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MANILA/KUALA LUMPUR (Reuters) - The Philippine government and Muslim rebels are closing in on a peace deal after nearly 15 years of violence-interrupted talks, a potential landmark success for President Benigno Aquino that could pave the way for more investment in the country's impoverished but resource-rich south.
Negotiators from both sides told Reuters that the major obstacles to a framework deal being signed this year appear to have been surmounted after a period of intense diplomacy.
The deal would formalise a ceasefire in Muslim-majority areas of Mindanao island and set in train a roadmap to create a new autonomous region in the mainly Catholic country before the end of Aquino's term in 2016.
"What we are saying is that the whole thing will be completed this year," said Marvic Leonen, a law professor who is the government's chief negotiator, describing the deal as the "architecture" for the peace process.
The deal to end the 40-year-old conflict, which has killed more than 120,000 people, could be signed as soon as the next round of talks in Malaysia, expected to take place in early October.
Tough negotiations still lie ahead and, analysts say, other dangers lurk, such as the threat posed by powerful clans who may disrupt a deal, fearing a loss of political influence.
"We are close to it, but there are still big elephants in the room, such as territory, internal security, and wealth-sharing arrangements," the chief negotiator with the Moro Islamic Liberation Front (MILF) rebels, Mohagher Iqbal, told Reuters.
The framework deal would signal a major breakthrough in trust between the government and the MILF separatists, who have long viewed Manila's motives in the talks with suspicion.
It comes as the Philippines defies its reputation as an economic laggard with strong growth and a resurgence in investor interest.
In the latest sign of a policy shift toward Mindanao, the Aquino government has given the impoverished the state the biggest regional share of government infrastructure funds.
For the MILF leadership, a peace deal could simply be a matter of pragmatism.
After four decades of conflict, they are ageing and, analysts say, eager to see some fruit from the grinding years of peace negotiations. An outbreak of violence last month when a small rebel faction opposed to the deal attacked army camps underlined how the MILF is struggling to control a younger, more radical generation.
The leadership may also be motivated by the prospect of royalties from huge untapped deposits of oil, gas and mineral resources in rebel areas, part of an estimated total of $312 billion in mineral wealth in Mindanao. France's Total has partnered with Malaysia's Mitra Energy Ltd. to explore oil and gas fields in the Sulu Sea off Mindanao.
"If the peace agreement will be signed this year, then I think we will see some benefits already trickling down next year. That's how fast it is," said Vicente Lao, president of Mindanao Business Council.
Ishak Mastura, former head of investments for the Autonomous Region in Muslim Mindanao, said a peace agreement would take more time to boost investment and trade in the conflict areas. He said the first phase would likely be an influx of development aid.
"There's a lot of things to be done before we see these big companies coming in, such as legal environment, infrastructure, and security on the ground," Mastura said.
Despite the prospect of a peace deal with the MILF, Mindanao is likely to remain one of the most violent places in Asia, plagued by a long-running communist insurgency, heavily-armed clans, and radical Islamic splinter groups.
The framework agreement will set up a 15-member Transition Commission, which has until 2015 to draft a law creating the new entity to replace the current autonomous region that has been in place since 1989 and which is widely seen as a failure.
"It's not a Panacea," said Bryony Lau of the International Crisis Group in Jakarta. "But it will be really significant because it is the first substantive text since 2008."
Peace talks with the 11,000-strong MILF started in July 1997, but broke down three years later when then president Joseph Estrada ordered troops to seize rebel bases after a rebel attack on a ferry that killed dozens.
His successor Gloria Macapagal Arroyo re-opened talks in 2001, inviting Muslim-majority Malaysia to join. Peace appeared to be within reach in 2008, but the Supreme Court declared the deal unconstitutional in a decision that set off rebel attacks and a fierce military offensive that displaced 750,000 people.
The turning point came in August 2011 when Aquino held secret talks with MILF leaders at a Tokyo hotel, apparently convincing them of his sincerity in reaching a deal to end the conflict.
"The government has been determined all along to reach a deal that it could implement within Aquino's term, and that emphasis appears to have resonated with the MILF," said Lau.
Editing by Jeremy Laurence