RP economy to suffer if crisis drags on

RP economy to suffer if crisis drags on

MANILA (AFP): Economic growth in the Philippines will slump and inflation and interest rates climb the longer the political crisis spawned by bribery allegations against President Joseph Estrada drags on, the country's economic planning secretary said Tuesday.

Felipe Medalla said the government expected the crisis to be resolved "one way or the other" by the end of the year with the expected impeachment and trial of Estrada in the Senate.

"The scenarios that we're looking at is resolution, one way or another," Medalla told reporters, referring to the president's choice of trial or resignation. The Philippine leader has repeatedly refused to step down.

Medalla added he expected a verdict from the Senate "within the end of the year."

However, the economic planning secretary also outlined a more pessimistic scenario in which political uncertainty lasted beyond congressional and local elections in May.

If the political situation normalized by the middle of next year, he predicted gross domestic product (GDP) growth of 2.7 percent, inflation of 7 percent, interest rates at 11.5 percent and the peso at 48 to the dollar.

But if uncertainty continued beyond June 2001, he predicted this could cause GDP growth to fall to 2 percent and inflation rise to as high as 8 percent, with benchmark 91-day Treasury bill interest rates ranging from 16 to 18 percent.

The Philippine peso, which has fallen from around 40 to the dollar at the start of this year to hover around 50, would in turn average about 55 to the dollar for 2001, Medalla said.

"If violence breaks out ... then perhaps we can look at worse numbers than this," he said.

At present the government is targeting GDP growth of 4-4.5 percent for 2001, an inflation rate of 6.0 to 6.5 percent and interest rates of 9-10 percent. Medalla said such figures were attainable with an end to Estrada's troubles by the end of December.

The political crisis broke out in early October after a former friend of Estrada accused him of receiving received US$8 million pay-offs from operators of an illegal numbers game called "jueteng."

Earlier this month central bank governor Rafael Buenaventura warned the Philippine economy could slip into recession next year unless the scandal was quickly brought to conclusion.

Buenaventura said dollar flows have "dried up" because foreign fund managers are worried the country could "become a banana republic."

The peso has slid about 9 percent over the past four weeks and stock prices are at two-year lows.

An impeachment motion against Estrada cleared the justice committee of the House of Representatives after an abbreviated debate on Monday, effectively paving the way for Estrada's trial in Senate which could lead to his forced removal from office.