STATE OF THE ECONOMY WILL DETERMINE  ARROYO'S  FUTURE - ANALYSTS

MANILA
, July 15, 2005
(STAR) (AFP) President Gloria Macapagal-Arroyo has survived the first battle to oust her over a political scandal but her ultimate fate hinges on the state of the economy, analysts said Thursday.

Financial and business circles hailed the appointment this week of banker and economist Margarito "Gary" Teves as new financial secretary. But no one underestimates the task ahead of him. One commentator described his job as "the most difficult in Asia."

Unemployment stands at more than 11 percent and over 30 percent of the country's 84 million people live in abject poverty. In April the country's debt reached 3.867 trillion pesos (68.93 billion US dollars) which included 32.14 billion dollars owed to foreign creditors, according to central bank data. This does not include guarantees worth 598 billion pesos on securities issued by state-run firms like National Power Corp.

Central Bank governor Amando Tetangco has warned that inflation for this year would likely rise to 7.9 percent compared to the original target of 5.0 to 6.0 percent. Debt servicing has risen from 46 percent of government spending in 2002 to 81 percent last year. Roberto de Ocampo, president of the Asian Institute of Management and a former finance secretary under President Fidel Ramos, said: "Gary (Teves) is a close friend of mine and I don't envy him."

Teves replaced Cesar Purisima who resigned from the government on July 8 along with seven cabinet secretaries and two senior department officials. The defections represented the core of Arroyo's financial team. Arroyo said Thursday she has appointed Romulo Neri from the National Economic Development Authority as the new budget secretary, replacing Emilia Boncodin. Arroyo has been under attack for weeks over allegations that she cheated in last year's presidential election and that her family was involved in illegal gambling.

Some 30,000-35,000 protesters took to the streets Wednesday to demand her resignation but analysts say she appears to have weathered the storm for now. The Asian Development Bank said Wednesday it may cut off new lending to the Philippines if reforms are not pushed through. International ratings agencies Moody's, Fitch and Standard and Poor's have downgraded their outlooks on sovereign debt ratings for the country.

Arroyo's own economic reform programme is in tatters with the Supreme Court suspending a law to expand value added tax which should have come into effect on July 1. The opposition challenged the bill as unconstitutional.

"It doesn't look good," Ocampo told AFP. "She has very little room to move on the economic front. The problems are still there: widespread poverty, unemployment and lack of investment. "Last year the president unveiled a 10-point agenda for economic reform which has made little headway."

Ocampo said Teves faces an almost impossible task in trying to restore confidence in the economy. "If he can reverse the Supreme Court's restraining order on the VAT he will have made a good start but it is just one part of a very big problem." Street protests would not bring Arroyo down, he said, "it will be the economy."

American investment bank JPMorgan in a note to its clients said the focus is now on the suspended VAT law. "The additional revenue was expected to help bring down this year's deficit to 160 billion pesos from a projected 180 billion pesos," the note said. It added that the VAT suspension "puts this year's deficit ceiling at risk." Bear Stearns analyst John Stuermer is less pessimistic.

In a note to clients he said both the Bureau of Internal Revenue and Bureau of Customs have managed to generate increased revenue this year -- "one thing the Arroyo administration has gotten right this year." He believes the budget deficit for the year could be around 150 billion pesos without the additional VAT.

Amid crisis, Arroyo keeps fit by doing aerobics, aide says 07/14 12:58:49 PM

MANILA, (AP) - For weeks, President Gloria Arroyo has weathered a corruption controversy that has produced ever-louder demands for her resignation, a Cabinet revolt and sent her husband into self-imposed exile. It's a stressful, lonely job. But Arroyo is keeping up her spirits and energy by doing aerobics, Executive Secretary Eduardo Ermita said. "The president's physical condition is very well," Ermita told reporters Wednesday. "As a matter of fact, yesterday and the other day when I talked to her, I was told by her aide she was doing her usual exercise."

Arroyo does aerobics "with select palace officials and friends" every day at 6-7 p.m., he said. The 58-year-old economist hasn't been seen much in public since allegations surfaced six weeks ago that she rigged last year's election, prompting unprecedented calls for her to resign from even some of her closest allies.

She has refused, apologized for a "lapse in judgment" in talking to an election official before she was declared winner, and is standing firm in the face of her most serious crisis. "The president, according to her aides, is following her normal sleeping hours, but I don't know, of course, how the president feels with her husband not around," Ermita said.

Last month, Jose Miguel Arroyo volunteered to go into exile in the United States after he was alleged to have received kickbacks from illegal gambling. He has denied the charges, but Arroyo said she was making a personal sacrifice by sending him abroad. A daily broadsheet noted "the president appeared exhausted" in recent days. She had "lost some weight and the growing rings under her eyes indicated that she needed more rest," it said.


Reported by: Sol Jose Vanzi

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