MANILA,  January 30, 2004 (STAR) By Des Ferriols - Rumors of a new military-led destabilization plot against the Arroyo administration rattled the financial markets yesterday, sending stock prices to their lowest level in two weeks and the peso plunging to yet another record low against the dollar.

With fresh threats of a possible military unrest, the peso-dollar exchange rate breached past the psychological 56:$1 barrier to close at 56.01 to the dollar yesterday, eclipsing Wednesday’s closing rate of 55.90.

The currency market even ignored the positive economic growth figures for 2003 as the peso opened weaker at P55.95, plummeting further to P56.12 during the morning session before touching a historic low of P56.22 in the afternoon.

At the Philippine Stock Exchange, the main index closed down 33.82 points or 2.18 percent to 1,515.15 on volume turnover worth P631.1million.

Losers outpaced gainers 51 to 10, while 33 stocks were unchanged.

As the peso fluctuated wildly, the Bangko Sentral ng Pilipinas (BSP) ordered its supervision department to intensify the monitoring of the foreign exchange transaction of banks to abate excessive speculation.

Traders aid the BSP was in the market, selling and making a tidy profit at P55.95 to the dollar but it still took a few hours for the peso to finally spring back.

According to one trader, there was demand in the market because of the month-end dollar requirements of corporate dollar users, aggravating pressures already weighing down on the peso.

The trader said the news about the so-called Kawal group has been circulating in the market since last week and Wednesday’s press conference only confirmed what has been fueling the rumors long before.

"It demonstrated that despite the official pronouncements by the Arroyo administration, it doesn’t really have a firm grip of the military," said

one source. "It was caught this time, it may not be as easy the next time."

The government announced that six junior military officers have been detained for inciting rebellion against President Arroyo, who last year also quelled a rebellion – dubbed the Oakwood mutiny – aimed at toppling her administration.

The six officers were part of a group within the armed forces who came out on television late Wednesday demanding the resignation of Defense Secretary Eduardo Ermita, whom they accused of spying on Arroyo’s rivals for the presidential election in May.

Ermita denied the accusations and said they could be part of fresh moves to destabilize the government.

According to the BSP, however, there were also other pressures in the market due to weaker regional currencies, the vague position taken by the US Federal Reserve and the strong corporate demand for the dollar at a time when inflows were seasonally weak.

BSP governor Rafael Buenaventura said banks were clearly short-covering in anticipation of increased dollar demand. "But on the other hand, you can also see in the market that whenever the exchange rate reaches a certain level, there are sellers."

Buenaventura expressed confidence that the volatility of the peso was temporary, spawned by knee-jerk reactions to every political disruption that hits the front pages of newspapers.

"We don’t see excess liquidity in the market so there wasn’t even any need to exert moral suasion on banks and we certainly see no need to take any monetary action."

"Concerns over the possibility of another episode of military adventurism agitated both the currency and equities markets, said Astro del Castillo of First Grade Holdings.

"Investors took shelter in the dollar and away from the equities market and the peso," he added.

Lawrence de Leon of Accord Capital Equities added that "the market reacted to the peso’s fall as this may lead to a possible rise in interest rates, making equities less attractive as an investment instrument,

He said losses in regional equities markets amid growing concerns over the outbreak of bird flu and a drop on Wall Street also dampened sentiment, with investors discounting news of a better-than-expected 4.5 percent economic growth for 2003.

Leading the sell-offs were telecommunication giants Philippine Long Distance Co. (PLDT) and Globe Telecom which both shed P25 to end at the same price of P625 per share, despite both companies reporting huge profit figures for 2003.

Ayala Corp. and Ayala Land likewise dived, with the holding company falling 20 centavos to P6.10 and its property unit dropping 30 centavos to also end at P6.10.

San Miguel Corp., Southeast Asia’s largest food and beverage conglomerate, bucked the trend, with the "A" shares adding 50 centavos to P57 while the "B" shares going up P1.50 to P71. SMC reported a seven percent rise in its 2003 net earnings to P7.4 billion, surpassing market expectations.

Reported by: Sol Jose Vanzi

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