenario, the bottom line is no collapse, but no redemption either. The Philippines remains stuck in the mud. It must absorb persistent reputational drag. Hence, the higher borrowing costs and weaker investment momentum.
It’s not a very inspiring scenario. But it may well be the most likely, for now.
Scenario 3: “Governance Breakdown”
Key figures of the political class evade accountability. Investigations stall or are politicized. New flood disasters expose sustained project failures. New evidence emerges of continued misuse of climate-tagged or official development funds. Civil unrest or elite factional conflict intensifies.
Red lights blink in credit rating agencies, which revise outlooks to negative. Fitch may downgrade the Philippines to BBB- or warn of downgrade risk. Governance failure is explicitly framed as structural, not cyclical.
Markets and credit costs climb. Sovereign spreads widen by 75–150 bps. 10-year yields rise toward 6.8–7.5%. Peso depreciation accelerates. Foreign outflows increase. Corporate borrowing costs spike due to sovereign ceiling effects. Chaos capitalists begin to short the country.
In foreign investment flows, FDI drops below 1% of GDP. Infrastructure investors exit or delay projects. ESG-screened funds formally exclude the Philippines or flag it as “high governance risk.” Vulture funds circle around the country and intensify shorting it.
In aid, climate, and bilateral relations, MDBs pause or restructure major infrastructure lending. Climate finance approvals slow sharply; reputational trust collapses. As the vicious cycle spreads, the Philippines is seen as a climate-vulnerable state that’s unable to govern its own adaptation funds.
The corruption scandal becomes emblematic of state capture, pushing the Philippines into a higher-risk category alongside chronic governance underperformers, with major long-term damage to development financing.
It is a very dire scenario, but no longer just hypothetical. It would make the country most vulnerable to extreme climate at the worst possible time.
The path to future – or nowhere
Currently, international observers believe the Marcos Jr. government is seeking to “manage the damage,” while shunning the required structural reforms. Hence, their cautious engagement, but no forgiveness.
Today, any shift from the “managed damage” to “credible cleanup” requires visible accountability, not just eloquent speeches and empty policy rhetoric.
A slide into the “governance breakdown” scenario could be sparked by new evidence of impunity or repeat scandals, especially involving climate funds, which could amplify peaceful protests to major civil unrest.
Those countries that have escaped the middle-income trap have done one or more of the following: they broke elite control over legislatures. They centralized or professionalized public investment. They made corruption politically costly for ruling coalitions. And they managed to sustain pressure over decades, not just election cycles.
In international view, that’s what the Philippines needs. It is seen as a (very) tall order. But in the long-run, all alternatives are worse.
Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net
