RP economy still sound - Chase

Chase Manhattan Bank believes the Philippines economy remains sound despite the political problems it is encountering right now.

In its latest International Fixed Income Research paper, Chase said this sentiment is also echoed by other international rating agencies.

"In conversations with both Moody's and Standard & Poor's, both agencies argue that the ratings outlook for the Philippines (Bal/BB+) is stable," Chase said.

According to Chase, both agencies argue that Colombia has much more deep-seeded political problems than the Philippines.

"The insurgency problem in the Philippines has always been contained in the southern islands of the Philippines, away from the major business centers," it said.

Aside from this, Chase noted that other macroeconomic factors have also been stable.

It noted that the country continues to run solid external surpluses. "We project that the trade balance will remain in a slight surplus of $2 billion even with GDP (gross domestic product) growth recovering modestly to 3.7 percent this year," it said.

It said the current account is also expected to remain in a sizeable surplus of 5.7 percent of GDP this year. GDP refers to the sum of goods and services produced in a country minus the remittances from overseas workers.

Chase also noted that the government's external financing needs for the remainder of the year are manageable.

The debt service ratio for the Philippines, it said, is among the lowest of any emerging market country at only 10.7 percent of export earnings compared to Argentina (120.2 percent), Mexico (28 percent), South Korea (17.3 percent) and Brazil (71.5 percent).

It said the government was able to maintain a low inflation rate. "April CPI (consumer price index) came in at 3.7 percent.

According to Chase, the government's five to six percent target for inflation for the whole year should be met.

Other factors cited by Chase for its favorable outlook for the Philippines is the recent move of the International Monetary Fund (IMF) which extended the country's stand-by program through year-end. "The Philippines has still $660 million of unused credit under the program," it said.

It said the passage of various reform bills was also considered in making this outlook. These bills include the General Banking Act (which allows full foreign ownership of local banks), the Revised Securities Act (which empowers regulators to stop irregularities in the stock market) and the Omnibus Power Bill (which paves the way for the privatization of the National Power Corp. -