By Melissa Luz T. Lopez,
Senior Reporter

Martial law not seen derailing growth

Posted on June 01, 2017

ECONOMIC GROWTH will remain intact with little disruption expected to result from the imposition of military rule in Mindanao, Moody’s Investors Service said in a report, though it noted that uncertainty surrounding the rule of law could erode investor confidence if left unchecked.

Philippine troops escort rescued civilians at a village on the outskirts of Marawi on the southern island of Mindanao on May 31, 2017. AFP
In a comment issued late Wednesday, the rating agency said the Philippine growth story will proceed uninterrupted despite terror attacks in Marawi City, which prompted President Rodrigo R. Duterte to place the entire Mindanao island under martial law for 60 days starting May 23.

“We expect the impact on economic activity from the crisis in Marawi to be minimal and short-lived,” Moody’s senior credit officer Christian de Guzman said in the commentary, noting that the debt watcher still expects the Philippine economy to grow by 6.5% this year.

“Unless violence escalates markedly and/or martial law is extended and imposes significant constraints to the economy, the contribution of the region to national output will remain positive,” it added, noting that the attacks have been “contained” in one city.

Mindanao contributed barely one percentage point to the country’s 6.9% growth in gross domestic product last year, even if it is home to 24% of the population. Some of the country’s poorest municipalities are in the southern Philippines.

The report comes a day after the Armed Forces of the Philippines said that the military has regained full control of Marawi after a week of fire fights between soldiers and rebels affiliated with the Maute group, which is said to sympathize with the international terrorist group Islamic State.

Moody’s said it is unlikely that a constitutional crisis will arise following the martial law declaration, with Malacañang having clarified that Mr. Duterte will consider the input of the Legislative and Judiciary branches despite earlier threats to bypass them.

However, Moody’s flagged rising political uncertainty which could ultimately dampen investor appetite for the economy.

“[A]ny challenges to the constitutional system of checks and balances could undermine the improvement in institutional strength in the Philippines,” the report said, while noting that recent reforms to curb corruption and strengthen the rule of law have contributed to an improved business climate here.

“However, if recent events lead to prolonged uncertainty around security or governance, such a development would eventually dampen business confidence and, consequently, economic outcomes.”

Congress has not convened a joint session to discuss the merits of the President’s martial law declaration, but instead chose to discuss the matter separately. Fifteen of 23 senators voted in favor of the proclamation on Tuesday, while members of the House of Representatives held an executive session yesterday to tackle the issue.

Moody’s previously noted rising political uncertainty in the Philippines under Mr. Duterte, even saying that the government’s fixation on the war on drugs could draw attention away from much-needed economic policy reforms like the tax reform agenda.

The Philippines currently holds a “Baa2” rating with a “stable” outlook from Moody’s, which is a notch above minimum investment grade.