The domestic political situation is now calming down, although the government has yet to resolve the Abu Sayyaf hostage crisis in the south. The trial of the former president, Joseph Estrada, could also raise tensions. Policymaking should become easier, now that the government enjoys a small majority in the new Senate, although this may be eroded over time. One policy priority is to contain the fiscal deficit in view of the forecast slowdown in economic growth in 2001. Exports are now looking more shaky, and the merchandise trade and current-account positions are likely to slip in 2001 and 2002. Consumer price inflation will moderate in late 2001, and remain quite low in 2002. The peso will tend to depreciate slowly against the US dollar, with periods of volatility.
Although the Abu Sayyaf hostage crisis remains unresolved, the government has managed to sign a ceasefire agreement with the more mainstream Moro Islamic Liberation Front and Moro National Liberation Front rebel groups.
The former president, Joseph Estrada, has been arraigned on charges of perjury.
So far in 2001 the budget deficit has been held down by spending restraint. The deficit stood at P36.7bn (US$720m) in January-April, compared with a target of P38.3bn. But the government envisages only a small contraction in the budget deficit in 2002.
A deteriorating economic situation in some of the Philippines' regional trading partners has led the EIU to edge down its GDP growth forecast for 2001, to 2.2%. The exchange rate is now forecast to average P51.0:US$1 in 2001 and P52.3:US$1 in 2002.