The recent political tension should have a minimal impact on credit rating firms that are assessing the country’s creditworthiness, especially after the government successfully crushed the Mendiola uprising and lifted its own declaration of a state of rebellion in Manila.
All these positive developments however, will hinge largely on the conduct of the elections, the Hongkong and Shanghai Banking Corp. Limited (HSBC) treasurer in Manila John McGowan said.
"My view is that provided the elections are done peacefully and government shows determination in addressing budget issues, this could lead to an increase in foreign direct investments, an increase in the stock market and an improvement in the foreign exchange rate. For as long as there are no unforeseen shocks, the economy can still pick up," McGowan said.McGowan said credit rating agencies like Standard and Poor’s (S&P), while concerned about possible violence in the elections, are more concerned about how government will address the budget deficit.
The government has urged international credit agencies to reassess the Philippine economy for a possible upgrade of the country’s sovereign credit ratings after it crushed the rebellion last May 1.
Last week, Moody’s Investor Service maintained its negative outlook on the country’s sovereign ratings following the declaration of a state of rebellion in Manila.
On the peso, McGowan said the overseas financial market takes it cue from the local financial markets.
The peso skidded against the dollar during the rallies staged by Estrada loyalists but has picked up after the demonstration fizzled out.
Citing the response of the Arroyo administration to quell its most recent and serious threat, McGowan said the international financial market had a negative view of the situation, a view not shared by the domestic market.
"Initially, its initial impact overseas was that a state of rebellion will lead to a depreciation of the peso, but what we haven’t realized is that the local market saw this as a positive step, and this was reflected in the next two to three trading days," McGowan said.
McGowan said however, there will be still be pressure on the peso although this will be temporary.
"Eventually, when the elections are over and it was done orderly and peacefully, the exchange rate should improve and this should help bring down interests rates and borrowing costs," McGowan said.
"And us numbers improve, this should send positive signals to foreign investors," McGowan said, adding that a lot depends on the US economy. If there is a perceived slump, it is going to affect not just the Philippines, but other countries in the region as well," McGowan said.
The Philippines is the US major trading partner.
Earlier, HSBC projected a GDP of only 2 percent, lower than the government’s projected growth of 3.8 percent. Its study showed Philippine exports this year which government already scaled down to 4 percent from the original target of 8.7 percent, will adversely affect the projected overall growth targets.
HSBC’s bearish outlook is based on the report that imports fell 15.7 percent December last year. The bank noted the sharp drop in purchases of imported electronic parts is a concern since these are needed to produce electronic exports, which account for about two-thirds of total exports. – Rocel Felix