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Philippine Political Crisis Shakes Economy and Peace Initiatives

The Philippines, a mountainous archipelago of some 7,000 islands and 87 million people off the coast of Southeast Asia, has been racked by months of political turmoil. President Gloria Arroyo is fighting to remain in office as opposition leaders push to impeach her for alleged corruption.

Four years ago, a popular uprising catapulted Gloria Arroyo into power after President Joseph Estrada was forced from office over corruption charges. Now similar allegations are swirling around Mrs. Arroyo and her family. The Philippine Congress is holding impeachment hearings on whether she tried to rig last year's presidential election.

President Caught on Tape

The case against her gained strength after a tape of her conversation with an election official emerged. In the call -- made as ballots were being counted -- President Arroyo talked about how to secure a margin of one million votes. In fact, she won the 2004 race by about a million votes. The president has admitted making the call and has apologized for a 'lapse in judgment,' but she denies any wrongdoing.

Last month, observers say Mrs. Arroyo's presidency nearly collapsed when most of her economic team resigned and called on her to do the same. But she rejected the demand, insisting that the country is on the right track and that she is the only one qualified to lead the Philippines.

Peace Process on Hold

Eugene Martin is Director of the Philippine Facilitation Project at the U.S. Institute of Peace here in Washington, which plays an active role in negotiations between the Philippine government and the Moro Islamic Liberation Front, or MILF, a Muslim insurgency that operates on the mostly poor southern island of Mindanao.

For nearly 30 years, the MILF has fought for a separate Muslim homeland in the mainly Catholic Philippines. Mr. Martin warns that President Arroyo's political woes could hurt the peace process. "The concern is that if there are long delays, some of the more impatient people on the Muslim or government side may feel they need to take action outside of the peace process. I think that is dangerous. I think it is better to have momentum continue."

Both sides declared a breakthrough in April after reaching consensus on critical issues. But the momentum, at least for the near-term, has stalled. Malaysia, the third-party broker of the peace process, has postponed talks indefinitely.

Terror in the Philippines

The predominantly Muslim southern Philippines is home to several terrorist organizations, including the radical Abu Sayyaf movement, which also seeks to establish a separate Muslim homeland in Mindanao. It has links to the al-Qaeda terror network and many experts blame it for some of the Philippines' worst terrorist attacks in recent years.

Some analysts warn that the political crisis in Manila could actually promote terrorism. The Philippine military has been on high alert numerous times in recent months amid fears of a possible coup against President Arroyo. Dana Dillion of The Heritage Foundation here in Washington says this takes the focus away from dealing with armed insurgents. "The impact is that the government of the Philippines, not only the president, but also the Congress and the military are going to have to pay attention to the political crisis in Manila. The military and the police forces might have to manage riot and protest control in Manila instead of being out in the field looking for terrorists. So far, there have not been other terrorist attacks. But it will give an opportunity for groups like Abu Sayyaf, which up until recently has almost been hunted into extinction, to regroup."

To counter a possible upsurge in violence, Gene Martin of the U.S. Institute of Peace says behind-the-scenes efforts continue. For more than two years, his organization has been helping to develop civil society on Mindanao that will foster peace in the long run. "We are working with the media in trying to find other ways to cover conflict rather than only focusing on terrorism and bombings. The press needs to talk about what people are doing on the ground to learn how to live together. There are communities -- Muslim and Christian communities -- that are in fact living together peacefully. Also we are working to develop zones of peace as well as trying to preserve the cease-fire that is ongoing."

Crisis Exacerbates Economic Woes

Many analysts say the political uncertainty in Manila has also contributed to some of the country's economic problems. Although the economy has grown on average 4.5% for the past 6 years, unemployment hovers around 12%. And the country's foreign debt is rising. Its mountain of loans are equivalent to 80% of gross domestic product, giving the Philippines one of the largest debt ratios of any Asian emerging market. Recently, major international credit-rating agencies downgraded the country's credit risk rating, making foreign lenders nervous.

Chris Fettorson, Manager for Philippine Affairs at the U.S. Association of South East Asian Nations Business Council, says the Philippine economy is in dire need of direct foreign investment, not more loans. Many investors are frustrated by strict ownership laws that in some cases keep foreigners out of entire economic sectors. As a result, says Mr. Fettorson, global investors have taken a 'wait and see' attitude toward the Philippines. "Part of this is due to political instability, but much of it is also due to the competitiveness of the countries around the Philippines. For large investment projects that are looking at a 10, 20 or 30-year horizon, the point is the rules change in the Philippines every once in a while, depending on who is in power. If you are building a power plant with a 20-year investment horizon, you need to know that the contract you signed is going to be the same for the next 20 years."

Despite the economic uncertainty and stalled peace talks, most analysts say President Arroyo will likely survive any impeachment effort because the Congress is dominated by her political allies. But whether she remains in office through the end of her term in 2010 may depend more on the Philippine people. Popular uprisings removed Presidents Joseph Estrada in 2001 and Ferdinand Marcos in 1986. Meanwhile, many scholars say forces hostile to the Arroyo government may try to capitalize on the current political uncertainty.

This report was first broadcast on the VOA News Now "Focus" program. For other Focus reports, click here .