Bloomberg News

Philippine Deal May End Violence, Lure Investors: Southeast Asia

October 08, 2012

Philippine President Benigno Aquino

“This framework agreement paves the way for a final, enduring peace in Mindanao,” Philippine President Benigno Aquino said. “This means that hands that once held rifles will be put to use tilling land, selling produce, manning work stations, and opening doorways of opportunity for other citizens.” Photographer: Jay Directo/AFP/Getty Images

Philippine President Benigno Aquino’s deal with Muslim rebels provides the best chance since 2008 to extinguish a four-decade insurgency that has killed as many as 200,000 people and attract investors deterred by violence to the mineral-rich south.

“It adds to the positive momentum in the Philippines,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “The economy is doing very well, and a peace deal is going to help sentiment. There have been false starts in past years in terms of the peace process, so there is also likely to be some wait-and-see attitude to see if this one sticks.”

Aquino announced an agreement in Manila yesterday to create a “political entity” called Bangsamoro to replace a failed autonomous region in Mindanao set up in 1989. The talks with the Moro Islamic Liberation Front, which took place in Malaysia, call for a 15-member committee to draft a new law that will need to be passed in Congress and approved by a local referendum.

“This framework agreement paves the way for a final, enduring peace in Mindanao,” Aquino said, flanked by his cabinet. “This means that hands that once held rifles will be put to use tilling land, selling produce, manning work stations, and opening doorways of opportunity for other citizens.”

While economic growth in the Philippines is accelerating, the rebellion has hurt Aquino’s efforts to attract investment as companies such as Xstrata Plc (XTA) and Sumitomo Metal Mining Co. struggle to access an estimated $312 billion in mineral deposits. Death squads, contract killings, al-Qaeda-affiliated militants and local power brokers remain obstacles to a lasting peace in Mindanao as the nation pursues an investment-grade credit rating.

‘Really Underdeveloped’

Standard & Poor’s in July raised the country’s debt rating to BB+, one level below investment grade, citing improved prospects for economic growth. The $225 billion economy expanded 5.9 percent last quarter from a year earlier, and 6.1 percent in the first half of the year, according to government data.

The Philippine Stock Exchange Index, which has gained about 24 percent this year, was almost unchanged at the close. The peso fell 0.2 percent to 41.507 per dollar, snapping a four-day advance, according to Tullett Prebon Plc. The currency climbed 0.7 percent last week to complete its biggest weekly gain in a month.

“We’re unlikely to see any immediate positive reaction from markets as the government has been on this road before and there could be a bit of skepticism until a final agreement is sealed,” said Dalmacio Martin, senior vice president at BDO Unibank Inc. (BDO), the Philippines’s largest lender. “This is a positive development in the long run.”

2008 Collapse

Aquino’s two-year-old government vowed full transparency and posted the framework agreement online. He is seeking to avoid a repeat of 2008, when the Supreme Court voided a similar deal because President Gloria Arroyo failed to consult key groups and appeared to bypass Congress.

“The work does not end here,” Aquino said. “There are still details that both sides must hammer out.”

The 13-page agreement adds six towns and several villages to the five provinces covered by the autonomous region. It calls for rebel fighters to disarm, ensures the region “a just and equitable” share of resource revenues and has provisions covering property, policing, taxes and women’s rights.

Rebel Groups

“We welcome this development with hope and bright prospects,” Ghadzali Jaafar, vice chairman of the MILF who described himself as the group’s second-in-command, said by phone from a base in Camp Darapanan, Sultan Kudarat province. “The talks progressed because both sides are serious and sincere.”

MILF is currently in talks with the Bangsamoro Islamic Freedom Fighters, a splinter group that opposed the talks with the government, he said.

“They think there’s no hope that this can be resolved, but we proved to them that it can be done,” Jaafar said, referring to the BIFF. “They need to understand the peace process.”

The government will not negotiate with the BIFF or groups such as the al Qaeda-linked Abu Sayyaf, Edwin Lacierda, Aquino’s spokesman, told reporters today. Talks with Communist insurgents in the New People’s Army, which also operates in the area, are stalled because of disagreements over rebel detainees, he said.

“The talks have not moved on because of the precondition for the release” of certain detainees, Lacierda said, referring to the NPA. The government hopes the MILF deal will inspire the communist rebels to move the talks forward, he said.

Security Concerns

The various rebel groups and local politicians with private armies who fear they may lose power pose the biggest risk to a lasting peace, according to Bryony Lau, a senior analyst at the International Crisis Group, a policy research group based in Brussels. Companies also will likely wait until security improves in Mindanao, a process that could take years, she said.

“I don’t think this means there’s going to be a wave of investments,” Lau said, referring to the MILF deal. “The security environment down there is not going to change immediately on the issues that mining companies would have around things like kidnappings.”

The NPA in March said it carried out about 600 attacks since January 2011. Targets included Xstrata, the world’s fourth-biggest copper miner that plans to invest $5.9 billion in the Tampakan copper and gold deposit on a nearby island, and Sumitomo Metal, Japan’s biggest nickel producer, which suffered 10 billion yen ($127 million) in damage after an attack on its Mindanao mine last year.

Separatist Movements

The Mindanao conflict is one of the most entrenched in the region, along with a separatist movement in southern Thailand and decades-long ethnic minority rebellions in Myanmar. While peace in Thailand remains evasive, Myanmar’s government has reached cease-fire agreements with 10 armed groups.

Indonesian authorities in 2006 reached a peace agreement with rebels in Aceh province after a three-decade conflict that had killed about 15,000 people. Sri Lanka’s military defeated Tamil guerrillas in May 2009 to end a 26-year war that killed as many as 40,000 civilians in its final stages.

The U.S., which has stationed about 600 troops in Zamboanga on the west coast of Mindanao for the past decade to combat terrorists, welcomed the agreement.

Terrorist Training

“While much work remains, successful implementation of this agreement would improve security, stability, and development for the people of Mindanao,” Ambassador Harry K. Thomas, Jr. said in a statement from Manila yesterday.

The agreement may help the Philippine government rid the area of terrorist groups such as Abu Sayyaf and Jemaah Islamiyah, according to Rohan Gunaratna, head of the International Center for Political Violence and Terrorism Research in Singapore.

“The southern Philippines was the most important training base of all the terrorist groups in Southeast Asia,” he said by phone. “This peace agreement will make the environment hostile and unfriendly for foreign trainers, ideologues and trainees.”

The Philippines ranked 126th of 144 countries in the latest World Economic Forum survey on the cost to business from terrorism. Fifty-four percent of mining companies said issues such as attacks by terrorists, criminals and guerrilla groups are a strong deterrent for investors in the Philippines, the second-highest among 93 jurisdictions in a Fraser Institute poll released in February.

Nothing to Eat

Mindanao, the island furthest from Manila that is home to about a quarter of the country’s 100 million people, has often been neglected by the central government, engendering a sense of resentment as many of its provinces remain underdeveloped. Catholic settlers have overwhelmed Mindanao’s Muslim population, leaving them outnumbered by about five-to-one.

About a third of Mindanao’s people said they had nothing to eat for at least one day in the three months to August, the highest rate among the nation’s three main regions, according to a survey by Manila-based polling company Social Weather Stations released Oct. 1. That was up from 24 percent in March 2010, before Aquino was elected.

“The armed conflict really affected long overdue development in Mindanao,” Rommel Banlaoi, executive director of the Philippine Institute for Peace, Violence, and Terrorism Research in Manila said by telephone. “With the signing of the agreement, doors will open and development will follow.”

To contact the reporters on this story: Joel Guinto in Manila at jguinto1@bloomberg.net; Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net


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