Vote of Confidence

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After allegations of fraud dominated the 2004 elections, all eyes were on the elections this May 14 to see how they would play out. Voting to decide local and provincial seats, house of representative positions and half of the 24 senate seats passed with less bloodshed than anticipated. Although watchdogs had placed the figure of election-related deaths at around 150, police said there were a total of 41 confirmed deaths, compared to 189 recorded in 2004.

Despite the government view, the elections were marred by controversy in some areas. The 27-member People's International Observer Mission, representing 12 countries from throughout the world, challenged government claims of fair elections by issuing a statement that noted significant voting irregularities including vote-buying or coercion, killings and "suspicious" absence of election officials in some locations.

One area of particular concern is the province of Maguindanao where data from the election watchdog NAMFREL shows that some 336,000 votes could be at stake - enough to affect at least two positions in the senatorial race. NAMFREL said its volunteers in the province were barred from polling precincts and were not allowed to witness canvassing.

The chairman of the independent Commission on Elections (Comelec), Benjamin Abalos, told media that unsubstantiated reports of fraud would be punished saying they "should not be tolerated."

The Makati Business Club and Management Association of the Philippines issued a joint statement to air the concerns of the business community saying, "If the elections are not credible, there will be political instability, which will affect overall confidence and our economic momentum."

The government viewed the initial results that showed an overwhelming majority of pro-administration congressmen and local government officials as a "vote for political stability and economic reform." President Gloria Macapagal-Arroyo told media she was very happy to have gained an even bigger majority in the House and almost a complete sweep of the local (government officials).

"I think the message we can give to the investor community is that the elections were good, peaceful, free and fair, and there is going to be political stability," she said.

Describing the elections as a non-event in which there was no threat of a change of government administration, Kelly Lim-Bate, head of economic research at JP Morgan Chase, told OBG that the only outcome that could affect the investor climate would be if the opposition was able to gain significant representation in the lower house.

"[The opposition] gaining one third could hinder the current administration's ability to continue to implement their plans for economic reform, but in reality, the elections show that it will only strengthen the current administration. Thus, allowing the president to continue to focus her reform agenda, specifically boosting infrastructure spending. Therefore, we are optimistic on the growth outlook," said Lim-Bate.

The lead-up to the elections took place amid an improving economic climate. The balance of payments registered a surplus of $1.7bn in the January-April period, receiving a huge boost from remittances from overseas Filipino workers, exports that rose sharply and sustained foreign investment flows.

In the post-election climate, the peso, which had also been robust in the pre-election period, hit a six-year high. The Philippine Stock Exchange (PSE) has also been enjoying a bullish period. Visiting the bourse to ring the bell at the start of the day's trading a week after the election, Arroyo said she was there to congratulate it for its all-time high index. PSE chairman, retired Justice Jose Vitug, credited the government's programs to narrow the budget deficit and lower interest rates as having helped fuel the surge in the stock exchange.

The Philippines received a vote of global investor confidence in recent months with the return of JP Morgan Chase and the decision by US-based Texas Instruments to choose the Philippines over China to invest $1bn in an electronics plant.

This month, JP Morgan reactivated its Philippine Corporate Access Days. The program, previously shelved in 2000, is designed to encourage overseas investment in the country by providing access to potential investors to more than 30 Philippine corporations.

Speaking at the re-launch, Arroyo said, "New revenues, better collection of revenues and a crackdown on tax cheats, along with fiscal discipline, have put the Philippines on a path to permanent economic growth and stability." She pointed to the passing of the expanded VAT law as the biggest single act that led to the surge in the economy.

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