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Update No: 021 - (03/10/05)

If you believe all the hype coming from government, the crisis of recent months is now past and we have a strong leadership determined to move the country forward to the Promised Land. Economic growth is robust; the economic reform measures are starting to bite, the "debt for equity" proposal floated in New York and Washington has been well-received internationally and constitutional change is now on the fast-track. Why on earth would anyone in their right minds take to the streets in protest?
Why indeed? 

A dangerous game of brinkmanship
It is true that ongoing protests are not without risk to business and to economic health. They do have a cost and so far, the political opposition has not found its much-needed "tipping point" to force a showdown. So the prospect is that low-level protest will continue for quite some time. The government, naturally, wants all of this to end and has vowed to crack down hard on those who oppose the administration and want to "sabotage" the country.
The facts of the matter though are somewhat different. Increasingly many people believe that the president and those who surround her are equating the survival of the Arroyo presidency and the national interest as one and the same. Whichever way you look at it, whether or not President Arroyo cheated in the 2004 election and won the presidency by manipulating the results, there is certainly a case that needs to be answered but which, as events have shown, the president will not answer. The truth cannot yet be said to be out in the open. Not only will the president not answer the charges (as she had earlier committed to do) she is using every means in the book to ensure that her actions are beyond question. This is starting to look like the theory of the "divine right to rule." 
The fact too is that the president has called up a rather large number of favours and has become beholden to vested interests - as we noted in an earlier piece, the mother of all horse trades is taking place. Meritocracy in the civil service has been shunted aside in favour of political patronage to those who supported her and killed the impeachment bid. Presidential wrath awaits those who oppose or who stand in the way. Due process and playing by the rules appears to being given short shrift in many cases. Some of the decisions are making some people think that the whole notion of "due process" is being held in contempt.

Let us just look at a few of the most recent events:
In Subic Bay, a facility of enormous potential but which is under-performing because of the widespread corruption and internecine fighting that takes place within the SBMA, President Arroyo has appointed a new Chairman and new Administrator from rival political factions who, if recent events are any means to judge (already their goons almost came to a gunfight over a turf war between the two), are incapable of working together. Subic worked best (according to locators) when these two positions were held by the same individual. Forget all the talk you hear about Subic forging ahead, and becoming the new "Hong Kong", the reality is that new investors are staying away, some are leaving and those who remain there are up in arms over the re-emergence of corruption and the under-the-table dealings necessary to get the most basic permits. Investors are seen as a "milch-küh" and nothing more. 
On September 23, Malacañang Palace announced that a career civil servant had been "terminated as undersecretary of education" and would be reassigned. This followed receipt by the person concerned of a letter thanking her for her services and which carried the implication that she had already resigned. Instead of taking the hint, the official took the Palace head on. As of writing Malacañang had backed down on this one -but the cause for the removal? Simply that the official concerned had questioned a series of payments (each being of PhP5 million) ordered by Malacañang to be made to public high school students in Zambales Province (the home of the Magsaysay family which is also seeking to control Subic Freeport and which is one of the "rival political factions"). The official had also declined to accept post-dated cheques from the Palace. Post-dated cheques are not uncommon in the Philippines but the practice is actually illegal.
Next came a revelation that a number of ballot boxes from the 2004 elections crucial to the case of former Senator (and vice-presidential candidate), Loren Legarda in her claim against the declaration of vice-president Noli de Castro appeared to have been tampered with. Curiously, it was also revealed that the surveillance tapes that could have proved or disproved the tampering had been erased.
On Monday of this past week (September 26), the Department of Justice announced it was studying the legal liability of the "Hyatt 10" and those other people who had access to confidential information and were now revealing it to the public. This even includes revealing when public officials have committed criminal acts themselves since such criminal acts are supposedly "confidential."
But perhaps most worrisome of all is the appearance of Brigadier General Francisco Gudani before the Senate to testify against massive election cheating in Mindanao during the presidential election. He confirmed that some election officials in Mindanao had been paid to rig the election and that one "uncooperative" general had been relieved of his command. General Gudani's testimony came in defiance of a new Palace order (EO 464) that bars members of the executive branch (i.e. government officials) from testifying at any congressional enquiry without permission. That is a strange order in itself for a government that claims to be supporting fairness and transparency.
This latter event is worrisome on two levels, firstly Gudani's testimony - not based on hearsay but an eyewitness account - is damaging in its own right. Secondly it shows that there is a breaking in the military ranks. General Gudani is a much decorated marine general who is known for his integrity and who enjoys wide support within the upper echelons of the military. If the military command does start to crack, it is a whole new ball game.
"It is not the politicians who are to be blamed for all the horse-trading, rather it is the system we work under, that is why we need charter change." That at least is the view of Speaker Joey de Venecia speaking before the Manila Overseas Press Club recently. It is also the view of the president, as stated in her recent State of the Nation address. It is an interesting line of reasoning and is deserving of comment in its own right. 
In the meantime, the cavalier approach to government and decision-making is taking the country into new uncharted territory. Many within the business community - and a fair section of the public it seems - appear to be in a state of denial. We wonder how long this situation can continue.

Economy performs in spite of the government
Although many feared that the recent political turmoil could lead the Philippines towards another people power uprising, the worst it seems to have done is divert the attention of politicians from the task of serving their constituents. 
What baffles analysts is the lack of impact the political crisis has had on the economy, which managed to grow by 4.7 per cent in the first half of 2005. While the Asian Development Bank (ADB) recently lowered its growth forecast for the Philippines from 5.0 per cent to 4.7 per cent this year, this lower expected outcome had nothing to do with politics, it said.
ADB chief economist Ifzal Ali admitted that politics was not factored into the computation of the bank's growth forecast for the Philippines in either 2005 or 2006. He actually appeared peeved when journalists questioned his reason for not measuring the impact of politics, which, he said was nearly impossible.
If there is anything hurting the Philippine economy right now, he said, it is high oil prices, the downturn in global demand for electronics (of which the Philippines is a major exporter), and the ill effects of the El Nino dry spell on agriculture, which accounts for a fifth of economic production.
It is also hard to determine the extent to which the extensive media coverage of the political turbulence in the country has upset foreign investors. Data from the Department of Tourism show that the total number of visitor arrivals to the Philippines surged by 13.5 percent to 1.522 million in the first seven months of 2005 from 1.341 million arrivals a year earlier. It will be interesting to note the figures in the months ahead to see whether this trend continues.
Investors are also sending their money to the country. Records from the Bangko Sentral ng Pilipinas (Central Bank) show that net inflows of foreign portfolio investment hit US$2 billion in the first eight months of the year, representing an increase of more than 10 times the year-ago figure. And in July, the month when the political tension escalated into a crisis, exports posted a double-digit growth. While the investment inflow is an encouraging sign, it should be remembered that fixed investment continues to underperform.
Nevertheless, new Trade and Industry Secretary Peter Favila commented that despite the Filipinos' worries about the possible ill effects of the country's political crisis, foreign investors themselves are surprisingly the least worried. "You know, they are not at all bothered by it," Secretary Favila said, referring to foreign investors he has reportedly talked with. "I think you know these people have witnessed what this country has gone through in the past. It's nothing to them." 
Of course, that is hardly a ringing endorsement - and we still have to wait on the post-July numbers to determine the extent of any fallout from recent events.

Economy seen growing 5.9 per cent in second half
The Philippine economy will grow by around 5.9 per cent in the second half of 2005, according to the National Economic and Development Authority (NEDA). Mr. Dennis Arroyo, the planning director of NEDA, said the end of the El Niño dry spell and the recovery of the agriculture sector would be the main growth drivers in the July-to-December period. This would then enable the gross domestic product (GDP), or the total value of production and services, to post a 5.3 per cent growth for the whole year. In 2006, the GDP is seen expanding by a range of 5.4 to 6.3 per cent, depending on the movement of the Dubai crude oil prices .
"The growth in 2006 will be driven by record-high inflows of dollar remittances from overseas Filipino workers (OFWs) coupled by increased investment in mining and the continuous growth in telecommunication, business process outsourcing, construction and infrastructure, tourism and transportation," Mr. Arroyo said.
He said year-on-year headline inflation, or the movement of consumer prices over a 12-month period, would most likely average 7.9 per cent in 2005 and 8 to 8.5 per cent in 2006 as the average Dubai crude oil price is seen climbing further from US$50.77 per barrel in 2005 to US$56.34 per barrel in 2006.
In the second half of 2005, the Development Budget Coordinating Committee (DBCC), of which NEDA is a member, sees the agriculture sector growing by 5.1 per cent; industry, 4.8 per cent; and services, 6.5 per cent.
"The impact of the oil crunch on growth is less severe than expected, because of the huge inflows of dollar remittances from OFWs which continue to drive household spending," Mr. Arroyo said. The Bangko Sentral ng Pilipinas (Central Bank) sees dollar remittances actually reaching US$12 billion this year, of which US$9.4 billion will be coursed through the banking system and the rest through informal channels.
Mr. Arroyo noted that foreign direct investments (FDIs) tripled to US$495 million while the net portfolio investments surged by 14.4 times to US$2.007 billion in the first six months, enabling the country to post a record-high balance of payments surplus this year. 
However, Mr. Arroyo admitted that growth may be lower at 5.7 per cent if the average price of Dubai crude oil increases to US$60 per barrel and 5.4 per cent if the oil price climbs to US$70 per barrel. He said the oil price will be the most volatile factor in the computation of GDP growth and inflation forecasts for 2006. The good news, he said, is that the immediate forecast for inflation rate is lower at 6.8 to 7 per cent in September this year, compared with the actual 7.2 per cent in August.

Charter change now the buzz
With the economy now in good shape - or so the government would have us believe - attention is now returning to the political agenda and especially the issue of constitutional reform. President Gloria Macapagal Arroyo has so far appointed 42 individuals to the 50-seat Consultative Commission tasked to prepare a draft of amendments to the 1987 Constitution "in consultation with various sectors of society". 
Under Executive Order No. 453, the Commission will recommend appropriate solutions to the country's "chronic political, economic and cultural problems". In particular, it is tasked to submit a text containing proposals to change the form of government from the presidential-unitary system to a parliamentary-federal system, refocus economic policies in the Constitution to match the country's vision for global competitiveness, and review economic policies which tend to hinder the country's global competitiveness and adversely affect the people's welfare. 
The trouble is that many people believe that the outcome has been pre-determined and that there is a danger that this committee will become nothing more than a rubber-stamp body. For that reason, a number of those invited to serve have declined to do so.
The Commission formally began work on September 28. President Arroyo has appointed five resource persons or consultants to the body, namely: former President Fidel Ramos, former Prime Minister Cesar Virata, former Senate President Jovito Salonga, former Bangko Sentral ng Pilipinas Governor Gabriel Singson and Fr. Joaquin Bernas, a constitutional expert.
Section 2 of EO 453 provides that the Commission shall be composed of "not more than 50 members" representing the national, regional and sectoral constituencies. The members of the Commission, it says, shall be men or women of national standing, experienced in government or with recognized competence in their respective fields.
The members who have been named thus far include academicians, economists, journalists, businessmen, labour leaders, lawyers, military officials, and of course politicians. Presidential Management Staff Rigoberto Tiglao said the members of the Commission were selected for "their integrity, patriotism, experience, and sectoral representation."
The Commission has until December 31 this year or just about three months from now to complete its work, which involves conducting dialogue and studies on Constitutional change, proposing amendments, and presenting a report to the president, who will then transmit it to Congress for consideration. 
It will receive a PhP10-million funding and administrative support from the Presidential Management Office (PMO). Once the chair of the Commission is elected on September 28, it will begin its very important work of analysing the political and economic ills in the country and hopefully providing the right prescriptions.

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