Manila - Philippine President Gloria Macapagal Arroyo on Monday rejected appeals for the government to scrap an unpopular sales tax to ease spiraling food and fuel prices.

In her annual state of the nation address in Congress, Arroyo said removing the 12-per cent value-added tax (VAT) would dampen investor confidence, weaken the economy and further hike prices.

"Take away VAT and we strip our people of the means to ride out the world food and energy crisis," she said in her speech, which many had hoped would offer relief for the high prices.

"Take away VAT and you and I abdicate our responsibility as leaders and pull the rug from under our present and future progress, which may be compromised by the global crisis," she added.

Outside Congress, thousands of protestors took to the streets despite rains and heavy security to demand the Arroyo administration take more concrete steps to bring down food and fuel prices.

They carried placards that read "Raise wages," "Bring down prices, save lives," "Oust Gloria" and "Gloria resign."

In front of them, a crane carried an effigy of Arroyo riding on a airplane, while behind her a ship was sinking with thousands of hands pleading for her help.

Arroyo, the most unpopular leader in the Philippines since 1986, according to recent public opinion surveys, said she was prepared to face criticisms for her decision on VAT.

"Leadership is not about doing the first easy thing that comes to mind, it is about doing what is necessary however hard," she said.

The US-trained economist said the prices of food and fuel will likely remain high.

"Nothing is easy, the government cannot solve these problems overnight," she said. "But we can work to ease the near-term pain while investing in long-term solutions."

The government has so far allocated at least 6.5 billion pesos (147.72 million dollars) for subsidies to help poor Filipinos cope with the rising prices.

Arroyo promised to take care of the Filipinos amid the "crucial moment in world history."

"I care too much about this nation to let anyone stand in the way of our people's wellbeing," she said. "I will let no one - and no one's political plans - threaten our nation's survival." (dpa)