Philippines: Fair Economic Weather Forecast But Political Stormclouds Gathering In The South


Professor Mark Turner

The Philippine economy continues to weather the regional economic crisis better than its ASEAN neighbours. Typhoons and drought dragged down agricultural production and GDP in 1998 giving the country a negative growth rate for the year (-0.5 percent). However, in 1999 the government is looking forward to growth of 2.6-3.1 percent. Even the cautious IMF anticipates 2.5 percent growth. Inflation is down, export earnings are up, the December balance of payments was in surplus, and the currency has strengthened to 39 pesos to the US dollar after dipping to 44 pesos in mid-1998.

But there are problems. There is still great reliance on remittances from overseas workers. These reached an estimated US$6.5 billion in 1998. Manufacturing and construction industries shrank during 1998. A number of multinational subsidiaries have been closing their domestic manufacturing plants to focus exclusively on marketing of their products imported from abroad. Official unemployment figures continue to rise and reached 9.6% by October 1998. There has been a surge of 'hot' foreign portfolio investment in early 1999 but it is doubtful whether this will have a significant positive impact on declining investment in new businesses and factory expansion.

But President Estrada's major headache may be a political one. There has been a resurgence of armed clashes between Muslim guerillas and government forces on the island of Mindanao, home to almost one third of the country's population. The recent events are the latest episode in a struggle which goes back 300 years to the arrival of the Spanish colonisers. In the early 1970s the conflict erupted into full-scale civil war resulting in the loss of thousands of lives and the displacement of many more. Since then there have been peace agreements, ceasefires and sporadic violence. A peace treaty signed in September 1996 between President Ramos and Nur Misuari, rebel leader of the Moro National Liberation Front (MNLF), brought an official end to the 25 years war. In retrospect this event might be best viewed as an intermission in hostilities. Another guerilla organisation, the Moro Islamic Liberation Front (MILF), was not a signatory to the agreement, and it rejects the current arrangements for autonomy. Secession is still among its demands. 'Over my dead body' is the response of President Estrada. The Christian majority on Mindanao also utterly reject secession. The President regards the situation as serious as demonstrated in his assignment of Roberto Aventajado, Presidential Adviser on Economic Affairs, to the job of finding a 'lasting solution' to the 'Mindanao problem'. After brokering the release of an Italian priest kidnapped by 'Muslim groups' Aventajado has managed to talk to the reclusive MILF leader, Hashim Salamat and has paved the way for President Estrada to sit down and negotiate with the guerilla leader. If this takes place it will be in a context of increasing armed clashes between a well-armed MILF and government forces. Perhaps emboldened by MILF actions, the communist New People's Army has also hit the headlines in Mindanao by capturing an army general and his aide. The President hopes that negotiation will be the appropriate medicine to assuage his political headaches in Mindanao.

These renewed armed threats to the state have a negative effect on economic development in Mindanao. an island with enormous 'unfulfilled potential'. There have been impressive economic gains in some places during the past few years and incorporation, in 1994, into the East ASEAN Growth Area (EAGA) had promised sustained growth and development. But investment could e scared away and development could once more bypass the majority of Mindanao's population who continue to get by in conditions of poverty, deprivation and vulnerability.

WATCHPOINT: How President Estrada deals with Mindanao will be a test of his capacity to lead the Philippines away from the patterns of the past.


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