MANILA, 18 June — Gloom and uncertainty shroud the Philippine economy as the Abu Sayyaf bandits continue to hold foreign and local hostages in southern Mindanao. If they failed to carry out their threat to behead one of their three American hostages after the government announced it would not negotiate with them, the bandits unwittingly decapitated the country’s economy. The hostage crisis in Mindanao is driving away tourists and investors in droves.
As government troops continue their rescue operations in southern Philippines, the Abu Sayyaf threat is driving the local currency down to uncharted levels. At the Philippine Dealing System, the country’s foreign currencies electronic exchange market, the peso-dollar rate hit 51.59 pesos to the dollar on June 15. Traders said the kidnapping incident is not the only reason for the peso’s weak performance. They said commercial banks are beefing up their dollar positions in preparation for the expected surge in demand in the third quarter when the import season starts.
Still, the possible adverse effect that the feared hostage killing might do to investor confidence was felt at the debt market. After an initial objection, the Bureau of Treasury accepted a higher average yield of 12.50 percent for the re-issuance of two-year Treasury bonds. Treasury officials attributed the slight rate increase to the jittery investment climate caused by the hostage crisis in Mindanao.
At the equities market, players are doing some selective buying, concentrating on blue chips and some second liner stocks. The prices of most stocks, however, are still very low, which should make it attractive for bargain hunters. The enactment into law of the power reform bill has been grossly discounted by the market, which was pushing hard earlier for the bill’s approval. The new law, however, would still provide opportunities for market players, according to analysts.
Poor investor confidence as a result of the hostage incident also pulled down the construction sector, the only sector with great multiplier effects to the economy. A National Statistical Coordination Board report showed the gross value added in this sector went down 10 percent in the first quarter, to 10.8 billion pesos from 12.1 billion pesos in the same period last year.
An encouraging note that surfaced amid the gloom last week came from Japanese embassy Commercial Attache Yoshimasa Sakai, who announced that Japanese companies operating in the Philippines have no plans of pulling out despite security problems in the country. Japan is the country’s second biggest trading partner, next to the United States.
Apparently, there’s no good news forthcoming in the investment front. A study recently released by US-based investment house Salomon Smith Barney said the inflow of foreign direct investments to the country would remain low this year. The agency said investors would remain cautious because of the Abu Sayyaf kidnappings.
The agency said that government should not rely on expected investments in the power sector following the signing into law of the power reform bill because most investors are still awaiting the privatization of the National Power Corporation. (Napocor).
“The signing into law of the power reform bill sends a powerful signal to investors and the markets. But officials of the Department of Energy said there will be a gap between the bill’s passage and actual privatization of Napocor. So rule out foreign direct investments in the power sector this year,” the agency said.
This bleak prediction notwithstanding, local investments are keeping the wheels of the economy grinding. The Board of Investments (BoI) announced that investments registered with the agency from January to May jumped 218 percent to 33.31 billion pesos from 10.46 billion pesos during the same period last year. The BoI said 80 percent of this amount came from local investors. Most of these investments are in the area of information and communications technology.
Given the prospects of slow economic growth this year, President Gloria Macapagal-Arroyo approved a revised economic growth target for 2001. Growth target for the gross domestic product has been scaled down to a new range of 3.3 percent to 3.8 percent, from the previous target of 3.8 percent to 4.3 percent. Target growth for the gross national product, on the other hand, was revised to a range of 3.8 percent to 4.3 percent, from the previous range of 4 percent to 4.5 percent.