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Bigger financial trouble if GMA stays longer in power — Ibon Databank

BAGUIO CITY (July 12) — The independent think-tank group IBON Foundation claims President Arroyo’s defiance to step down may lose her support from the international finance capital and may result in intensified political crisis and financial turmoil.

“Increasing defiance on the part of Mrs. Arroyo will only further polarize the country, intensify political instability and make the stable and improving outlook so favored by financial markets ever more distant,” says IBON senior researcher Sonny Africa.

Africa insists that the country remains critically dependent on portfolio investment inflows or so-called “hot money” and on foreign borrowings. Capital flight may result, says Africa, “if Arroyo refuses to step down despite mounting calls for her to relinquish power.”

The IBON analyst claims that financial markets are starting to realize that the stability on which their profits rely is increasingly unlikely under an Arroyo administration, saying, “This portends a financial storm if President Arroyo does not step down.”

The Bangko Sentral ng Pilipinas (BSP), IBON cited, has reported that net portfolio investment inflows in June hit $31 million, 43% lower than the $54.2 million recorded a year ago. BSP attributes the drop to the uncertain political climate resulting from Arroyo’s alleged involvement in election fraud, Africa said.

Despite government claims, Africa said, debt servicing and budget deficits remain alarmingly high, making the fiscal sector vulnerable to a ratings downgrade. “This could spill over into a more generalized economy-wide financial crisis,” he said.

IBON further cites that the consolidated public sector deficit, which includes the deficits of the national government (NG), local government units, and government-owned and controlled corporations, grew to P56.6 billion in the first quarter of 2005, 10% more than in the same period last year.

Total NG debt payments of P217.4 billion for the first four months of 2005 grew 20% from last year, and debt servicing for the whole of 2005 may consume as much as 94% of total public revenues.

“Although President Arroyo apparently hopes to ride out the storm, it seems more likely that her belligerence will result in a bigger and more severe financial and economic storm of her own making,” concludes Africa. # Artemio A. Dumlao for NORDIS

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