Country Report Philippines

Summary

The authority of the president, Gloria Macapagal Arroyo, is fragile, owing to allegations of government corruption. However, she retains the support of top army officers, and should manage to complete her term, which ends in 2010.
Despite her weak position, the president will continue to push ahead with plans to reform the constitution. She is keen to see a switch from the current presidential, bicameral system to a parliamentary, unicameral arrangement.
Balancing the budget will remain the president's main policy priority. The budget will stay close to balance in 2008-09.
The pace of economic growth is expected to average 5.7% a year in 2008-09, representing a slowdown from the rate of 7.3% achieved in 2007.
In view of the latest consumer price inflation data, the Economist Intelligence Unit has revised up its inflation forecast for 2008 to 6.8%, from 5.8% previously.
The peso was the strongest-performing Asian currency in 2007. This strength will be maintained over the forecast period, when the currency will average P42.4:US$1.
Buoyant remittances from Filipinos working overseas, together with a healthy balance on the services account, will ensure that the current account remains in surplus in both years of the forecast period.

The Mindanao peace negotiations between the government and the Moro Islamic Liberation Front (MILF, the leading Muslim separatist movement) are close to breaking down. This follow's the MILF's decision to pull out of talks amid worries that the peace deal would not comply with the constitution.
The government is considering the introduction of a number of measures aimed at lessening the impact of the recent surge in food and fuel prices, amid worries that the living standards of the poorest households will suffer.
In the first four months of 2008 the fiscal deficit was just P25.8bn (US$603m), compared with P40bn during the same period of 2007. The main reason for the fall was the lower than expected level of government spending.
At its April 24th review the Bangko Sentral ng Pilipinas (the central bank) left its key interest rates unchanged. It did so despite the recent rapid increase in inflation, which reached 8.3% year on year in April, driven mostly by higher food prices.
The peso has weakened slightly over the past two months, amid worries over the outlook for economic growth and rising inflationary pressures.