"We advocate federalism as a way to ensure long-lasting peace in Mindanao," President Arroyo told visiting Swiss President Pascal Couchepin.
The statement comes just one week after negotiations stalled with the separatist group, Moro Islamic Liberation Front (MILF).
Arroyo's government had been negotiating a peace agreement with the MILF, which would have expanded the existing six-province Muslim autonomous region to include an additional 712 villages. Although many were hopeful for the success of a long-awaited agreement, on the eve of the deal's signing the Philippine Supreme Court, following a wave of protest throughout the country, issued a temporary restraining order blocking the signing.
Having been thwarted by the Court and public opinion, many believe the president now sees constitutional change as the only way forward. "She is calling for a constitutional amendment ... in order to bring about the Bangsamoro Juridical Entity," Press Secretary Jesus Dureza told the local press, referring to the autonomous region envisioned in a memorandum of agreement (MOA) on ancestral domain.
Many of the negotiated agreement's goals would be accomplished through Senate Resolution No. 10 - by introducing direct representation and increasing the power and autonomy of individual states - which was introduced by senator and minority leader Aquilino Pimentel Jr. and supported by the Senate's most powerful members.
At present the Senate is comprised of 24 members who are elected in nationwide polling. The lack of local representation has given rise to worries of under-representation in some regions of the country, particularly in remote areas such as Mindanao.
The proposed resolution would break the country into 11 federal states called "centres of finance and development." The states' power, while yet undefined, would exceed that of local governments under the current scheme.
The reform would also expand the Senate from 24 to 75 members. Each of the newly created 11 states would elect six senators, with the remaining nine reserved to represent the 10m Filipinos who work and live overseas.
Constitutional experts believe that such changes may ultimately strengthen the power of the president and the legislature by clearly defining each of their roles. This would be a welcome change from the current system that centralises power in the hands of the president and fosters a climate of constant political squabbling.
Experts also believe that opening the constitution up for change could also play in the favour of investors. At present, one of the most controversial aspects of the Philippine Constitution is that it limits foreign ownership of land, public utilities and natural resources.
In the past, the government has managed to circumvent these restrictions with special investment laws approved by the Supreme Court. The Electricity Power Industry Reform Act (EPIRA) and the Philippine Mining Act are prominent examples. This approach is more of a sticking plaster than a long-term solution however. These types of acts are time consuming, difficult to pass, and lack the authority of an enshrined constitutional right to ownership.
For this reason, foreign investors would rather have full economic liberalisation instead of special investment laws. Under the current scheme, such changes would be impossible. According to Gerardo Sicat, economist at the University of the Philippines, economic liberalisation would require fundamental constitutional change in order to give the legislature full authority over economic policy.
Despite support from the business community, economic liberalisation may prove more difficult to push through than political reform. Land remains a sensitive issue in the Philippines, as small-scale farming represents the major source of income for many Filipinos. Privatisation of public utilities may be equally controversial in the face of rising prices.
In fact, constitutional change itself may be tricky. Soon after the president's announcement, members of the Senate, House Representatives, and media denounced the plan, describing the move as a thinly-veiled attempt to extend her presidency.
Among the proposed constitutional changes is an amendment to allow executives to run for a second term in office (currently they are limited to a single six-year term). Detractors of the president, who have consistently accused her of using the peace process as a political tool, believe that opening the door to a second term is Arroyo's hidden agenda.
While the president and her supporters are adamant that she is not interested in a second term, the controversy will inevitably slow the pace of change. Many high-profile senators, who will play a prominent role in setting the timing and agenda of reform, are also presidential candidates and are wary of adding a high-profile incumbent, such as President Arroyo, to the already packed race for the presidency.
This could explain why previously fervent supporters of constitutional change are suddenly sounding cautious. Senate President Manuel B. Villar Jr. announced that, while he supported the idea of constitutional change, economic issues should be country's main priority. He suggested the Senate should revisit the idea in 2010. If others follow, which is very likely, investors, the conflict-areas of Mindanao, and the country as a whole will have to wait at least two more years for changes that nearly everyone agrees are long overdue.