Philippines Peace Deal Seen to Facilitate Greater Investor Interest

The peace agreement the Philippine government signed on March 27 with the country’s largest Muslim rebel group, is credit positive, according to Moody's Investors Service.

 

Not all Muslim separatist groups are happy with the arrangement, but the greater stability that it will bring will likely encourage investment in the region and provide scope for the development of more profitable industries, such as mining and agribusiness.

 

Marking the end of several decades of armed insurgency, the Comprehensive Agreement on the Bangsamoro will establish a self-governed entity on the southern island of Mindanao that would replace the existing Autonomous Region in Muslim. The pact also promises to boost growth and investment in what is one of the poorest  – although resource-rich – parts of the country.

 

The pact with the Moro Islamic Liberation Front covers security, revenue sharing, implementation of governmental powers and includes a road map for a smooth transition to the new arrangements. It aims to establish the Autonomous Government of Bangsamoro, a new political entity to govern the region, by the next general election in 2016.

 

Although many peace deals with Muslim separatists have fallen through over past decades, the latest agreement has a better chance of success owing to the more favourable terms it affords the Bangsamoro, including greater fiscal autonomy.

 

"The truce should facilitate greater investor interest across the several provinces in the island of Mindanao. Currently, several foreign governments, including Canada, the UK and the US, have outstanding warnings and advisories restricting travel to Mindanao, and especially to the ARMM and surrounding areas, in light of the threat from “terrorist and insurgent activities,” says says Christian de Guzman, VP  - Senior Analyst, Sovereign Risk Group, Moody's Investors Service Singapore Pte. Ltd.

 

The ARMM has fallen behind other regions in terms of human and economic development, and has not benefited from the Philippines’ robust growth of the past few years. In 2012, the latest year for which data are available, the ARMM’s regional GDP grew 1.2% in real terms, versus 8.2% for Mindanao and 6.8% for the country as a whole (see Exhibit 1). GDP per capita in the ARMM totalled only PHP27,800, or roughly $620, a fraction of the PHP68,700, or $1,530, recorded for Mindanao, or the PHP110,300, or $2,460, recorded for the country as a whole. National government spending in the ARMM is disproportionate to its contribution to the economy. A

 

Although the ARMM comprised only 0.9% of the country’s total output in 2012, it accounted for 2.1% of the national government’s budgeted expenses that year.

 

The ARMM, and Mindanao more broadly, are rich in natural resources. Mindanao’s mineral deposits – which include lead, zinc, iron, copper and gold – are valued by the government at $312 billion, providing plenty of scope for a pickup in economic activity. The island already supplies 35% of the country’s food output, but its rich arable lands and fishing grounds mean there’s potential to increase that further. Greater stability would also allow tourism to develop.

 

"The peace deal supports the robust economic outlook for the Philippines, which already has one of the fastest growth rates in the Asia-Pacific region. We expect real GDP to expand 6.5% in 2014," says De Guzman.
 

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