Philippines: Investor Confidence And Terrorism


Filomeno Aguilar

Domestic confidence in late April suffered a sharp decline. The current administration’s susceptibility to rightist plots affected business perceptions, while dim job prospects eroded consumer outlook. The street demonstrations on Labour Day staged by left-leaning groups and by rightist forces allied with deposed president Estrada were united in calling for President Gloria Macapagal-Arroyo to step down from office.

Mid-May, however, brought positive economic news. CalPERS, the biggest pension fund in the United States, responded to a visit by the Philippine finance secretary by reversing a February decision to leave the Philippines. Although involving a relatively small sum of US$15.7 million, the decision to keep its investments in the Philippine stock market (with no decision made on Malaysia, Thailand and Indonesia) signalled a level of confidence. JP Morgan, despite its forecast of a 3.6 per cent rise in GDP in 2002, which falls short of the government’s 4 per cent 4.5 per cent growth target, confirmed that global investment shifts favour the Philippines. The Nomura Research Institute similarly gave the country a positive forecast for GDP growth of 4 per cent. These assessments reinforced the upgrade in the Philippines’ global credit risk rating by Standard and Poor’s and Moody’s Investors Service from ‘negative’ to ‘stable’.

Despite structural and fiscal issues, foreign investor confidence has rebounded because the administration’s economic goals are seen as achievable in a ‘stable’ political setting. Macapagal-Arroyo’s all-out support for the US campaign against global terrorism, and the very presence of US soldiers in joint military exercises with local troops, have sent positive signals to external observers. Although an American missionary couple in Abu Sayyaf captivity has not been freed, and therefore no clear victory on local ‘terrorists’ has been won, the country’s perceived stability owes much to its open alliance with the US. Bush’s war on terror is providing the context to solidify US-Philippine relations, strained since the closure of US military bases in 1990.

The contrast between external and internal business confidence is patent. External observers subscribe to a tacit formula that an administration enjoying full US government support will be protected from internal challenges. This outlook is a variant of US interventionist attitudes during the Cold War. And, as in that era, the current US campaign on terror, with its complex demands on allies, frames the debate occurring in the Philippines on nationalism and sovereignty.

Although critics come largely from the left, the Macapagal-Arroyo administration itself must contend with heterogeneous US aims. Support in the US Congress has been growing for a bill to eliminate steep import taxes on canned tuna from Andean countries to bolster the US war on drugs by providing locals with alternative employment. This is prejudicial to southern Mindanao, where Muslim fishing communities rely on the tuna export industry for their livelihood. This bill comes at a time of mounting worldwide criticism of US protectionism. The American ambassador in Manila stressed that US$745 million worth of Philippine exports have entered the US market at preferential tariffs, ensuring 400,000 jobs as a result. This response drowns out the specific problems of Mindanao.

WATCHPOINT: Passage of protectionist legislation on tuna by the US Senate would put America’s two wars on a collision course. How much leverage does the Philippines have on this issue?


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AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.

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