Arroyo pledges to tackle Philippines slump

By staff and wire reports

MANILA, Philippines -- President Gloria Macapagal Arroyo on Monday promised to tackle the slumping Philippines economy, as she gave her first state-of-the-nation address.

Arroyo pledged relief for the country's poor and measures to boost growth in her 70-minute speech.

But analysts said the response was likely to be disappointing to her vision for curing the nation's ills.

As on July 13, when Arroyo promised "bold plans" to revive the economy, investors were disappointed not to get more specifics on issues like tax reform.

Call for a one-year truce

More than 8,000 anti-poverty demonstrators protested outside the House of Representatives, as Arroyo addressed legislators to open the new congress.

The Philippine National Police deployed around 3,500 police outside the congress building.

In a bid to ease any unrest Arroyo instructed six Cabinet members to meet and consult with protesters as she gave her speech.

She called for a one-year truce with her political opponents. Over the weekend, the man she replaced as president, Joseph Estrada, described the Philippines as a "nation in distress" under Arroyo.

"Let us set aside political bickering and politicking for at least one year," Arroyo said. A year's truce would set the stage for such difficult tasks as helping the economy recover, she said.

Arroyo has had a rocky time since taking over from Estrada, who is facing graft charges, six months ago. Without referring to Estrada, she said citizens should set aside their differences for the good of the country.

The Philippines is burdened with an expanding budget deficit, the peso's devaluation, an unresolved hostage crisis by Muslim rebels, a resurgence of urban kidnappings, and fractious politics hindering proposed reforms.

On top of that, unemployment in the country stands at 4 million, up from 2.5 million four years ago.

Spending on technology

Arroyo promised to continue to fight corruption, as well as a spate of lawlessness and kidnapping in the Philippines.

On the business front, the president pledged an economic philosophy "appropriate to the 21st century," with a philosophy of "free enterprise with a social conscience."

Her administration will focus spending on improving agriculture, fisheries, telecommunications infrastructure and transportation.

The government has allocated some 20 billion pesos ($377.3 million) to agriculture and fisheries modernization.

Mindanao, where most of the country's poorest provinces are found, will get a big chunk of the fund.

Arroyo also promised to trim education expenses and to set up a secondary housing mortgage market by the end of 2002. The president also pledged to trim the Philippines' ballooning budget deficit.

When the Asian financial crisis struck in 1997, the country had a budget surplus of $18.8 million.

Arroyo assured that her administration remains committed to a budget deficit target of $2.7 billion in 2001 "until we balance our books by 2006".

This would be achieved by expanding the country's tax base and improving collections.

According to the World Bank, the Philippine government has failed to collect $7.5 billion in taxes.

Thin on details

She said the government would tap the private sector to help with technology infrastructure and to improve routes around Manila and to tourist destinations.

But her speech was thin on details of how the government plans to push ahead with its ambitious social and economic programs. It held few surprises.

"The financial community would have been looking for some concrete action plan," Andrew Long, head of research at Vickers Ballas Securities Philippines, told Reuters. "In that sense, I think they will be somewhat disappointed."

The Philippine stock market drifted lower Monday. The Philippines composite index closed 0.1 percent lower at 1,374, ahead of Arroyo's speech at 4 p.m. local time.

That was a slim decline on a bad day for Asian stocks. But Long did not expect a dramatic reaction when they reopen.

Peso to trade freely

Arroyo promised that the Philippines currency, the peso, would keep trading freely. It has lost a lot of ground against the U.S. dollar, which has led the president to say it is undervalued.

The peso on Wednesday hit its lowest point since Arroyo took office. It closed at 53.40 to the U.S. dollar on Monday, near its six-month low of 54.35.

Arroyo did not announce plans to resuscitate the peso, as expected. But she voiced support for the central bank's efforts to curb speculation.

The Philippines central bank on Monday outlined stiffer penalties for illegal speculation. The central Bangko Sentral will charge a fine of $562 (30,000 pesos) for "serious infractions" of the rules.

The bank has noticed a rise in aggressive peso speculation. It said traders have been breaching trading rules, not always getting necessary approvals or submitting the right documents.

Reuters contributed to this report.