Philippine stocks and the peso fell yesterday after a rebellion by junior military officers on Sunday revived investor concern about corruption and political instability. Bond yields rose, suggesting the nation may have to pay more to borrow.
The peso fell as much as 1.1 percent to a four-month low of 54.625. The benchmark stock index slid 2.1 percent to 1256.76, its biggest drop in 14 weeks.
PHOTO: AP
President Gloria Arroyo, who announced seven months ago that she's stepping down when her term ends next May, faces a crisis of confidence that could undermine her government's success in narrowing a budget deficit and stimulating the economy.
"There's still much to be desired in the way the government handles things," said Rico Gomez, who helps manage the equivalent of US$736 million at Rizal Commercial Banking Corp.'s trust unit.
"The business side is happy with economic management -- that's on track -- but yesterday showed there are a lot of malcontents and they can do something about it," Gomez said.
About 300 soldiers who seized a Manila hotel and rigged it with explosives negotiated an end to their rebellion Sunday night.
It was the latest in a string of military revolts since a popular revolution ousted dictator Ferdinand Marcos from power in 1986.
"It will take awhile to restore credibility," said Arthur Tan, president of Ayala Corp unit Integrated Microelectronics Inc.
"I thought we were on track, and then this happens. People who were thinking of investing will have to rethink because the returns will be less. If you can't peg the stability of the peso on a three-year basis, why even go in?" he said.
The Philippines, with a record budget deficit last year, is a big borrower. It has about US$54 billion of debt and plans to sell about US$1.4 billion of debt overseas this year.
Philippine bonds are ranked BB, two levels below investment grade, by Standard & Poor's and Fitch Ratings. Fitch last month cut the Philippine credit rating one level, citing the nation's finances.
"Politically it's very big news, but I don't think it substantially affects economic activity," said Takahira Ogawa, director of sovereign ratings at S&P in Singapore.
"If that's the case, there shouldn't be much implication on economy and it won't directly affect sovereign ratings," Ogawa said.
Arroyo, an economist by training, has been accused of indecisiveness in shaping and executing government policy.
Perceptions of weakness may undermine confidence, scare off foreign investors and nip an economic recovery predicted to deliver growth of 4.2 percent this year, analysts said.
That would cap tax collections and widen a budget deficit that narrowed a third in the first six months of the year.
Businessmen urged Arroyo to put her foot down.
"She shouldn't give the mutiny more attention than it deserves," said Joey Bermudez, president of the local unit of Chinatrust Financial Holding Co (
"The business community is looking for very decisive action after this incident. It's important that people don't get the feeling that issue are addressed only if there's a mutiny," Bermudez said.
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