PSE halts trades on JG Summit, Digitel

MANILA, Philippines - The Philippine Stock Exchange imposed a one-day trading halt Tuesday on shares of conglomerate JG Summit Holdings Inc. and its phone subsidiary Digital Telecommunications Philippines Inc. (Digitel).

The firms requested the trading halt, the bourse said, after both companies said they needed more time to address market speculation on a major shareholder-related transaction.

Trades in the 2 companies will resume on Wednesday.

In separate disclosures, JG Summit and Digitel said they would issue a statement "at a proper time" to address ownership speculations. They said the trading halt was necessary to "avoid any undue fluctuations and distortion" in their share prices.

On Monday, Digitel surged as much as 29% to a 4-year high amid rumors of a buyout by telco rivals Philippine Long Distance Telephone Co. or San Miguel Corp.

JG Summit shares climbed as high as 8% to their highest in 4 months.

Last week, San Miguel Corp. denied in a statement to the bourse that it was in talks with JG Summit after a local newspaper reported the food-to-power conglomerate was interested in acquiring Digitel.

PLDT to buy 51.55 pct of Digitel

MANILA, Philippines (2nd UPDATE) - Philippine Long Distance Telephone Co. (PLDT) said on Tuesday it will take control of a rival firm as it seeks to solidify its leading position in a mature industry where a price war had eroded margins.

PLDT, the country's top telecommunications firm, said it forged a deal valued at P69.2 billion ($1.6 billion) to acquire 51.55% of third-ranked Digital Telecommunications Philippines Inc. (Digitel).

The deal, which includes a share swap and assumption of debt and advances by Digitel from its parent JG Summit Holdings Inc., was expected to be completed by the end of June, PLDT and Digitel said in a joint statement.

Digitel, via its Sun Cellular brand, had shaken the mobile phone market with cheap call and text packages, prompting PLDT and second-ranked Globe Telecoms to follow suit.

"PLDT is not out to kill the competition, but growth of Globe will be limited," said Jose Mari Lacson, analyst at Campos, Lanuza & Company Inc, noting that PLDT had said it intended to keep Digitel's cheap call and text offerings.

The price war had slowly eroded telecoms' margins in a saturated mobile market, with penetration at around 90% against a population estimated to be nearing 100 million.

PLDT's mobile phone market share would rise to 70% after the deal, Lacson said.

PLDT said the transaction, which involves its acquisition of 3.277 billion Digitel common shares from JG Summit and certain other parties, would result in cost efficiencies and improve network usage.

PLDT has said it would spend more in 2011 and 2012 to grow its broadband business amid stiff competition.

JG Summit would hold about 12% in PLDT after the transaction, while stakes of existing PLDT shareholders would be diluted, PLDT chairman Manuel Pangilinan said.

Mandatory offer

PLDT will make a mandatory offer to minority investors to buy the rest of Digitel, with shareholders given an option to sell at a discount to market at P1.60 apiece, or swap their holdings for PLDT shares at a premium of P2,500 per share.

"JG Summit is the ultimate winner. They get a good price for an investment that has not really delivered in terms of dividends," Campos & Lanuza's Lacson said.

PLDT closed flat at P2,036 on Tuesday while trading in Digitel was suspended at the firm's request. On Monday, Digitel had surged as much as 29% to a 4-year high before ending at P1.8.

The deal was announced after the market closed.

The tender offer, if fully taken up by shareholders, would bring the total value of the deal to P74.1 billion.

"Though this initiative alters the country's telecom landscape, we expect competition within the industry to remain very robust given that other operators, including new entrants, are formidable and well-funded," Pangilinan said.

PLDT, partly owned by Hong Kong's First Pacific Co. Ltd. and Japan's NTT Communications and NTT DoCoMo, has a market value of $8.9 billion against Digitel's $269 million.

Globe, owned by Ayala Corp. and Singapore Telecommunications, is valued at $2.1 billion.

Under the deal, PLDT will acquire debts of Digitel, including zero-coupon bonds issued to JG Summit convertible into 18.6 billion Digitel shares by June 30. It will also absorb P34.1 billion in advances made by JG Summit and other parties.

PLDT will swap one new PLDT share for every P2,500 worth of Digitel assets to be acquired.

"The transaction should also bring significant value to JG Summit's shareholders without relinquishing our participation in the Philippine telecommunications industry," James Go, JG Summit chairman, said in the joint statement.

Palace: Executions will not affect PH-China ties

MANILA, Philippines - Diplomatic ties with China will not be affected even if it decides to push through with the executions of the 3 Filipino drug mules, Malacanang said on Sunday.

In an interview with radio dzRB, Communications Development and Strategic Planning Office Secretary Ramon “Ricky” Carandang said the country respects the judicial system of China.

“They’re just following their process…What we only questioned was the death penalty, that’s why we asked for a commutation…but at the end of the day, it will not impact on our long-term bilateral relations,” he said.

The government is still pushing for last ditch efforts to save the convicted Filipinos.

The Supreme Court of Justice of China has decided to snub appeals for a commutation of the sentences of Ramon Credo, Sally Ordinario-Villanueva and Elizabeth Batain.

They will be executed on March 30. Their families flew to China early Sunday.
Vice President Jejomar Binay already sent a letter to Chinese President Hu Jin Tao, attempting anew to save the Filipinos.

“On humanitarian grounds and on the basis of the strong friendship and cooperation between our two countries and peoples, I once again appeal to Your Excellency to grant clemency to these three Filipinos,” the letter read.

Taskforce

Meanwhile, Migrante-Middle East urged President Benigno “Noynoy” Aquino III to create a taskforce that will look into the cases of Filipinos on death row.

John Leonard Monterona, Migrante-Middle East regional coordinator, said: "The Aquino administration, amid the impending execution of three Filipinos on China death row and if it really intends to save other OFWs on death row, should, by now, form an inter-agency task force whose primary function is to look into saving their lives from execution."

There are more than 70 OFWs on China death row and 120 others in other countries, he said.

Monterona cited the case of Don Lanuza, incarcerated in Saudi Arabia by killing an Arab national in 2000.

"As per the latest information, the court is just awaiting the son of the aggrieved party to reach legal age so that it could decide either to accept the blood money in exchange of forgiveness or reject it in favor of execution," he said.

"The entire Filipino nation, including Filipinos abroad, have to confront this bitter reality; but efforts to save OFWs whose cases are punishable by death should start from the time a proper case had been filed and immediately hire the best legal defense team the government could provide, noting that most were victims of international drug syndicates, if not, had committed the crime in defense of his life," Monterona added

Milk products, corned beef prices increase

MANILA, Philippines - The increase in prices of raw materials has pressured the market to jack up prices of milk products and corned beef as early as two weeks ago, the Department of Trade and Industry (DTI) said.

Based on monitoring, Trade Secretary Gregory Domingo revealed increases of up to 9% for milk products and 10% for corned beef.

Domingo explained that the market was trying to offset costs incurred due to the increase of prices of raw materials.

"It's a two-pronged increase. The reason is, they are trying to catch up with the higher prices of milk solids and tin prices," he said.

The more popular products refrained from reflecting the prices initially out of fear they would lose demand.

The move followed a price hike notice of Alaska Milk Corp, a key milk producer in the country.

Domingo, however, noted that the current prices of both milk products and corned beef remain within the department’s suggested retail price index.

"They are still okay," he said.

Meanwhile, aside from milk and corned beef, Domingo said steel prices have also increased by 20%.

MPIC sets P300-M to link NLEx, SCTEx toll roads by October

MANILA, Philippines - Metro Pacific Tollways Corp. expects to spend P300 million to finish integrating the North Luzon Expressway (NLEx) and the Subic-Clark-Tarlac Expressway (SCTEx) by as early as October, an official said on Friday.

"We hope the takeover [of SCTEx] will happen in April or May this year," Metro Pacific Tollways President and CEO Ramoncito S. Fernandez told reporters at the sidelines of a travel fair, referring to the pending handover of the toll road’s operations to the company after it won the bidding held by the Bases Conversion and Development Authority.

The company’s subsidiary, the Manila North Tollways Corp. signed a lease contract for the toll road with the state agency last November which included the right to collect toll revenues for 25 years, renewable for another eight years according to earlier reports.

"[Then] the immediate plan is for the integration of SCTEx and NLEx which will take about six months," Mr. Fernandez said.

Mr. Fernandez said that the company will be spending "more P300 million" which will be sourced from its internal funds to link the two expressways.

The integration process will include removal of some of the exits which will become redundant for a "seamless connection," Mr. Fernandez said.

"After the integration, we expect travelers to have more convenience, which is our main concern," Mr. Fernandez said.

The Pangilinan-led Metro Pacific Tollways reported a 20% growth in core income to P1.5 billion in 2010 after and revenues rose by 7% to P5.9 billion on the back of a 6% rise in average daily traffic to 159,882 vehicles.

For new projects, the company had said it was looking at bidding for two ventures: the P11.8-billion, 27.5-kilometer Cavite-Laguna Expressway that will extend the Manila-Cavite Coastal Expressway (MCEE) and the P10.6-billion, 4.9-kilometer Ninoy Aquino International Airport Expressway connecting Skyway to the MCEE.

MPTC, whose shares were last traded on Mar. 24 at P7.70 each, is a unit of Metro Pacific Investments Corp., the local arm of Hong Kong’s First Pacific Co. Ltd., which partly owns the Philippine Long Distance Telephone Co. (PLDT).

Mediaquest Holdings, Inc., a unit of the Beneficial Trust Fund of PLDT, has a minority stake in BusinessWorld.

Robredo believes Lacson still out of country

MANILA, Philippines - Interior and Local Government Secretary Jesse Robredo believes Senator Panfilo Lacson is hiding abroad but is ready to show up.

On the sidelines of the World Water Day celebration, Robredo believes Lacson is about to surface soon.

“I think there are [feelers already], because there is already an impression that he is outside the country,” he said.

Robredo said the tracker team that the Department of Interior and Local Government (DILG) created did not see Lacson anywhere in the country.

“There are a lot of false leads. When we verify, the leads turn out to be wrong. There have been leads that he is in Quezon City, in Batangas, in Cebu...but there really is none,” he said.

“This means if we can’t find him here, he’s outside the country…In all likelihood, very likely, he’s out of the country,” he said.

In a 16-page resolution dated March 18, the Court of Appeals stood pat on its decision quashing the murder charges and the consequent warrant of arrest against Lacson.

Lacson has been linked to the November 2000 murders of publicist Salvador Dacer and his driver Manuel Corbito.

The senator went into hiding in early 2010 even before the Manila trial court, where the case is lodged, could come out with a warrant of arrest. He blamed political persecution as a reason for his hiding.

The National Bureau of Investigation (NBI) has yet to notify the International Police of the need to already lift its red alert against Lacson.

Nonetheless, Robredo still urged the fugitive senator to face the public the soonest.

“It’s high time that he attend to his obligations in the Senate. There are a lot of things happening there that need his attention,” he said.

Philippines raises $1.5-B from 2026 global bonds

MANILA, Philippines - The Philippines said on Tuesday it sold $1.5 billion of new 2026 global bonds in an offering that was "significantly" oversubscribed, as it sought to stretch its debt profile while keeping interest costs low.

The bonds, which created a new 15-year benchmark for the Philippines' dollar bonds, were priced at 99.495% with a coupon of 5.5%, the government said in a statement.

Yield was at 5.55%, narrower than the indicated initial pricing of 5.26% reported by IFR, a unit of Thomson Reuters, on Monday.

"The Philippines moved swiftly to access the dollar bond market and achieve low-cost, long-dated offshore funding," Finance Secretary Cesar Purisima said in a statement.

"This continues the republic's pro-active stance in managing its sovereign debt, extending its debt maturity profile during uncertain times for the global economy," he said.

The Philippines, one of Asia's most active issuers of sovereign debt in the offshore market, sold the dollar bonds before Indonesia could launch its own. Indonesian officials held investor presentations in Europe and the United States last week for a planned global bond this year.

The offer also came just a day after state lender Development Bank of the Philippines raised $300 million in a 10-year bond offer that was over three times subscribed.

Bookbuilding for the Southeast Asian country's first dollar bond this year took around 10 hours, with the United States and Europe each taking up 30% of the offer, the government said.

Investors from the Philippines accounted for 22% and the other Asian investors accounted for the rest.

"We are very pleased with the response to the transaction, with strong investor interest enabling the republic to successfully establish a new 15-year benchmark on its dollar yield curve," National Treasurer Roberto Tan said in statement.

Goldman Sachs and HSBC were joint global coordinators and bookrunners. Deutsche Bank, Citigroup, JP Morgan and UBS were joint bookrunners for the global bond issue.

Sy Jr to advance P24-B for power grid

MANILA, Philippines - Henry Sy. Jr., the eldest son and namesake of the SM founder, said his group is willing to advance the needed amount of about P24 billion for the construction of the crucial transmission grid linking Visayas and Mindanao.

In a hearing of the Joint Congressional Power Commission, Sy assured lawmakers that they are ready to pour in much-needed capital to ensure the stability of power supply in the country’s transmission highway.

Sy’s One Taipan Holdings became a significant stakeholder in the National Grid Corporation of the Philippines (NGCP), the concessionaire that won the bid to operate the national power transmission assets, early last year with its purchase of the 30% interest of Monte Oro Grid Resources Corp.

Sy is now president and CEO of NGCP.

He said NGCP would be willing to frontload the funding requirements for the Leyte-Minda-nao Interconnection Project (LMIP), which is meant to further stabilize the supply and enhance the quality of electricity across the country by connecting the Visayas and Mindanao grids through 23 kilometers of submarine cables linking the Leyte and Surigao substations.

According to Sy, NGCP will “advance” the funds needed to jumpstart the project, which will be implemented as soon the the company secures the approval of the Energy Regulation Commission (ERC).

“We will advance the needed amount on a staggered basis as soon as ERC approves our petition,” he said.

Sy said that as soon as it obtains ERC approval, NGCP will carry out the first phase of the LMIP, which is the implementation of a feasibility and technical study that will take between six months to one year to complete.

ERC chairperson Zenaida Cruz Ducut, who was also present during the congressional hearing, said the ERC will hold public hearings on the NGCP petition to implement the first phase of the LMIP, and will come up with a decision “as soon as possible.”

Sy said NGCP has been working in tandem with the Department of Energy and other industry stakeholders, including distribution firms and electric cooperatives, in implementing all approved projects spelled out in the government’s National Transmission Development Plan (TDP).

NGCP took over the management of the country’s national transmission network two years ago from the National Transmission Co. (TransCo) after winning a 50-year concession to run the transmission assets through a public bidding, which was undertaken in line with the privatization thrusts of Republic Act 9136 or the Electric Power Industry Reform Act (EPIRA) of 2001.

Giovanni Randolf Galang of NGCP’s Transmission Planning Department said the first phase of the project - the conduct of a feasibility study - will cost about P92 million, and is necessary because the latest feasibility study on this longstanding LMIP was conducted way back in 2001.

He said an updated feasibility study is needed after 10 years to consider new developments and contingencies like the optimal voltage level requirements and the latest technologies in submarine cable systems.

Security, transparency vital to attracting investments in PH

SINGAPORE — Top business leaders here expressed optimism about the investment climate in the Philippines, urging the present administration to improve the security and transparency of investments which are vital factors to lure foreign companies.

In a meeting between Singapore’s business leaders and President Aquino, Singapore co-chairman of the Philippines-Singapore Business Council Choo Chiau Beng said they welcome the new administration’s emphasis on transparency and competition for businesses, specifically on the Public-Private-Partnership (PPP) program.

“For Singapore companies investing in the Philippines, it is very critical that the law and the courts have credibility. And I would urge the president to ensure that,” said Choo, also the chief executive officer of Keppel Corp. “I understand that the Philippines is expected to launch a large number of projects this year. This sends a strong signal that the government is taking pro-active measures to ensure that the country’s economic growth is sustainable in the long run.”

Speaking before some 200 members of the Singapore Business Forum/International Enterprise Eminent Leaders on the last day of his three-day state visit here, Aquino vowed to curb corruption in a bid to create a pro-business environment in the Philippines, adding that the overall climate in the country “is now more conducive to business and investments” under his leadership.

In the past few years, corruption—along with problems with transparency—efficiency and bureaucracy are keeping foreign companies from investing in the Philippines. According to the 2010 Transparency International’s Corruption Perception Index, the Philippines is rated as “highly corrupt” and is ranked 134th most corrupt country out of 178 countries.

In his speech, Aquino said the Philippines has embarked on “redesigning the building of state” by “redesigning the culture of governance, alleviating poverty by curbing corruption; by instituting reforms in the military, where faulty procurement practices have robbed our soldiers of decent equipment and dignified living standards; in the judiciary, where Lady Justice’s scales have tipped toward the privileged few; and all across the bureaucracy, where a lack of integrity and competence has been the norm, rather than the exception.”

Other reforms his administration will implement, the President said, include:
- addressing the challenges rooted upon a lack of infrastructure that will make the Philippines a more attractive investment destination by pursuing greater cooperation with the private sector through the PPP scheme
- cutting red tape
- ensuring the proper and responsible use of government resources

“Simply put, this means making sure that no one goes hungry; that the welfare of the people is treated as a priority; that each citizen is granted the opportunity to fulfill his potential and no one gets left behind,” he said.

Aquino lauded the Singaporeans for showing the way to achieving this is not an impossible feat. “Your government has already signified its willingness to help a brother nation reach the same heights that you have reached. Partnering with us holds both tangible and intangible rewards. It means also a commitment to lifting the lives of a people who only recently had learned how to dream again,” the President said.

Under the PPP scheme projects, Aquino said the Philippines plans to develop infrastructure projects such as roads, railways, airports and energy projects which are expected to open up more opportunities for foreign investments.

“By the end of the month, we expect to bid out five PPP projects as testament to our willingness to engage and empower the private sector,” said Aquino, adding that airport expansion in Cebu, Bohol and Palawan are among the key priorities of his administration.

Other projects included in the PPP program include the maintenance for the Light Rail Transit 1 and 3 costing P7.7 billion and P6.3 billion; the P1.6-billion Daang Hari-South Luzon Expressway link road project; P10.6-billion Ninoy Aquino International Airport Expressway Phase 2; and the P21-billion North Luzon Expressway-Slex connector road.

Aside from helping businessmen invest in the country, the President said the PPP program will “provide the infrastructure necessary to fuel the growth that we need” by freeing our national budget to address social concerns.

Japan disaster could derail Philippines' Samurai offer

MANILA, Philippines - The government's planned Samurai bond sale has come under a cloud as Japan -- which is being asked to provide a guarantee -- seeks to recover from a devastating earthquake and tsunami.

"We’ll have to get JBIC’s (Japan Bank for International Cooperation) position," Finance Undersecretary Rosalia V. de Leon said in a text message during the weekend when asked if the issue would still push through.

The government is waiting for JBIC’s response to a request that it guarantee Samurai bonds -- yen-denominated debt papers sold in Japan by foreign borrowers -- with tenor of at least 15 years.

JBIC -- the international arm of state-owned Japan Finance Corp. -- had guaranteed 10-year Samurai notes that Manila sold in February last year. The Philippines raised $1.1 billion from that sale.

National Treasurer Roberto B. Tan, in a separate text message, said JBIC had not committed to a date as to when it would respond to the government’s request.

"There was no timeline set. We are, however, keeping in touch with them", he said.

Finance Secretary Cesar V. Purisima recently said he had secured the support of Japan’s Ministry of Finance for a Samurai offering. He said the government was looking to raise "at least $500 million ... during the first half."

Ms. de Leon said the government would continue to tap the Japanese debt market for financing despite the disaster. "Yes," she replied when asked if Samurais were still part of the P764.54-billion borrowing plan for 2011.

The government borrows from both the international and local markets to finance its budget deficit, programmed to hit P290 billion this year, as well as to repay existing debts.

How to Restore the American Dream

The American dream for me, growing up in India in the 1970s, looked something like the opening credits of Dallas. The blockbuster TV series began with a kaleidoscope of big, brassy, sexy images — tracts of open land, shiny skyscrapers, fancy cars, cowboy businessmen and the very dreamy Victoria Principal. We watched bootlegged copies of the show, passed around on old Betamax cassettes. America (certainly the CBS soap-opera version of America) seemed dazzling and larger than life, especially set against the stagnant backdrop of India in the 1970s. Everyone I knew was fascinated by the U.S., whether they admitted it or not. Politicians who denounced the country by day would go home in the evenings and plot to send their kids to college in "the States."

Of course, the 1970s were actually tough times in America — stagflation, malaise, the aftermath of Vietnam and Watergate — but they were brutal in the rest of the world. Hyperinflation racked most third-world countries; coups and martial law were familiar occurrences, even affecting staunchly democratic India, where emergency rule was enforced from 1975 to 1977. Set against this atmosphere of despair, the U.S. looked like a shining city on a hill.

A few years later, when I got to America on a college scholarship, I realized that the real American Dream was somewhat different from Dallas. I visited college friends in their hometowns and was struck by the spacious suburban houses and the gleaming appliances — even when their parents had simple, modest jobs. The modern American Dream, for me, was this general prosperity and well-being for the average person. European civilization had produced the great cathedrals of the world. America had the two-car garage. And this middle-class contentment created a country of optimists. Compared with the fatalism and socialist lethargy that was pervasive in India those days, Americans had a sunny attitude toward life that was utterly refreshing.

But when I travel from America to India these days, as I did recently, it's as if the world has been turned upside down. Indians are brimming with hope and faith in the future. After centuries of stagnation, their economy is on the move, fueling animal spirits and ambition. The whole country feels as if it has been unlocked. Meanwhile, in the U.S., the mood is sour. Americans are glum, dispirited and angry. The middle class, in particular, feels under assault. In a Newsweek poll in September, 63% of Americans said they did not think they would be able to maintain their current standard of living. Perhaps most troubling, Americans are strikingly fatalistic about their prospects. The can-do country is convinced that it can't.

Americans have good reasons to worry. We have just gone through the worst recession since the Great Depression. The light at the end of the tunnel is dim at best. Sixteen months into the recovery, the unemployment rate is higher than it was in the depths of all but one of the postwar recessions. And as government spending is being pared back, the economy is showing new signs of weakness.

Some experts say that in every recession Americans get gloomy and then recover with the economy. This slump is worse than most; so is the mood. Once demand returns, they say, jobs will come back and, with them, optimism. But Americans are far more apprehensive than usual, and their worries seem to go beyond the short-term debate over stimulus vs. deficit reduction. They fear that we are in the midst of not a cyclical downturn but a structural shift, one that poses huge new challenges to the average American job, pressures the average American wage and endangers the average American Dream. The middle class, many Americans have come to believe, is being hollowed out. I think they are right.

Going Global
For a picture of the global economy, look at America's great corporations, which are thriving. IBM, Coca-Cola, PepsiCo, Google, Microsoft, Apple, Intel and Caterpillar are all doing well. And they share a strategy that is becoming standard for success. First, technology has produced massive efficiencies over the past decade. Jack Welch explained the process succinctly on CNBC last September. "Technology has changed the game in jobs," he said. "We had technology bumping around for years in the '80s and '90s, and [we were] trying to make it work. And now it's working ... You couple the habits [of efficiency] from a deep recession [with] an exponential increase in technology, and you're not going to see jobs for a long, long time." Welch gave as an example a company owned by the private-equity firm with which he is affiliated. In 2007 the business had 26,000 employees and generated $12 billion in revenue. It will return to those revenue numbers by 2013 but with only 14,000 employees. "Companies have learned to do more with less," Welch said.

Next, companies have truly gone global. The companies on the S&P 500 generate 46% of their profits outside the U.S., and for many of the biggest American names, the proportion is much higher. You might think of Coca-Cola as the quintessentially American company. In fact it is a vast global enterprise, operating in 206 countries. "We have a factory in Ramallah that employs 2,000 people. We have a factory in Afghanistan. We have factories everywhere," explains Muhtar Kent, the CEO of Coke. Nearly 80% of Coca-Cola's revenue comes from outside the U.S., and an even greater percentage of its employees are in foreign countries. "We are a global company that happens to be headquartered in Atlanta," says Kent.

America's great corporations access global markets, easy credit, new technologies and high-quality labor at a low price. Many have had to cut jobs at home, where demand is weak, and have added them in the emerging markets that are booming. They are not "outsourcing" jobs. That word makes little sense anymore. They simply invest in growth areas and cut back in places where the economy is weak. None of them will ever give up on the American market — it is too large, too profitable and too central to their businesses — but the marginal dollar is more likely to be invested abroad than in the U.S.

Gaddafi's Last Stand

Leave it to Libya's Muammar Gaddafi to show the world how a tyrant goes down: with bluster, belligerence and blood. Not for him, the quiet escape of Tunisia's Zine el Abidine Ben Ali or the noisy — but broadly peaceful — exit of Egypt's Hosni Mubarak. When the Arab youth uprising that has toppled despots on either side of his North African nation arrived on his doorstep, Gaddafi gave notice that the region's longest-surviving dictatorship would not succumb to revolutionary rap songs, Facebook pages and nonviolent demonstrations; he dispatched tanks and jet fighters to pound and strafe protesters. Hundreds were killed — the exact toll is impossible to know, since the regime shut out the world's media and shut down most communications.

Neither the King of Bahrain nor the President of Yemen, both of whom have used violence against popular revolt in recent days, would dare such a slaughter. But Gaddafi, rich in oil and poor in friends, has rarely conformed to the rules by which other autocrats govern. Whether backing terrorist groups in the 1970s and '80s, funding civil wars in sub-Saharan Africa in the 1990s or hectoring world leaders at the U.N. General Assembly in 2009, Libya's so-called Brother Leader — he wields absolute power with no formal title — has always done what he pleased and mostly gotten away with it. (See pictures from the unrest in Libya.)

This time he may have gone too far. Gaddafi's cruelty against his own people disgusted even longtime cronies and set off a wave of defections that, within a week of the first demonstrations on Feb. 15, left the regime deeply — perhaps fatally — wounded. Several military units mutinied and joined forces with protesters; two jet pilots flew to Malta rather than obey orders; a string of top officials, especially diplomats, quit their jobs and added to a chorus of voices calling for the dictator's end. Soon much of eastern Libya, including cities like Benghazi and Tobruk, had declared itself liberated from the regime.

Some have taken to calling the eastern provinces Free Libya. Walls of houses and shops in Tobruk have been sprayed with signs saying FALL GADDAFI. On Feb. 22, when the first foreign journalists arrived in Midan al-Melek, a square in the center of town, men were still joyous, chanting, milling about and firing off celebratory gunshots. "The protesters finished a few days ago, and now we are just celebrating," said one man in the crowd. "From Tobruk to Benghazi, it is all out of Gaddafi's control."

Gaddafi didn't seem to have gotten the message. That evening he delivered one of his characteristic televised rants, this one aimed at his countrymen. He accused Libyans of lacking gratitude for all he had done for them and blamed the protests on terrorists, foreigners and young people on drugs. He managed to work in references to a range of violent crackdowns, from Tiananmen Square to Waco, Texas, to Fallujah. Bizarre as it was, the speech left no doubt as to the dictator's intentions: "I am a warrior," he said. "I am not going to leave this land, and I will die here as a martyr." (See pictures of the rule of Libya's Colonel Gaddafi.)

One of his sons, Saif al-Islam, had delivered a similar diatribe 48 hours before, promising the regime would fight to the last man. But coming from Gaddafi himself, the threat carried much more menace. "I have not yet ordered the use of force, not yet ordered one bullet to be fired," he said, with typical disregard for facts. "When I do, everything will burn."

New Call, Old Response
So Libya threatens to be different. in Gaddafi, the Arab youth revolution faces a foe unafraid to push back brutally — and the watching world sees a ruler immune to reproach or reason. The U.S., having only recently begun to normalize relations with Libya after shunning it for nearly three decades, has little sway over the regime; the same is true for other Western democracies. (Outside the Arab world, Libya is closest to its former colonial master, Italy — which dreads the possibility of a wave of refugees fleeing the violence.) Unlike in Egypt and Bahrain, for instance, the Obama Administration has no leverage with the military in Libya: Gaddafi's generals will not be getting calls from fellow West Pointers at the Pentagon urging them to hold their fire. Nor will the threat of sanctions — President Obama said the U.S. and its allies were considering "the full range of options" — hold much terror for a regime that has endured long periods as an international pariah. (Watch TIME's video "The TIME Cover Speaks: Ideas From Arab Youth.")

So what began with the hope of regime change in the new, nonviolent way is now devolving into an old-fashioned African civil war, complete with shifting tribal allegiances and foreign mercenaries. Libyans' chances of being rid of their ruler of 42 years lie in their ability to endure his jet fighters; many hope more of his soldiers will mutiny. Gaddafi's survival may depend on whether he can rally support among his own and other tribes and bolster his forces with hired guns. (Reports from Tripoli say protesters have been fired upon by foreign gunmen.)

For the rest of the world, a Libyan civil war would mean a humanitarian disaster — Egypt and Tunisia, like Italy, are bracing for refugees from the fighting. There seems likely to be a global economic impact too: Libya is a major oil exporter, and several oil companies have halted production, accelerating a rise in crude prices — which rose 2% the day after Gaddafi's speech. But unlike the revolutions roiling other Arab nations, Libyan chaos does not immediately threaten the regional order or global security. There's no domino effect to worry about: Libya's neighbors have already had their regimes changed. Nor is there a serious threat of Islamic extremists' rushing into any leadership vacuum in Tripoli. And instability in Libya doesn't directly threaten the interests of an important U.S. ally, as the prospect of instability in Egypt did those of Israel. Even so, the Obama Administration is wary of "the [possibility that] you have more than one entity that controls territory in Libya," says a senior Administration official. Especially if one of those entities is Gaddafi: although he's been relatively well behaved in recent years, the official points out, "go back 20 years or so, and he was a significant sponsor of terrorist acts who had a nuclear program." (Comment on this story.)

Mad Dog of the Middle East
By the time Gaddafi had that dubious title bestowed on him by President Ronald Reagan in 1986, the eccentric Libyan colonel turned dictator had been in power for nearly 17 years and had proved a nuisance to Arabs and Westerners alike. His nation's oil riches and tiny population — Libya has the world's ninth largest known deposits and just 6.5 million people — allowed him to spend money freely on pet causes, including the Palestine Liberation Organization and a number of Islamic groups. Relatively little was spent on his people: a Gallup poll released last year showed that 29% of young Libyans were unemployed and 93% described their condition as "struggling" or "suffering."