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SONA 2015: PHL investment grade rating: What happens to the poor?
By KEITH RICHARD D. MARIANO, GMA News
If credit ratings are an indication, the Philippine economy has come a long way since Benigno Aquino III assumed the presidency over five years ago. But some economists refuse to take the ratings at face value.
Global debt-watchers like Standard and Poor's Financial Services, Fitch Ratings and Moody's Investor Service have upgraded their respective credit ratings on the Philippines beyond the coveted minimum investment grade under the Aquino administration.
However, only the elite stand to benefit from such rating actions, IBON Foundation senior researcher Glenis Balangue told GMA News Online on the sidelines of the think tank's midyear economic and political forum.
For economist and former Budget Secretary Benjamin Diokno, the upgrades were but superficial and refused to give the Aquino administration due credit.
“You cannot attribute that to this government... Whether it's Aquino or any other government, you will get that. Ang advantage lang naman is you are able to borrow money at lower cost,” Diokno said in a separate interview.
Rating upgrades
The Philippines achieved its first investment grade from Fitch Ratings in March 2013, roughly three years after Aquino won the presidency in the May 2010 elections. The country's credit rating has since been revised to BBB- from BB+ on the merits of a resilient economy.
S&P followed suit and gave the Philippines its BBB- from BB+ after a month, and Moody's its minimum investment grade of Baa3 in October 2013.
The Philippines received its highest credit rating after S&P further upgraded its investment grade to BBB in May 2014. Moody's also made an upward revision in the country's credit score to Baa2 before the year ended.
Aquino never forgot to highlight the investment grade status of the Philippines every time he delivers the state of the nation address (SONA). And in his last speech before the Congress on July 27, the president has yet another credit rating upgrade to trumpet.
“Because the Philippines is now investment grade, government will be able to borrow funds for programs and projects at lower interest rates, more business will be attracted to invest in our country, and Filipinos will be able to feel the benefits of our economic resurgence more quickly,” Aquino said in his fifth SONA last year.
Grades like BB- and BBB are loosely similar to the way schools grade their pupils. S&P, for instance, assigns bankrupt states the lowest grade of D while the highest AAA ratings are given to those exhibiting the least risk of not meeting debt payments.
The Philippines' BB- rating prior to March 2013 indicates vulnerability to defaulting on its obligations, especially in the event of adverse changes in business or economic conditions over time, according to Fitch.
The BBB ratings, which reflect the minimum investment grade rating, indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate even if adverse business or economic conditions are more likely to impair this capacity.
Credit ratings measure the capacity of a country to repay debts based on how well the economy and the national coffers are managed by government officials.
Grades like BB- and BBB are loosely similar to the way schools grade their pupils. S&P, for instance, assigns bankrupt states the lowest grade of D while the highest AAA ratings are given to those exhibiting the least risk of not meeting debt payments.
The Philippines' BB- rating prior to March 2013 indicates vulnerability to defaulting on its obligations, especially in the event of adverse changes in business or economic conditions over time, according to Fitch.
The BBB ratings, which reflect the minimum investment grade rating, indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate even if adverse business or economic conditions are more likely to impair this capacity.
'Not needed'
But the perks that come with an investment grade, particularly the lower cost of borrowing from foreign creditors, seem unnecessary for now.
“At this time, hindi nga dapat tayo nanghihiram. We have enough money internally to finance all our requirements and we have enough money to pay for our debt. It is not advisable to borrow money abroad,” Diokno said.
Contracting new foreign debts would supposedly result in a stronger peso, which would discourage spending among families relying on remittances from relatives who live and work abroad, and make the Philippines exports more expensive at a time when global continues to struggle against sluggish economies that resist growth.
In the case of the Philippines, a strong and sustained local consumption has remained the primary driver of the economy, according to the Bangko Sentral ng Pilipinas and National Economic Development Authority of the Philippines.
“Ang policy is to keep the peso competitive. Kung nasa P45:$1 ang exchange rate, mas marami ang pera ng OFWs (overseas Filipino workers) and they use that to consume. Remember that the Philippines is a consuming society,” said Diokno.
'No trickledown effect'
While investment grades attract investors to the Philippines, much remains to be done.
“Ngunit sa kabilang banda, iyong workers tinanggalan mo ng kasiguruhan sa marangal na sahod, pinalawig ang kontraktwalisasyon at hinikayat ang tripartism sa halip na ayusin ang labor practices ng mga kompanya,” Balangue said.
The government must focus on strengthening the agriculture, manufacturing, construction and power sectors to really address the country's biggest economic problems of poverty and unemployment, Diokno said.
Reiterating the pressing need for support for agriculture and local industries, Balangue said: “Ang mga mamamayan na gumigising nang walang makain ay walang mapapala dito dahil ang economic growth na nakatuon sa maliit na seksyon ng elite will never trickle down.” – VS/JJ, GMA News
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