Muslim rebels confused over her demands for talks - and the arrest of their leaders Mixed messages from the Philippine government - holding out an olive branch to Muslim separatists in Mindanao while trying to arrest them - have again stalled peace talks, which are seen as key not only to the development of the southern island but also to improving national security. The 25-year conflict between the state and the 12,500-strong Moro Islamic Liberation Front (MILF) has lent the country an image of instability and deterred foreign investment on the largely undeveloped island. Peter Wallace, a Manila-based risk analyst, noted that for many foreign investors, 'it is difficult to distinguish between Mindanao and the Philippines as a whole'. He added: 'So if you say there is unrest in Mindanao, most people think that's the whole of the Philippines.' The impact of the conflict on Mindanao itself was 'very high', he said. 'It's very difficult to convince people to invest there, particularly in [the autonomous Muslim region] where it seems to be unsafe.' In a recent paper on Mindanao, economists Fermin and Lourdes Adriano said that resolving the conflict would spur national economic growth, reduce poverty and increase trade between the Philippines and Mindanao's neighbours - Malaysia, Indonesia and Brunei. United States Ambassador Francis Ricciardone has dangled US$50 million in livelihood aid to the Muslim rebels once they sign a peace pact. While the peace dividends are clear, the government's way of getting there appears confused. President Gloria Macapagal-Arroyo has demanded that MILF chairman Hashim Salamat head the rebel negotiating panel. And yet, remarkably, she has not directed her officials to give him a safe conduct pass to counter two outstanding warrants of arrest against him. Salamat initially accepted the invitation, but a day later, the MILF central committee - consisting of Salamat and all his deputies - rejected making their leader the chief negotiator. MILF spokesman Eid Kabalu said the rebel leadership believed the government was insincere, after a combined force of military and police raided the homes of two MILF deputies on Sunday. The group's vice-chairman for military affairs, Murad Ebrahim, and vice-chair for political affairs, Ghazali Jaafar, narrowly escaped arrest. Both men - with Kabalu and Salamat - are charged over two separate bombing incidents on Mindanao. A senior diplomat said he could not understand why the government would try to arrest Murad, when he is perceived as a dove in the MILF leadership. And as the rebel army chief, Murad's presence would be needed to guarantee a permanent ceasefire was observed once both parties had agreed to it. The separatists claimed they were doing this by declaring a 10-day unilateral ceasefire, then extending this by 10 more days to June 22. Mrs Arroyo belittled both ceasefires as a mere ploy to consolidate forces and demanded a permanent one. She has yet to formalise her offer to Malaysia to head a ceasefire monitoring committee, something that could prevent a breakdown in talks by reducing hostilities. Mrs Arroyo also indicated a permanent ceasefire would not stop the government taking 'punitive action' against 'embedded terrorist cells' in the MILF. Last Friday, the nation thought a significant breakthrough had been achieved when Mrs Arroyo announced that Salamat had personally agreed in writing to withdraw rebel forces from five towns in central Mindanao and declare these 'zones of peace'. However, three days later, the MILF deputy for information, Mohagher Iqbal, said Salamat himself had denounced the letter as 'false and fabricated' and part of the government's 'deception tactics'.