October 2, 2009 / 8:08 AM / 10 years ago

FACTBOX-Five political risks to watch in the Philippines

Oct 2 (Reuters) - The Philippines is gearing up for presidential elections next year, with investors still wary of the country due to concerns over policy effectiveness, corruption and internal security.

Following is a summary of risks to watch in the Philippines:

* SUCCESSOR TO PRESIDENT GLORIA MACAPAGAL ARROYO

The Philippines elects a new president next year, and many of the candidates are already making populist policy promises. There also remains the risk that Arroyo’s supporters try to amend the constitution to allow her to stay in power — possibly causing unrest — but the likelihood of this scenario is waning.

Key issues to watch:

— The candidates and their platforms. Markets will be watching to see who emerges as the front runner, what kind of pledges they make, and what the implications would be for economic policy, governance and security if they are elected.

* INTERNAL SECURITY

Security in the southern Philippines remains poor. Peace talks with the Moro Islamic Liberation Front, the largest Muslim rebel group, collapsed in 2008, and the Abu Sayyaf militant group presents an ongoing problem. Attempts to revive talks with the Communists have also foundered. Investors and businesses have long become used to instability in the southern region of Mindanao and elsewhere, and developments are unlikely to have an impact on markets unless they herald a significant change.

Key issues to watch:

— Evidence that progress is being made towards resolving one or more armed conflicts, ending extortion from businesses, reducing the kidnapping threat to businesspeople and opening up resource-rich Mindanao to investment would be broadly positive.

— Worsening conflict would be particularly damaging for markets if it resulted in deteriorating security in Manila.

* GOVERNMENT EFFECTIVENESS

Legislative deadlock, and the risk of uprisings and coups, continue to hamper government effectiveness and policymaking.

Key issues to watch:

— This is a long-term issue that has largely been discounted by markets and investors, so it would take sustained positive or negative change for markets to show much reaction.

* CORRUPTION

The Philippines has a reputation for endemic corruption and persistent instability that undermines many of its comparative advantages. Corruption extends through all levels of government and is a serious barrier to attracting more investment. Business had expected a better environment under Arroyo compared to the excesses of the Estrada regime, but the current administration appears to be no better, or indeed worse.

Key issues to watch:

— Corruption is likely to come back under the spotlight as the elections approach — candidates have to spend large sums to try to secure seats in elections, and usually seek to recoup these outlays once in office. Any sustained positive or negative trend would have a longer-term impact on markets and investment.

* THE ENVIRONMENT

The Philippines is highly vulnerable to the impact of climate change, given its high dependence on agriculture and its vast coastline. The country also needs to see if it can balance economic growth with the need to protect the environment.

Key issues to watch:

— Any evidence that extreme weather events hitting the Philippines are becoming more frequent due to climate change would be a serious long-term concern for investors.

(Reporting by Andrew Marshall and Manila bureau; Editing by Sanjeev Miglani))



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