Until then, the financial and stock markets are expected to simply coast along, preferring to wait for the outcome of today’s elections while anticipating a readjustment of the country’s sovereign ratings.
"Still a waiting game, this is how the current market environment can be best portrayed," ING Barings said in a recent country outlook.
ING Barings said that with the arrest of former President Estrada and the quelling of the Mendiola uprising by his supporters, the focus is now on the election, which it described as critical to the Arroyo administration.
"Victory in both the Congress and the Senate will be crucial for the continuity of reforms. If support from the independent senators can be garnered, control of the Senate will be complete and the reforms outlined by the Arroyo administration will be facilitated."
Aside from ensuring political stability, ING Barings said there are other necessary steps that would help convince credit rating agencies to consider upgrading their outlook of the country.
One of these is the passage of the power sector reform bill when both houses of Congress resume sessions by June. Passage of the bill will release $950 million in multilateral funding.
The controversial issues on cross-ownership, stranded costs and bilateral contracts were already addressed in the bicameral committee which now only needs the signatures of committee members for presentation to both houses.
ING Barings said the government is also moving in the right direction by re-opening peace talks with the National Democratic Front and the Moro Islamic Liberation Front and setting an 18-month deadline to resolve differing issues.
ING Barings said another major issue that needs to be worked out is falling revenue collections, which has widened the budget deficit in the first four months to P38.783 billion.
"If collections do not improve, important expenditure items in the budget will be jeopardized," the investment bank said in its study.
The investment bank said that while local developments augur well for a re-rating of the markets, the external environment continues to cloud prospects for economic growth.
"We have trimmed US economic growth to just 1.6 percent while Japan’s growth was slashed to one percent, this would result in slower global growth of three percent. Just how serious the impact will be on the Philippines? In terms of trade, a dual-country slowdown will affect their 45 percent contribution to the Philippines or 60 percent of electronic exports, and 36 percent contribution to Philippine imports or 40 percent of electronic imports," ING Barings said."
Earlier, international credit rating agency Standard and Poor’s (S&P) managing director John Chambers said the election is the key to the credit rating outlook for the country.
Chambers said that if the administration does not get a strong mandate, governability will be an issue for the Arroyo administration for the rest of her term.
S&P currently rates the Philippines’ foreign currency debt at BB+, but has had that junk-grade rating on negative review since October last year because of what it perceived as government’s wavering commitment to economic reform and concerns over possible destabilization moves of imprisoned former President Estrada’s supporters.