Country Report Philippines Philippines at a glance: 2004-05 OVERVIEW The outlook for the Philippines will remain very uncertain until the result of the May 10th 2004 presidential election is known. The current president, Gloria Macapagal Arroyo, has drawn level in surveys of voting intention with her main challenger, a populist film star, Fernando Poe, but the result of the presidential race remains difficult to predict. Violent crime will be a campaign issue, and an array of insurgencies will continue, especially in the south of the country. Long-delayed peace talks may be held with the Moro Islamic Liberation Front in April. GDP growth will be relatively strong in both 2004 and 2005, and the current account will continue to run a surplus, although this will fall to 1% of GDP in 2005. Key changes from last month Political outlook • The arrest of three military officers in mid-February 2004 on charges of planning political protests in the event of Mr Poe!s disqualification as a candidate in the presidential election confirms the Economist Intelligence Unit!s forecast that political instability will continue throughout the election campaign. Economic policy outlook • The decision of the Bangko Sentral ng Pilipinas (the central bank) to raise banks! liquidity reserve requirements in early February in order to ward off any inflationary impact from the weakness of the peso highlights the impact of political tensions on the economy. The outcome of the election will be the key to restoring international confidence in the Philippines. Economic forecast • Export data for January 2004 showed a year-on-year increase of only 4.1%, a figure dragged down by sluggish electronics exports. The more rapid rate of increase in imports may point to a recovery in exports later in 2004. Private consumption and government consumption growth may be firm in an election year, but sluggish trade data support our view that, given the political risks that weigh on the macroeconomic forecast for the Philippines, it is too early to consider raising the GDP forecast for 2004. March 2004 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. 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London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 15 Regent St The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road SW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7830 1007 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7830 1023 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2004 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 0269-428X Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK. Philippines 1 Outlook for 2004-05 Political outlook Domestic politics The outlook for the Philippines is clouded by the uncertainty surrounding the forthcoming presidential and parliamentary elections, due on May 10th 2004. The presidential election is the more important of these contests, as presidents tend to attract a greater following in Congress (the legislature) than indicated by the party affiliations of members of parliament (MPs), at least in the early years of their terms. The outcome of the presidential race remains open, but the incumbent, Gloria Macapagal Arroyo, will be one of the front-runners, having drawn level with her populist challenger, a movie star, Fernando Poe, according to surveys of voting intention conducted in late February and early March. Political instability may increase in the run-up to the election. If a populist candidate such as Mr Poe is chosen, international confidence in the Philippines will be damaged. The arrest of a small number of junior officers on January 29th on charges of inciting rebellion was followed by the arrest of a further three officers in mid- February on charges of attempting to destabilise the government, in particular by planning anti-government protests over legal moves to disqualify Mr Poe as a presidential candidate on the grounds that he was not a "natural-born" Filipino. The ousted former president, Joseph Estrada, had predicted "civil war" if his associate, Mr Poe, were disqualified. The Supreme Court has now ruled that Mr Poe is Filipino, but the government will continue to be anxious to prevent any repeat of the attempted mutiny in July 2003 by junior officers. Counter-insurgency efforts will continue in the south of the Philippines, where a number of Islamist groups operate, although repeatedly delayed peace talks with the Moro Islamic Liberation Front (MILF) may be held in April 2004 following successful exploratory talks in Malaysia in February. The New People!s Army, the military wing of the Communist Party of the Philippines (CPP), is responsible for a recent series of terrorist attacks, but talks with the National Democratic Front (which represents the CPP) will be held in China at the end of March. Although the Economist Intelligence Unit expects the government to hold together until the May poll, political or military tensions could flare up suddenly. In addition to insurgencies in various parts of the country, violent crime is a major problem, and is likely to figure prominently as an issue in the election campaign. Ms Macapagal Arroyo bowed to pressure from Chinese-Filipino businessmen to reintroduce the death penalty, following the kidnapping and killing of a businesswoman in November in the 156th reported case of kid- napping in 2003. The president seemed to have reintroduced capital punish- ment for political reasons"a rival in the presidential contest, Panfilo Lacson, is running on a tough anti-crime platform with support from Chinese-Filipinos" and has attracted criticism from the Roman Catholic Church as well as the EU. However, no executions have yet been carried out. The government said that election-related violence had led to 20 deaths by mid-February. Further killings are likely: 98 people lost their lives in poll-related violence in 2001. Country Report March 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 2 Philippines In focus The May 2004 presidential election The candidacy in the presidential election of Fernando Poe, who is an associate of the ousted former president and fellow film star, Joseph Estrada, has attracted attention, as he is without experience of political office. Mr Poe will be one of the front-runners in the presidential poll, although in early March there were signs in surveys of voting intention that the incumbent president, Gloria Macapagal Arroyo, had drawn level with him, or even overtaken him by a small margin. The decision of a senator and TV personality, Noli de Castro, to join Ms Macapagal Arroyo!s presidential bid as her running mate has boosted her standing in the opinion polls, although current indications are that the outcome of the presidential race will be close. Mr Poe!s political inexperience and his reluctance to take part in a television debate with Ms Macapagal Arroyo on April 13th may have damaged his standing with some voters. A further factor in the loss of momentum of his campaign has been allegations that he is not a "natural-born Filipino" and is therefore ineligible to stand. The Supreme Court ruled on March 3rd that Mr Poe is Filipino, and his candidacy is therefore back on track, although further appeals over the issue by his detractors are likely. Splitting the opposition vote is the candidacy of Panfilo Lacson, the former police chief during Mr Estrada!s administration. Mr Lacson is currently polling poorly, but his candidacy will serve to highlight the issue of violent crime during the election campaign. Of more concern to Ms Macapagal Arroyo is the former education secretary, Raul Roco, who is standing on an anti-corruption ticket. Mr Roco is thought not to have the same level of financial backing as the president, and has slipped to third place in the opinion polls. Mr Roco and Mr Lacson were given the support of 18% and 11% respectively of those surveyed in a late-February poll. The other two candidates, an evangelical Christian, Eduardo Villanueva, and a businessman, Eddie Gil, make up the numbers.