"We would like to incorporate the election results into our analysis," Joydeep Mukherji, director of S&P’s sovereign ratings, told Reuters in an interview late Thursday, when asked the likely timing for any possible review.
On Jan. 19, S&P said the outlook on the long-term ratings for the Philippines remained negative, as it had been since October 19, 2000. It affirmed the country’s double-’B’-plus long-term and single-’B’ short-term foreign currency sovereign credit ratings, in speculative grade. Officials from the international ratings agency are in the Philippines this week to assess the political and economic changes since President Macapagal-Arroyo replaced disgraced leader Joseph Estrada on Jan. 20.
"The stage seems to be set for more encouraging news," said Mukherji.
"Clearly, a good team is in place and is taking time to come up with a realistic economic strategy."
But the unknown factor was how and at what pace the new government would make the changes to restore the economy battered by poor management and the recent political crisis, he said.
"How successfully can the new government stabilize the fiscal problem it has inherited and also how quickly can it start the structural reforms?" Mukherji said.
"What we want to know is how effective the government will be," Mukherji said, adding that any political developments – such as the fate of ex-President Estrada charged with corruption and economic plunder as well as the outcome of May congressional elections – would be viewed in this light.
Factors driving the current negative outlook were the country’s growing budget deficit and the level of public sector debt of which about half is in foreign currency, Mukherji said. Another concern was the pending structural reforms in areas such as energy.
The Philippines budget deficit stood at P136.11 billion in 2000 and the government’s target for this year is P145 billion. For 2002, Manila hopes to bring the deficit down to P120.6 billion. "Even if you do a few good things (to improve government debt), you still have to make assessment of the Philippines debt trajectory," Mukherji said.
Strong exports, the positive factor that supported the Philippines ratings from slipping further, were set to ease this year with sluggish economic growth in the United States, its major trading partner.
But if Mrs. Arroyo could put in place measures to attract foreign investments usually geared for the export sector, the effect may be minimized, he said.
The Philippines’ balance of payments (BOP) swung to a $512 million deficit in 2000 from a $3.6 billion surplus in 1999, due to outflows in investment accounts.
Mukherji did not see the BOP deficit becoming a major risk for the country. If the trade picture was less rosy, the good news should come from the capital side, where a return of foreign investments should compensate for the fall in exports, he said.