Over the last few months, the currency, the stock and the bond markets have been picking up strength on the back of fiscal reforms in the Arroyo administration and analysts said this has created a real opportunity for sustainable fiscal turn-around.
However, the spate of political scandals involving top officials of the administration all the way to the Chief Executive has marred the otherwise improving landscape.
Yet analysts agree that the political noise presents no real threat of an actual leadership crisis, if only because there is no strong alternative to President Arroyo.
The Bangko Sentral ng Pilipinas (BSP) said markets were expected to trade with uncertainty but only for a short period.
According to BSP Deputy Governor Amando M. Tetangco, there would be some short-term haze before the market actually regains its footing and resumes its initial momentum.
"The market will most likely look for clarification of current issues before regaining the bullish trend seen earlier this year," Tetangco said.
In a paper, ING Wholesale Banking analyst Tim Condon said a 1.5-percent drop in long-dated ROP bonds, a 2.8-percent plunge in the stock market and the peso testing the 55 level reflect the financial counterpart of the turmoil in Philippine politics.
Despite initial fears of a change in administration, however, Condon said the three main elements in Philippine politics are not present: people support, military and the Church.
"The president’s poll numbers are horrible but that is not going to be enough to reduce the inertia keeping people off the streets" Condon said. "Nor is the Catholic Church likely to support a people power revolt since President Arroyo is a devout Catholic who leaned heavily on Church support to take the presidency."
Lastly, Condon said all military heads were Arroyo appointees and the junior officers were badly burned during the failed Oakwood mutiny in 2003 and so are presumably wary of another attempt.
In a paper, UBS Investment Research said stocks had fallen 7.5 percent in the past few days after a 10.4-percent seven-day rise, but worries are overblown and the market still showed strong following after the passage of the new value added tax law.
According to UBS, it is unlikely that an actual leadership crisis would develop into a change in administration since there is no evidence that the military’s loyalty is wavering and Arroyo still enjoys strong support from the business sector.
"While these political issues may drag, we view them as temporary," UBS said.
According to ATR-Kim Eng Securities, investors abroad seem to be able to discern the fundamental changes taking place from what is simply political noise.
"This is because the sequence of recent events is not something that is wholly new," said ATR-KES. "What foreign investors see is that positive steps have been taken to stabilize the government’s finances and this is being taken favorably."