MANILA, March 8, 2006
 (STAR) Political turmoil threatens economic growth in both the Philippines and Thailand but Indonesia has made progress on its long journey to economic recovery, the international credit ratings agency Fitch said yesterday.

Growth projections for the affected countries may have to be revised if the political situations fail to be resolved, Fitch Ratings said.

"Those sovereigns in the midst of political turmoil also have the weakest growth rates in emerging Asia and further downward revisions to the growth forecast may be necessary," said James McCormack, head of Asia sovereign ratings for Fitch.

For the Philippines, the unstable political situation which saw President Arroyo declare a state of emergency after an alleged coup attempt last month is also a cause of concern given the country’s urgent need to improve its fiscal position, Fitch Ratings said.

"This is one of the countries where politics matters and it is central to our assessment. Politics affects economic policy," said McCormack.

Of particular concern is the country’s fiscal position, with interest debt payments taking up almost 40 percent of state revenues, he said.

"If the effective interest rate on Philippines government debt goes up, it just takes more of their revenues to service their debts, so these are issues that really do need to be addressed," McCormack said.

"There has to be further significant fiscal improvements in the Philippines or we believe the rating in the medium-term will come under renewed pressure."

Next month’s snap election in Thailand, which the opposition vows to boycott, will likely see Prime Minister Thaksin Shinawatra returned to power with a reduced majority which could delay plans to further liberalize the economy, Fitch officials told a one-day conference here.

"After the April 2 elections, we think (Thaksin) will likely be brought back to power with a lesser majority, particularly in the Bangkok region," said Ai Ling Ngiam, Fitch’s associate director for Asia sovereign ratings.

"Key policy initiatives such as privatization, market liberalization and FTAs (free trade agreements) and medium-term development planning will be sidelined for now," she said.

Thailand faces the prospect of slower domestic demand due partly to interest rate hikes engineered by the central bank while the political environment makes it even more difficult for the government to initiate projects to spur economic growth, Ngiam said.

This means Thailand will have to once again look to exports to drive its economy, she said.

"As domestic-oriented firms face weaker business conditions in the near-term due to lower domestic demand, the economy is again increasingly dependent on the export pillar as a source of growth," she said.

In Indonesia, the government has stuck to its task of strengthening the economy with significant efforts to weed out the corruption and red tape that hinders foreign investment, Fitch said.

Still, much work remains to be done in Southeast Asia’s largest country.

"The outlook for sovereign creditworthiness hinges on the authorities’ ability to maintain macro-economic stability and monetary policy credibility while implementing a demonstrated reform agenda aimed at increasing investment demand and external receipts," Fitch said. — AFP

Chief News Editor: Sol Jose Vanzi

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