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MANILA - Fitch Ratings on Tuesday said clinching peace in Mindanao may boost investments in the area, but warned that any lasting contribution to the Philippine economy would depend on addressing the "weak overall investment climate and low fiscal revenue base."
"A lasting peace deal in the Philippine island group of Mindanao would be supportive of both public and private sector investment in the area, and may boost the investment rate for the economy as a whole, supporting economic growth," the international credit rating firm said in a statement.
Having said the above, Fitch said "a permanent deal" remains uncertain, citing the experience of the 2008 settlement forged by the previous administration that the Supreme Court junked because of the shallow consultation done on the terms of the accord.
Fitch issued the statement days after the Aquino administration announced a breakthrough in peace talks with the Moro Islamic Liberation Front through the signing of a framework agreement aimed at resolving the four-decade old conflict.
"The latest framework agreement between the government and the Moro Islamic Liberation Front to create a new self-governing entity for Muslim majority areas, announced by President Aquino on 7 October, appears to contain more detail than the 2008 deal, but many of the finer points are still to be fleshed out. These include the key question of exactly how resource revenues will be shared. Reaching a final settlement will take time," Fitch said.
Still, the rating firm acknowledged that attaining peace in Mindanao "would help ease foreign investor concerns regarding political risk, and may bolster domestic confidence." Peace likewise would cut down spending on the military, providing an "opportunity for further government investment in infrastructure."
"The increase in arable land resources would also improve food security, with potential benefits to inflation management over the longer term. Such factors are supportive of a sustained rise in the investment rate," Fitch said, noting the 22 percent rise in the investment-to-GDP ratio last year. This is above the 21 percent median for countries with a credit rating similar to the Philippines, and higher than the 16.6 percent record low in 2009.
"We expect accelerating investment in 2012 to help push full-year GDP growth up to 5.5 percent, from 3.9 percent last year," the rating firm said, adding that gross domestic product per capita in the Autonomous Region of Muslim Mindanao comprises a quarter of the Philippine total.
Fitch however cautioned against anchoring overall investment growth on addressing the armed conflict in Mindanao alone.
A "sustained increase in the investment rate may require improvements in the business environment beyond those already achieved by the Aquino administration, as well as a greater focus on more substantial economic and fiscal reform," the debt watcher said.
It noted that the Philippines' debt-to-revenue ratio of 300 percent "is nearly double the 'BB' range median, and the growth in the fiscal revenue base following administrative improvements in 2011 needs to be sustained to create fiscal space for greater public investment."
"An end to violence in Mindanao would reduce the costs for resource companies of seeking to do business there, but does not eliminate other problems encountered - such as bureaucratic inefficiency and corruption," Fitch said, adding that these remain constraints to attracting more foreign direct investments.
Last June, Fitch affirmed its 'BB+' rating on the Philippines as well as a "stable" outlook, which means the credit score is unlikely to change in the succeeding six months to a year.
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