Monday, 6. March 2006, 16:21:35
Stock market analysts and economists worry that Philippine President Gloria Macapagal Arroyo's decision to invoke emergency rule after foiling an apparent coup attempt will undermine the country's recent economic revival.
Ms. Arroyo declared a state of emergency Friday, citing as the reason what she described as continuing attempts by her political opponents to bring down her government. The military earlier said it had cut off an attempt by a group of soldiers to participate in Ms. Arroyo's ouster. The order means, among other things, that the army can assist the police in maintaining law and order across the Philippines while the state of emergency persists.
"There were a few [soldiers] who tried to break from the armed forces chain of command to fight the civilian government and establish a regime outside the constitution," Ms. Arroyo in a taped, nationally televised address. "We crushed this attempt."
Ms. Arroyo's statement came as demonstrators defied a ban on protest marches to commemorate the fall of former dictator Ferdinand Marcos 20 years ago. Police warned protesters they could be arrested if they took to the streets, and the Associated Press reported that police used water cannon to disperse about 5,000 people who rallied around a shrine dedicated to the famous 1986 "People Power" revolt.
Ms. Arroyo, a close ally of President Bush who rose to power after the military turned against her predecessor, Joseph Estrada, in 2001, has survived two previous coup plots. Last year, she defeated an impeachment motion that accused her of cheating her way to victory in 2004's presidential elections.
The political temperature appeared to have cooled since then, however, moderated in part by an increasingly robust economy. The Philippines has also earned the confidence of international markets by introducing new tax measures to stabilize its fiscal position. The most recent step was increasing the rate of its value added tax to 12% from 10%. These measures, combined with the growing amount of money being sent into the country by Filipinos working overseas – a record $10.7 billion last year – have helped fuel a sharp rise in the value of the peso, which has climbed in a matter of months from below 56 pesos to the dollar to around 50 pesos to the dollar in the past few weeks.
Indeed, stock market investors were surprised by the sudden escalation of what had appeared to be relatively subdued demonstrations and antigovernment protests prior to the anniversary of the 1986 revolt against Mr. Marcos. The Philippine Stock Exchange Index was down 2% before recovering slightly to close 21.39 points or 1% lower at 2069.93 Friday.
Jojo Gonzales, managing director of the Philippine's biggest brokerage firm, Philippine Equity Partners Inc., said that fact that Ms. Arroyo actually went as far as declaring a state of emergency caught investors by surprise.
"It's not often used, and it suggests the threat of a coup hasn't been fully subdued," Mr. Gonzales said. Declaring a state of a emergency also "undermines the credibility of the government, especially at a time when it has been making so much progress in turning the Philippines' fortunes around. It's a reminder that we could easily be sent back to the dark ages, or at least lose the benefit of the fiscal reforms."
Ms. Arroyo has tried to seize on the strengthening currency as evidence that her economic policies are working.
But Fitch Ratings told Dow Jones Newswires Friday that continued political discord could undermine the country's creditworthiness. "If interest rates and the exchange rates move the wrong way… it just makes the government tax burden all the heavier," said James McCormack, Fitch's head of Asian Sovereign Ratings.
The Philippines is Asia's second-largest issuer of sovereign debt after Japan, frequently relying on good market sentiment to reduce the cost of borrowing to finance its budget deficit.
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