By Rosemarie Francisco and Stuart Grudgings
MANILA/KUALA LUMPUR (Reuters) - The Philippine government and Muslim rebels agreed on a deal to end a 40-year conflict that has killed more than 120,000 people, President Benigno Aquino said on Sunday, paving the way for a political and economic revival of the country's troubled south.
The agreement begins a roadmap to create a new autonomous region in the south of the mainly Roman Catholic country before the end of Aquino's term in 2016, giving the Muslim-dominated area greater political powers and more control over resources.
Expectations are high that after nearly 15 years of violence-interrupted talks, both the government and the country's largest Muslim rebel group will keep their pledges in the agreement, to be signed on October 15 in Manila and witnessed by Aquino and Malaysian Prime Minister Najib Razak.
"This framework agreement is about rising above our prejudices. It is about casting aside the distrust and myopia that has the plagued efforts of the past," Aquino said via a live broadcast from the presidential palace.
The new entity, whose exact size will decided by plebiscites ahead of elections in 2016, will be called Bangsamoro -- the term for those who are native to the region and which Aquino said honored "the struggles of our forebears in Mindanao".
The south's volatile and often violent politics could still hamper the plans. There is a risk that radical Islamic factions could split off from the Moro Islamic Liberation Front (MILF) and carry on fighting in a region that has a history of links with al Qaeda militants.
Shortly after the announcement, a breakaway group said it would continue to fight for an independent Islamic state.
"We do not care if the government and the MILF reached an agreement. We do not want the Bangsamoro entity or whatever they may call it," said Abu Misry Mama, spokesman of the Bangsamoro Islamic Freedom Movement, in the southern city of Davao.
The group launched attacks on army positions in the south in August as government and rebel negotiators held talks in Kuala Lumpur, but were repulsed by government troops.
Another threat comes from powerful clans who control some areas in the region and may fear a loss of political influence.
The MILF and the government still need to thrash out details of their broad agreement in the months ahead as a 15-member commission drafts a law by 2015 to send to Congress.
The two sides agreed only that there would be "just and equitable" sharing of resources, which are believed to include large reserves of natural gas. Determining how much power the area will have over law, such as its scope to administer sharia justice, is another remaining challenge for negotiators.
Philippine chief negotiator Marvic Leonen told reporters in Kuala Lumpur, where the talks were held, that many hurdles remain and that the agreement was just the beginning.
"Peace processes are not easy. The agreement only heralds a change of the status of the parties vis-a-vis each other, from enemies perhaps to partners," he said, following the talks that have been brokered by Muslim majority Malaysia.
Hopes of peace have been raised in the past only to be dashed, most recently in 2008 when the Supreme Court declared a deal unconstitutional in a decision that set off rebel attacks and a fierce military offensive that displaced 750,000 people.
The prospects seem brighter now, analysts say, because Aquino commands strong political capital and has committed to a final settlement by the end of his term.
A spokesman for the armed forces, Colonel Arnulfo Marcelo Burgos, said a successful implementation of the deal would now allow the military to focus their resources on defending the country's territorial rights in a row with China over the South China Sea.
The deal could also reap economic benefits as the Philippines defies its reputation as a laggard with strong growth and a resurgence in investor interest.
After four decades of conflict, the MILF leaders are ageing and, analysts say, eager to see some fruit from the years of peace negotiations.
They said the leadership may be motivated by the prospect of royalties from huge untapped deposits of oil, gas and mineral resources in rebel areas, part of an estimated total of $312 billion in mineral wealth in Mindanao. France's Total has partnered with Malaysia's Mitra Energy Ltd. to explore oil and gas fields in the Sulu Sea off Mindanao.
The deal is unlikely to have much immediate impact on the economy of Mindanao, said Steve Rood of the Asia Foundation, citing concerns about the region's poor infrastructure, education and health services.
He said investors should take a longer view in the tourism and agricultural sectors, where Mindanao could become a hub for certification of halal products, those prepared under Islamic guidelines. The global halal industry is valued at around $2.1 trillion.
The new entity and its jurisdiction, expected to cover five provinces under the existing autonomous region plus parts of Lanao del Norte and North Cotabato provinces, will be determined through a plebiscite after the passage of the organic law.
Presidential peace adviser Teresita Quintos-Deles said the areas to be added had previously voted to be part of the autonomous region. She added the southern cities of Isabela and Cotabato may also be covered by the new entity.
The Muslim area will gain powers such as the right to impose taxes to cut central government subsidies, a bigger share in revenues from natural resources and a more active role in internal security.
But the Philippine government will continue to hold exclusive powers of defense and security, foreign policy, monetary policy, and citizenship and naturalization.
"This framework agreement paves the way for a final, enduring peace in Mindanao," Aquino said. "This means that hands that once held rifles will be put to use tilling land, selling produce, manning work stations, and opening doorways of opportunity for other citizens."
(Additional reporting by Manny Mogato in Manila; Editing by Jeremy Laurence)