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.