Political turmoil 'primary risk' to RP

Political turmoil 'primary risk' to RP

Agence France-Presse, Manila

Protracted political uncertainty is the "primary risk" facing
the Philippine economy, the International Monetary Fund (IMF)
warned on Thursday.

The fund also identified "soaring oil prices ... (and) adverse
developments in international capital markets" as other potential
threats to the country's economic growth.

"The primary risk to the near-term outlook for the Philippine
economy is that the prevailing state of uncertainty proves to be
protracted and sidelines economic reforms," the IMF said in a
report.

"If reforms were to stall, investment is likely to remain
subdued and (gross domestic product) growth of 4.75 percent is
projected for 2005 and 2006," the IMF said, referring to the
opposition's five-month campaign to oust President Gloria Arroyo
on charges of cheating to win last year's elections and other
alleged anomalies.

The crisis, which broke out in June after the opposition
released audiotapes on the alleged cheating, has seen Arroyo's
economic cabinet members resign and the president's approval
rating hit record lows.

The IMF also cited the Supreme Court's continued suspension of
a new expanded value-added tax (VAT) that the government says is
crucial to forestall a looming fiscal crisis.

Although Arroyo was credited with spurring economic reforms
after winning the May 2004 elections, the political crisis
interrupted this, the IMF said.

However, the IMF board of directors also remarked that "recent
political uncertainties have receded, paving the way for improved
market stability and resumed reform momentum."

It also praised Manila for its efforts to control its budget
deficit through fiscal reforms and improved collections.

At the same time, it noted that "the country's external debt
and financing requirements are large and, despite its resilience,
the economy remains vulnerable to external shocks, especially
changes in market sentiment and increases in global interest
rates and oil prices."

The IMF called on Manila to press ahead with other radical
reforms in the fiscal, power and banking sectors to reduce the
vulnerabilities of the economy and improve the business climate.

"An accelerated pace of reforms would send a strong signal to
markets and boost investor confidence," it added.