MANILA, 14 May — Big investors are closely watching the political developments in the Philippines these days. They want to see the outcome of the May 14 national elections, where the country will elect 13 senators, some 120 members of the House of Representatives, 78 provincial governors, and thousands of city and municipal mayors, including members of city and municipal councils throughout the country.
Investors and other observers believe that this election is a “referendum” on the leadership of President Gloria Macapagal-Arroyo, who was installed as the country’s 14th president by a military-backed popular uprising early this year. They say that a convincing victory by the Arroyo-backed senatorial bets running under the so-called People Power Coalition would be a vote of confidence in her administration.
On the other hand, if majority of the opposition senatorial bets would win, business leaders foresee a volatile situation as this could derail the government’s economic reform agenda. More opposition senators connote more headaches for President Arroyo, as they could delay approval of urgent Malacanang-sponsored bills in Congress.
“Although the Supreme Court has upheld the legality of the Arroyo presidency and the present administration has restored political stability in the country, the results of the (May 14) elections will be very important, along with other economic reforms, for foreign investors,” an analyst said.
US-based investment house Salomon Smith Barney, in its recently-released “Asian Economic Outlook and Strategy” report said that the administration candidates’ performance in the senatorial race will have a pivotal role in the government’s success in winning over the confidence of foreign investors.
If the Arroyo-backed senatorial candidates win a majority vote, this will avert a further downgrade in the country’s credit rating, Salomon said. It added that a victory by the administration senatorial candidates would strengthen the exchange rate and gain stronger investors’ confidence.
The major foreign investors’ groups in the Philippines earlier expressed their full support and confidence on the Arroyo administration. They even commended the president’s firm decision in going after the leaders of a failed attempt to drive her out of Malacanang Palace, the country’s seat of power.
Still, observers believe that the strong political polarization between the opposition and the administration may ultimately hamper government’s efforts to implement the needed economic reforms, especially government’s efforts to legislate these major reforms.
Business leaders have also expressed concern that some opposition leaders may again attempt to destabilize the government after President Arroyo showed leniency by ordering the release from detention of more than a hundred supporters of President Joseph Estrada. Police authorities apprehended these people while doing violent and unlawful acts, such as destroying private properties and burning private vehicles, at the height of the attempted power grab last May 1.
Seeing beyond the May elections, the investment house said other issues the government needs to immediately address include the legislation of Power Reform Bill, further liberalization of the financial sector, and concerted efforts to keep fiscal balances contained.
At the end of the day, investors want the Arroyo administration to put its house in proper order. This boils down to fiscal discipline. However, given the economic slowdown in the US and Japan, the country’s top trading partners, the Arroyo administration has very limited options left. Last week the Bureau of Treasury rejected all bids in its weekly Treasury bill auction, mainly because banks tried to push T-bill rates up.
This is significant because it’s the first time this year that the Bureau of Treasury’s auction committee rejected all bids across the board. The last time this happened was on Oct. 24, 2000 when bids for 91-day T-bills at that time went up as high as 19.92 percent. Rates for 91-day T-bills at present stand at 10.10 percent.
National Treasurer Sergio Edeza described last week’s attempt by commercial banks to push up T-bill rates as “unwarranted,” given that the credit market outlook is for continued drop in interest rates in the near term.
Observers, however, are wondering how long it takes for government to “blink.” They cited reports of falling international reserves and collection shortfalls as two important aggravating factors.
The Bureau of Internal Revenue (BIR) reported a collection shortfall of 9 billion pesos from January to April 2001. Although the BIR’s collection of 136 billion pesos in the first four months is higher than comparable figures of 129 billion pesos during the same period last year, this is no cause for jubilation. A bigger than expected budget deficit, coupled with disruptive political noise, would put great pressure on the country’s economic recovery efforts.
