RP among top 10 biz 'hot spots'

POLITICAL INSTABILITY, VIOLENCE, CROSS-BORDER RISKS TRACKED BY WORLDWIDE SURVEY

By Dennis D. Estopace

Reporter

THE Philippines is among the top 10 most dangerous spots for investors in terms of political instability, violence and cross-border risks, according to the Alliant Emerging Markets, the Chicago-based political and credit risk brokerage firm. It said its worldwide survey showed its political risk index rising nearly 5 percent the past 12 months, the largest in five years and driven by rising expropriation risks in Latin America, regulatory uncertainty in Central Asia, and worsening credit conditions in Eastern Europe and Southeast Asia. In its statement, Alliant president John Minor was quoted as saying that one trend is the rising regulatory risks for business, citing a number of examples including price controls in Argentina, increased taxes and royalties in Algeria, Ecuador and the Philippines; new laws restricting foreign investments in Thailand, and new contract uniformity requirements in Bangladesh, India and Kazakhstan. In its Political and Economic Risk Ratings Guide that Alliant sent to journalists, the Philippines in comparison with Thailand scored higher in two of eight indices—in legal and regulatory risks, the Philippines scored medium high while Thailand was still at medium. In terms of strikes, rights and civil commotion, the Philippines outscored Thailand, with Alliant rating as highly possible in the Philippines the occurrence of these disturbances. The Philippines also scored high in terms of cross-border risk (currency inconvertibility and transfer risk and credit risk) as well as in terms of violence risk, terrorism and sabotage. In late February, Research and Markets Inc., an Irish investment research firm, said in a statement that weak governance and increasing political and social instability "will undermine economic stability" in the Philippines. "Deteriorating economic and credit fundamentals are likely to trigger significant capital outflows from the Philippines, led by the country's banking sector, which has turned increasingly toward exchange rate arbitrage for generating profits," said Research and Market. It added that analysts expect the peso "to depreciate sharply in 2007 while the stock market, domestic fixed income market and international bonds all suffer serious corrections. . .Investment risk in the Philippines is high and will remain high through 2007."  UBS Ltd. economist Paul Donovan said last week he expects a "soft economic landing for the Philippines" because of the slowdown in the US economy. "The Philippines has a reasonably healthy current account surplus to support the economy."  Donovan sees "domestic improvements based on credit expansion to compensate for weak exports" resulting from the dip in consumer expenditures in the United States. He doesn't see a repeat of the 1997 financial crisis and the local election bearing down on the economy. Still, Donovan said that because the Philippine market is small, ripples from political and financial "uneasiness" outside and within the country would be felt heavily. However, Alliant's Minor said with Thailand's entry into its radar of political and economic risks, the shadows of the Asian crisis that devastated the region's "tiger economies" looms.  "The lessons from the 1997 Asian Financial Crisis seem entirely forgotten."  Alliant's political risk index tracks monthly changes in the world's levels of political and economic risk on a GDP-weighted basis with a focus on emerging markets. It said it evaluates political and economic risks such as expropriation, credit and terrorism in 190 countries.

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