Governance
Empty Cabinet

Finance Secretary Cesar Purisima read the prepared statement of the "Hyatt 10"

The Arroyo administration took a major hit when 10 Cabinet secretaries and heads of key agencies resigned on 8 July over fundamental differences on the issue of governance. Adding to President Gloria Macapagal-Arroyo’s problems, the 10 also suggested she should resign as well. “The president can be part of the solution to this crisis by making the supreme sacrifice for God and country to voluntarily relinquish her office and allow her constitutional successor, the vice president, to assume the presidency,” the resigned officials said.

Members of the group that resigned included Finance Secretary Cesar Purisima, Trade and Industry Secretary Juan Santos, Budget Secretary Emilia Boncodin, Education Secretary Florencio Abad, Social Welfare and Development Secretary Corazon Soliman, Agrarian Reform Secretary Rene Villa, Peace Adviser Teresita Deles, National Anti-Poverty Commission Secretary-General Imelda Nicolas, Bureau of Customs Commissioner Alberto Lina, and Bureau of Internal Revenue Commissioner Guillermo Parayno. Presidential consultants Victoria Garchitorena and Corazon Guidote also resigned.

The group, now known as the “Hyatt 10” (referring to the hotel from which they announced their resignations), publicly declared that President Arroyo’s recent decisions were guided mainly by her determination to survive as president. The officials were convinced that the longer she stayed in office under a cloud of doubt and mistrust, the greater damage it would bring to the economy.

PHISIX and Forex Rate
Shaken, Not Stirred

The country’s stock and currency markets have been somewhat shaken by a combination of the current political crisis and outlook downgrades by three international credit rating agencies.

The Philippine Stock Exchange’s composite index has shed 2.5% from the time the wiretapped phone conversations of President Gloria Macapagal-Arroyo were released on 6 June until end-July. The biggest single-day loss for the period happened after the Supreme Court issued a temporary restraining order on the amended expanded value-added tax law on 1 July. By 6 July, the Phisix had lost 11.6%. The equities market was unnerved by the resignation of key members of President Arroyo’s economic team on 8 July, which was followed by the outlook downgrades on 11 and 13 July. However, the main index managed to recover after second-quarter corporate earnings reports were released.

The market bounced back following the State of the Nation Address of President Arroyo on 25 July and the filing of an amended impeachment complaint against her in Congress.

Meanwhile, the peso depreciated 2.8% against the U.S. dollar at the Philippine Dealing System from 6 June to 29 July. The peso closed at a high of P54.51/US$ on 6 June and reached a low of P56.28/US$ on 7 July. The average peso-dollar reference rate depreciated month-on-month to P55.179/US$ in June and continued to weaken to P56.006/US$ in July. Near the end of July, the peso seemed to have remained stable from its year-opening level, while other currencies in the region appreciated.

Agriculture
Slowly but Surely

The first quarter of 2005 may have been disastrous for the agricultural sector, but Center for Food and Agribusiness executive director Rolando Dy says it will not cripple the sector’s performance for the whole year. In a June 2005 conference, Dy reported that the sector may close with a modest 2%–2.5% growth in 2005, increasing to 3%–3.5% in 2006. Agricultural expansion will come mostly from the government’s rice program, which is expected to increase palay production by 3.4% in 2005 and 3%–4.0% in 2006.

The corn industry, however, may not be able to turn around its first-quarter negative performance by the end of the year due to reduced hectarage and weakened demand. But 2006, Dy asserts, will be a good year for corn production due to the private sector’s increasing involvement in hybrid-corn seed development and distribution.

The livestock sector’s performance will also be hobbled by increasing prices, slack demand, and expected declines in feeds imports. The poultry sector, on the other hand, is seen to rise in the second half of the year due to expectations of increased demand during the holiday season. If weather conditions continue to improve, total fishery production will also finish 2005 with positive gains. Aquaculture was the main driver for fisheries growth in the first quarter of the year. This is expected to buoy up commercial and municipal catch and increase sector growth by an estimated 5%–6% by yearend and 4%–5% in 2006. Lastly, authorities expect a possible turnaround in the forestry sector next year from negative 40% in the first quarter 2005 to about 5%–10% growth next year. In all, the Center for Food and Agribusiness forecasts a dramatic slowdown in farm output in 2005, which will improve as the economy enters 2006.

The scenario for food products in 2006 is also not very optimistic. The sugar industry, for instance, anticipates lower productivity next year due to reduced hectarage, high cost of production, and cutbacks in inputs.

Meanwhile, the poultry industry expects an improved outlook toward the end of 2005. Favorable prices, stable feed supply, production shifts, and a growing commercial sector will fuel moderate expansion in production starting next year. The processed food sector, which accounts for 40%–45% of total manufacturing output, will continue to be a minor player in the global market. The country’s food export performance is lower than Thailand, Indonesia, Malaysia, Vietnam, and Singapore, and unless improvements are made, processed-food production will remain low.