Economic instability feared

Businessmen warned that the impeachment of Chief Justice Hilario Davide Jr. could result in economic instability and put strong pressure on the peso.

Industrialist Raul Concepcion and Fernando Martinez of Eastern Petroleum Corp. said Davide’s impeachment could shake investor confidence in the Philippines.

Martinez also said the possible candidacy of movie star Fernando Poe Jr., better known by his initials FPJ, in next year’s elections has aggravated perceptions of economic and political instability.

The struggling economy should be rallying following the recent visit of US President George W. Bush instead of reeling from the latest developments, Martinez said.

Concepcion, however, remained confident that the outcome of next year’s elections will determine the economy’s course "at the end of the day."

Yesterday, the possibility of another actor winning the presidency dampened market sentiments that led to another drop in the peso-dollar exchange rates and even weakened the country’s sovereign bonds in the international market.

The peso lost ground in yesterday’s trade and went down to 55.33 to the dollar while RP dollar bonds also weakened to a two-month low as markets grappled with the possibility that Poe would win by a landslide in May.

The decline of the peso, however, was brushed aside by the Bangko Sentral ng Pilipinas (BSP), saying there was a clear surge in corporate demand for dollars after cellular phone firm Globe Telecom bought back the shares of Deutsche Telekoms for $250 million.

BSP Governor Rafael Buenaventura said Globe contributed to the demand for dollars as it started accumulating the amount that it needed to pay for the buy-back.

Aside from Globe, Buenaventura said there was also the usual month-end demand on the side of importers, particularly oil companies that have to shore up their dollar reserves to pay for imports.

"All the other factors — the fear over Jemaah Islamiyah and the news about FPJ — they’re background noise," Buenaventura said. "As the decibel level goes up, the peso reacts and none of it is unexpected or permanent."

The weakening of RP dollar bonds, on the other hand, reportedly stemmed from the pessimism of foreign and domestic investors who are anticipating Poe’s victory.

"Everyone knows that FPJ is the personal pick of former President Joseph Estrada," said one market analyst.

"His links to Estrada (are) causing worry because their combined influence on popular votes could catapult FPJ to power and naturally, the business community is not too keen on that possibility," the analyst added.

National Treasury head Eduardo Sergio Edeza, on the other hand, said such reactions were not new since markets naturally react at least once to various factors before being able to discount them.

Asked to comment about the weakening of the RP bonds, Edeza chalked it up to market sentiments that reflected none of the country’s fundamentals.

"That’s market sentiment and we can’t do anything about it," he said.

Buenaventura said the BSP has already conferred with market players who blamed the weakness of the market on corporate sentiments and corporate demand.

Despite the weakness of the peso, he expressed optimism that the full-year average would still fall within the P54 to P54.50 range. — With PNA report