Things are starting to rumble in Southeast Asia

Political risk could be on the rise in two Southeast Asian countries.

Investors have been a bit nervous over some of the controversial comments made by Philippine President Rodrigo Duterte ever since his election back in May.

And although his more recent comments have generally centered around foreign policy, Krystal Tan and Gareth Leather of Capital Economics noted there could be long-term risks.

“…calling the president of the US ‘the son of a whore’ and abandoning the country’s long-standing security alliance with the US is bound to unnerve investors and make them think twice before committing to long-term investments in the country,” the duo wrote. “A lower investment rate will in turn reduce the productive potential of the country.”

Still, it’s worth noting that in the short-term, at least, the Philippines is in good standing. The country has low debt-levels and a current account surplus, and its finance minister, Carlos Dominguez, is well respected.

As for Thailand, the risk of short-term political volatility following the death of King Bhumibol Adulyadej seems to have diminished. Nevertheless, there remain longer-term economic and political issues in the country.

“Thailand remains bitterly divided between an urban elite centered in Bangkok and a poorer rural population,” wrote Tan and Leather. “The king’s death will make it even harder to bridge the country’s deep political divide. Without a solution, uncertainty seems likely to remain entrenched, with negative repercussions for business and investor confidence.”

Plus, the crown prince is not as popular as his father.

“The upshot is that Thailand’s economic underperformance is likely to continue,” they added.

Ultimately, Tan and Leather don’t anticipate huge changes in economic growth for this year. But they added that “looking into next year, much depends on how the politics plays out.”

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