June 13 (Bloomberg) -- Even more than being beaten on a big story, journalists hate being wrong. That's the case with my columns on Gloria Arroyo and the Philippines.

In my travels to the Philippines and around Asia in recent years, I was told myriad times that I was giving that nation's president too much credit. I stuck to my hopes that Arroyo would turn around one of Asia's most neglected and geopolitically important economies. I was wrong.

The timing of this mea culpa may seem ironic, as it comes just after Arroyo scored some of her biggest economic victories.

Last month, Fitch Ratings raised its outlook on the nation's debt rating, saying a recent value-added tax increase marked ``a turning point'' for the country's finances. The government says the step, along with higher cigarette and liquor taxes, will by 2008 help end budget deficits undermining growth.

Yet two scandals make further steps in the direction of financial sobriety unlikely.

One: Arroyo's family members are accused of receiving payoffs from operators of a popular illegal lottery known as ``jueteng.'' Similar charges put her predecessor, Joseph Estrada, in jail in 2001 and propelled her to power.

Two: A mystery tape recording and statements by Arroyo's own spokesman fueled accusations she engaged in vote rigging in last year's election. Congress declared Arroyo the winner, yet her rival accused her of cheating and never conceded.

Arroyo & Clinton

That Arroyo should be considered innocent until proven guilty might not matter. While it may seem a crude analogy to draw, public perceptions about Arroyo and her husband Jose Miguel Arroyo -- a congressman -- share some intriguing similarities with Bill and Hillary Clinton.

Polls show many Filipinos believe Arroyo's family engaged in dodgy dealings and that she cheated in the 2004 election. Even if government probes clear Arroyo's family, people may just go on believing what they believe.

The Clintons suffer a similar dynamic. No matter what former President Bill Clinton or Senator Hillary Clinton do or say, ugly episodes of the 1990s like the Whitewater affair, Travelgate and others still dog them.

Guilty or innocent, Arroyo still must answer for something else: Her failure to end poverty and restore investor confidence in a nation shackled with an 11.3 percent unemployment rate.

Fading Clout

Arroyo may now have little clout to push additional economic reforms through a change-resistant government. More than anything, the growth of government debt -- which has tripled since 1997 -- needs to be curbed. Interest payments swallow a third of government spending, feeding concerns the Philippines will become the Argentina of Asia by defaulting on debt.

For the most past, that means getting more companies and rich Filipinos to pay taxes. Yet it's hard to see progress on that front from here on out.

During the weekend, thousands took to the streets of Manila demanding Arroyo's resignation. That's never a good thing in a nation with a history of coups and abrupt economic policy changes. It means Arroyo stands on very tenuous ground and that markets may become preoccupied with her chances of keeping the presidency.

Scandals would get less traction if Arroyo had done more to boost the economy and spread the benefits of rapid gross domestic product growth. And there's also a lesson here for other leaders in the region, especially Indonesia's.

Spread the Wealth

Just as Indian leaders learned in May 2004, a nation's poor won't be ignored and may toss them from office even amid rapid growth. More than 10 percent of Filipinos work overseas and send money home to support families. If global immigration trends didn't stand in the way, even more would likely leave.

Arroyo's biggest problem is that the impoverished aren't getting a noticeable share of the economy's gains. Indonesia's government should pay close attention to all this; if it fails to spread the wealth, it may not be around very long.

What's so disappointing about Arroyo is that she's as a competent an economic leader as the Philippines has had in years. A trained economist, she has a good grasp of what needs to be done. She knows corruption in the Philippine government means growth isn't filtering down to the people who most need it. Sadly, Arroyo has done little to attack the problem.

Hopeless? No.

Is the Philippines hopeless? Should investors dismiss its markets? The answer to both questions is no, yet it's imperative that Asia's No. 13 economy use the window of opportunity afforded by today's 4.5 percent growth rate.

Clearly, Arroyo can't be counted out. She has a bit of the Teflon that shrouded Bill Clinton and kept him in office. And Arroyo does have her accomplishments; the recently passed increase in the value-added-tax to 12 percent from 10 percent is a major step forward for the nation's finances.

Just as Clinton managed to balance the federal budget and reduce poverty despite scandals like Monica Lewinsky, Arroyo may indeed redeem her presidency. Yet just as the good that could've come from Clinton's second term was squandered, Arroyo's ability to repair the Philippine economy may have run its course.

All this means investors have reason to worry anew about the outlook for the Philippines.

To contact the writer of this column: William Pesek Jr. in Hong Kong, or through the Tokyo newsroom at wpesek@bloomberg.net and.

Last Updated: June 12, 2005 21:31 EDT