Caught on tape discussing her reelection with an election official, and with her husband allegedly involved in a gambling scam, Philippine President Gloria Macapagal Arroyo is in political hot water and may not finish her term. Ten members of Arroyo's Cabinet, including key members of her economic team, recently resigned from their posts, urging that Arroyo follow their lead and put an end to the economic and political turmoil plaguing the country. The opposition in the Philippine Congress has already filed a motion to impeach Arroyo, which will be debated when Congress reassembles at the end of July.

Manila's descent into political chaos presents the United States with three major concerns:

1. The war on terrorism will continue to take a back seat to the political mess in Manila. The southern Philippines is a hotbed of Islamic terrorism where two Muslim insurgencies, the Moro Islamic Liberation Front (MILF) and Abu Sayyaf Group (ASG), are based. Philippine military operations in the southern Philippines have been dwindling, despite persistent claims that the ASG, MILF, and Jemaah Islamiyah-all with al Qaeda connections-are training and operating there. President Arroyo's commitment to the war on terrorism came into question when she withdrew a 60-man military medical team from Iraq after a Philippine citizen was kidnapped. Since 9/11, Arroyo's support for the war on terror has waned, and there has been little substance to her rhetoric. Now faced with probably the gravest peril of her political life, it is unlikely that the war on terrorism will be given a renewed priority in her agenda.
    
2. Economic development and reform and trade expansion will be delayed as politicians focus on Manila politics. Under President Arroyo, inflation has risen, corruption is unchecked, and government spending has increased, which, combined with low tax revenues, has led to massive budget deficits. Foreign direct investment in 2004 leveled off at $680 million, well below the $3 to 4 billion average of other ASEAN countries. Amid accusations of electoral fraud, Arroyo took preliminary steps to ease the corporate tax burden and root out corruption, hoping to attract overseas investors. Nevertheless, the Philippines' credit rating was recently downgraded from "stable" to "negative" by two major ratings agencies due to political uncertainty. Arroyo's efforts have fallen short of expectations, and economic concerns will continue to be unaddressed due to the current political turmoil.
    
3. Chinese influence will continue to expand while Arroyo fights for her political life. China has developed and refined a policy of helping regimes in trouble by offering considerable political and economic support. This will become true for the Philippines, as China moves away from threatening rhetoric on territorial disputes in the South China Sea and employs a new approach. Beijing offered Manila $3 million for the establishment of a Chinese language-training program for the Philippine military, donated engineering equipment, and invited the Philippines to participate in naval exercises. Moreover, in the midst of stern U.S. criticism of the withdrawal of the Philippine medical team from Iraq, President Arroyo signed a confidential protocol with China on the exploitation of South China Sea resources. With her presidency in dire straits, Arroyo will gladly accept more largesse from Beijing.

Despite these concerns, however, there seems little chance Arroyo will be successfully impeached. Political observers believe that Arroyo supporters in the House have sufficient strength to block an impeachment. Although her popularity has hit rock bottom, and is the lowest of any Philippine president ever, her detractors are not taking to the streets to oust her through public protests in the same numbers as they did for Marcos in 1986 or her predecessor, Estrada, in 2001.

Vice President Noli de Castro, Arroyo's would-be successor, has loyally promoted Arroyo's version of economic development and her close cooperation with China, which suggests that there will be little departure from the current policy direction if he takes over the presidency. De Castro is widely seen as an intellectual lightweight and political novice. The opposition sees him as just as bad as Arroyo and routinely demands both Arroyo and de Castro resign.

The good news is that the scandal has forced both the Philippine Congress and the President to begin the process of reforming the Philippine constitution. President Arroyo's July 25 State of -the Nation address is expected to call for a constitutional convention. It's about time. The post-Marcos constitution is overly detailed and includes numerous restrictions that retard economic development. Furthermore, it established an election process that created a disincentive for Senate lawmakers to participate in the legislative process.

Expectations are that the constitution will be modified through a convention or a constituent assembly. The President and the Senate are expected to favor a convention. The House wants a constituent assembly, mostly because it would be cheaper.

Whether Arroyo stays or goes, efforts to encourage economic development and fight the war on terrorism in the Philippines are weakening. The United States has long been devoted to promoting both of these agendas, but Filipinos will view any American involvement in the current political crisis as meddling. Therefore, U.S. efforts to help should advance the process without crossing the boundaries of Philippine sovereignty, responsibility, and leadership:

• Statements from Washington should be measured expressions of support for the Philippine people, constitutional processes, and the rule of law and should avoid any appearance of partisanship;
• If requested, assistance should be in the form of commissions or delegations of constitutional scholars, Philippine experts, and former U.S. lawmakers to assist with constitutional reform; and
• If requested, and considered appropriate, financial assistance should be restricted to the administration of the convention.

The Philippines is a treaty ally of the U.S., an important link in the U.S. strategy in the war on terrorism, and potentially an important trading partner. It is in America's interest that the current political crisis pass without damaging U.S.-Philippine relations.

Dana R. Dillon is a Senior Policy Analyst in the Asian Studies Center at The Heritage Foundation. Ji Hye Shin, Research Assistant in the Asian Studies Center, contributed to this paper.