A cadre of Philippine government officials worked to convince unnerved investors of their economic security nearly a day after the president announced the country was headed into a 'fiscal crisis.'

Markets shook after President Gloria Macapagal Arroyo said in a statement: 'We are already in the midst of a fiscal crisis and we have to face it squarely.' However, sources have said the president was offered the statement without consulting her economic team, instead relying on “ill-advised” information from her chief economic advisor, Kampi Rep. Joey Salceda of Albay. Monday’s announcement left markets and investors flustered and the country's currency hit a three-week low of 55.850 pesos to the U.S. dollar.

However, many finance and central bank officers composed of Arroyo's cabinet members, quickly countered the claim.

'A fiscal crisis as defined by international financial institutions, such as credit rating and multilateral agencies, is being in a state of default, and having a deficit that can no longer be financed due to limited access to the capital markets,' the Development Budget and Coordinating Committee said.

'We're not in that situation,' said Amando Tetangco, the acting central bank governor. 'I think she's trying to say there's a problem and we need to get the support of everyone to address it.'

Tetangco maintained that 'technically' Manila was not yet in a fiscal crisis because it had not defaulted on payments, not lost access to the international debt market, and not accumulated a budget deficit of 'unmanageable' proportions.

The comments from Arroyo, a Georgetown-educated economist, were issued in a written statement as a response to a report present by economist from the University of the Philippines who warned that the country could face an Argentine-style financial collapse and social unrest in the near future (see Phillipines in Fiscal Crisis, May Face Economic Collapse.) Argentina defaulted on its public debt in 2001, because of its ballooning deficit and a staggering amount of debt.

Socio-economic Planning Secretary Romulo Neri said Arroyo's statement appeared to be directed toward lawmakers reluctant to support higher taxes as proposed by the president. Neri said the statement was intended as a general warning about the Philippine economy.

'The president recognizes there is a problem and unless we act, this could lead to a crisis,' Neri told DZMM radio.

Budget Secretary Emilia Boncodin added: 'It is important to put the issue in its proper context. We all recognize that there is a fiscal problem.”

'But the solutions to the problems have been clearly laid out by the Arroyo administration in terms of legislating new revenue measures and continuing to institute fiscal discipline measures.'

Many of the country’s lawmakers are opposed to proposed tax increases which are intended to raise around 80 billion pesos (US $1.4 billion). Instead, they encourage firmer tax collection methods and a mass eradication of government corruption. Yet, Congress is slated to pass at least four of Arroyo’s eight tax measures, by the end of the year.

Presidential spokesman Ignacio Bunye said Arroyo was trying to 'impress upon the people the seriousness of the situation ... not to signal default, which will never happen.'

In the past, however, the Philippines did default on its foreign obligations in 1983 during the Ferdinand Marcos dictatorship which spearheaded a decade of economic difficulties and political turmoil. Since that time, foreign investors have been deterred by the Philippines' huge debt and gaping deficit, and the nation’s markets have often been outperformed by other regional markets.

At the end of last year, the country's total debt, including obligations by the national government and failed government corporations, stood at 3.36 trillion pesos (US$60 billion) - equivalent to 78 percent of its gross domestic product (GDP). More than half of the total is denominated in foreign currencies, with the United States as the Philippine's leading investor.

Moreover, the nation’s budget deficit is forecast to hit about 200 billion pesos (US$3.5 billion) this year, mainly because of falling revenues and poor tax collection efforts. The Philippine government expects to reduce its deficit this year to 197.8 billion pesos (3.54 billion US dollars), or 4.2 percent of the gross domestic product. However, government officials hope dissolve fear of economic collapse among foreign investors and Philippine citizens, instead encouraging renewed resource conservation efforts and fiscal modesty.

'Awareness of the truth is the first step towards action. President Arroyo called a spade a spade to impress upon the people the seriousness of the situation,' Bunye said.