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Economic impact of Mindanao martial law limited, says Moody’s

The declaration of martial law in Mindanao amid the battle for control of Marawi City between government troops and the ISIS-inspired Maute group have no significant impact on Philippine economic prospects near-term, according to credit watchdog Moody's Investors Service.

In a research note late Wednesday, the debt watcher said "the ongoing siege and imposition of martial law will not materially impact the country's robust near-term economic outlook ... We expect the impact on economic activity from the crisis in Marawi to be minimal and short-lived,” Moody’s noted.

President Rodrigo Duterte declared martial law across the southern third of the country on May 23,  to quell a crisis as government troops fought Islamist militants in Marawi City, the capital of Lanao del Sur.

Moody's emphasized it is unlikely that recent developments in Mindanao will lead to changes in economic and fiscal policies, which continue to be anchored on Duterte's well-articulated 10-point socioeconomic development agenda that seeks to improve revenue generation through tax reform, lift infrastructure spending beyond 5 percent of GDP and increase investment in human capital and development.

"However, if recent events lead to prolonged uncertainty around security or governance, such a development would eventually dampen business confidence and, consequently, economic outcomes," the debt-watcher said.

Citing statements from the government that the military has regained control of most of Marawi as of May 30 and martial law is limited to 60 days by the Constitution and after which Congressional approval would be required for an extension, Moody's noted that prolonging the martial law may not be needed for much longer, pending the full resolution of the situation.

"However, although unlikely to happen, potential challenges to the constitutional system of checks and balances could arrest or reverse the improvements in the rule of law over the past few years," it said.

The debt watcher said it maintained the 6.5 percent gross domestic product (GDP) growth forecast for the country in 2017.

"Mindanao has about 24 percent of the Philippine population; it accounted for 15.0 percent of GDP in 2016 and contributed less than one percentage point to the country’s real GDP growth of 6.8 percent in the same year," Moody's said.

"Unless violence escalates markedly and/or martial law is extended and imposes significant constraints to the economy, the contribution of the region to national output will remain positive," it noted.

Since the fighting has been contained within Marawi – in the Autonomous Region in Muslim Mindanao (ARMM) – which accounts for only 0.7 percent of GDP, the debt watcher emphasized there has been limited disruptions to economic activity in other parts of Mindanao as authorities have sought to contain the spread of violence through enhanced surveillance.

"However, beyond the immediate implications of the crisis in Marawi, President Duterte has publicly stated his willingness to bypass safeguards provided by the constitution against the arbitrary declaration of martial law, including the power of Congress and the Supreme Court to review, and even revoke, martial law," it said.

The President previously threatened to invoke martial law to address other issues such as the eradication of drugs, which may not conform to the definition of “cases of invasion or rebellion” that is required under the constitution.

Despite Duterte's threat to impose martial law beyond Mindanao, Moody's noted that officials from the executive branch have since clarified that constitutional safeguards will be honored, thus "we do not expect the extension of martial law beyond the resolution or dissipation of the immediate threat posed by the Marawi crisis ... "Nevertheless, any challenges to the constitutional system of checks and balances could undermine the improvement in institutional strength in the Philippines," it said.

"Along with enhancements to government effectiveness and the control of corruption, the greater policy predictability afforded by better rule of law has underpinned a more favorable environment for economic growth and investment in recent years," it added. — Ted Cordero/VDS, GMA News