In its client report dated Aug. 22, ING also said the markets are anticipating the Supreme Court’s ruling on the expanded value-added tax (EVAT), which the investment house predicted Mrs. Arroyo would "water down" in order to reduce a possible public backlash that could further unsettle her administration.
"The 60-percent year-on-year rise in oil prices may be a bigger threat to President GMA than the political scandal because of their immediate impact on people’s pocketbooks," the report by ING economist Tim Condon said.
"We expect her response will be to water down the EVAT," he said.
ING is among the world’s top financial institutions in banking, insurance and asset management. Of Dutch origin, ING serves more than 60 million corporate and institutional clients in over 50 countries.
While the report did not mention how the VAT Reform Law would be watered down should the SC uphold its legality, there is a growing clamor for the President to suspend the particular provision imposing a 10-percent VAT on power and oil.
The report also noted the House of Representatives is still in the middle of debates over which impeachment complaint to recognize even as the SC is expected to hand down its decision on the legality of the EVAT anytime soon.
The House resumes today its hearings on the three impeachment complaints filed against Mrs. Arroyo based on allegations of electoral fraud and involvement of her family members in protecting illegal gambling operations.
The SC issued a temporary restraining order on the EVAT — the centerpiece of the Arroyo administration’s fiscal reform program — just hours after it was implemented on July 1 following a petition by some opposition members asking the high tribunal to declare the law unconstitutional.
After prices of crude oil in the world market shot up, Malacañang last week declared the country was facing an oil crisis. The crisis is now considered a threat to national security amid fears that the oil problem and public dissatisfaction might be taken advantage of by enemies of the government.
The Palace also ordered drastic measures to reduce consumption of power by government agencies, including fuel rationing. It, however, ruled out oil subsidies saying it would in effect have the poor paying for the rich, who consume about 80 percent of the country’s total fuel consumption.
Albay Rep. Joey Salceda, one of Mrs. Arroyo’s key economic advisers, earlier warned against immediately imposing a VAT on oil and power, saying it could trigger an economic collapse owing to dampened consumer spending and business slowdown.
He said the oil price crisis is an external shock that affects nearly all sectors of the economy as businesses and households and government are 99-percent dependent on imported fuel.
Salceda proposed that the VAT on power and oil be deferred at least until the end of the year or early next year until the prices of crude oil have stabilized.
He pointed out that the government would lose only P20 billion in foregone revenues from the two sectors if it suspended the VAT’s implementation on them.
P20 billion is small, he said, compared to the P967 billion in expected total revenues for next year.
"We cannot allow P20 billion to jeopardize P967 billion," Salceda said in a telephone interview.
He said the government should not second-guess the financial markets in postponing the VAT implementation on power and oil sectors, saying the oil crisis is very evident to them.
Finance Secretary Margarito Teves said last week that postponing the VAT on power and oil would not be received well by the financial market.
Crude prices have threatened to hit $70 a barrel as Asia’s oil-guzzling economies brace themselves for the worst.
Oil prices surged to an all-time high of $67.10 a barrel on Aug. 12, and while they have since pulled back to around $64, analysts said prices remain volatile due to strong demand and tight supplies.
The impact of rising prices varies across the region, with stronger economies like Japan, South Korea and Singapore expected to cope better than the poorer countries of Southeast and South Asia.
Mrs. Arroyo has ordered drastic steps to conserve energy, including reducing the number of vehicles in her own official motorcade. Manila last year paid $4.57 billion for its oil imports.
"If we do not conserve, we will reach a point where the oil bill of the country is going to threaten the foreign exchange reserves," Energy Secretary Raphael Lotilla warned earlier.
Economic Planning Secretary Augusto Santos has said the gross domestic product this year would grow by 5.1 percent instead of 5.3 percent if oil remained between $60 and $70, while inflation would range from 5.7 to 8.1 percent.