Reforms seen as missing link to improve financial markets — economist

Governance reforms aimed at addressing widespread corruption are critical to restoring confidence in financial markets, a chief economist of a banking institution in the country said.

In an email interview with the DAILY TRIBUNE, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said that as the country entered 2026, the recovery of market sentiment would largely depend on the credibility and momentum of investigations and reforms stemming from the now-infamous flood control project scandal.

The bank economist further noted that capital markets could rebound in the new year “if anti-corruption measures, reforms, and policy priorities to further improve governance standards are taken seriously, as these remain the missing link to boost investor confidence in the economy and financial markets.”

On Monday, 29 December 2025, the Philippine Stock Exchange Index (PSEi) closed the year at 6,052.92, its lowest year-end level since 2013, amid eroding investor confidence tied to the ongoing “Floodgate” scandal.

The market ended the second quarter at 6,364.94, buoyed by the Bangko Sentral ng Pilipinas’ first policy rate cut and manageable inflation.

However, sentiment quickly deteriorated in the following quarter after President Marcos Jr. flagged anomalous infrastructure projects during his State of the Nation Address in late July — an event widely viewed as the turning point toward a broader economic slowdown.

Subsequent developments in the flood control saga further battered equities.

Senate Blue Ribbon Committee hearings in late September coincided with a 2.62 percent drop in the PSEi over two trading days following the freezing of bank accounts and assets of Senators Joel Villanueva and Jinggoy Estrada, and then-Ako Bicol Party-list Representative Zaldy Co, by the Anti-Money Laundering Council (AMLC).

The surprise testimony of Orly Guteza, which further implicated Co and Congressman Eric Yap, added to market unease.

The benchmark index repeatedly tested and breached the 6,000 level in the weeks that followed, sliding to three-year lows in early November.

Political risk intensified on 14 November, when renewed attention on the Senate probe coincided with a video exposé by fugitive ex-partylist lawmaker Co, who alleged that the President himself orchestrated some P100 billion worth of budget insertions tied to flood control projects.

The PSEi subsequently plunged to 5,584.35, its lowest level since the Covid-19 pandemic-induced turmoil of 2020.

Ricafort said that recent enforcement actions could help lay the groundwork for recovery.

“Some progress on the judicial process related to the anomalous flood-control infrastructure projects — such as arrests, cases filed, asset freezes and priority legislation to strengthen anti-corruption measures and governance standards — are steps in the right direction and could eventually bear fruit if taken seriously,” he said.

To date, the AMLC and the Court of Appeals have frozen more than 4,700 bank accounts, along with insurance policies, luxury vehicles, aircraft, and properties linked to individuals implicated in the floodgate scandal.

The government also recorded a breakthrough in December with the arrest of Discaya and several DPWH officials over alleged bribery and malversation related to substandard flood control projects in Davao Occidental.