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.