S&P to review RP ratings

Representatives of Standard & Poor’s Ratings Services have arrived in the country for the annual credit ratings review ahead of the May elections.

S&P representatives have been conducting meetings with government officials. S&P is reviewing its sovereign credit ratings on the Philippines which stand at BB/Stable/B for foreign currency and BBB/Stable/A-3 for local currency borrowings.

Credit ratings agencies have grown increasingly concerned over the anticipated outcome of the elections although all of them contended that the result is not as critical as the manner in which the election is conducted.

Sources said there were no indications of S&P’s inclinations, but the ratings firm has already expressed concern that Philippine politics and the fractiousness of its bureaucracy could eventually derail the economy.

S&P said the country’s increasing debt levels have already been considered when it downgraded its ratings last April 2003, as well as the government’s difficulty in maintaining fiscal discipline.

During its last downgrade, however, the finance secretary was still Jose Isidro Camacho whose resignation was largely ignored by S&P as not critical to its credit rating.

S&P said that there have been improvements in tax collection but the agency said there was no indication that Camacho’s resignation would lead to unfavorable economic or fiscal results, despite the fact that the initial deterioration and subsequent pickup of tax collections occurred during his tenure.

"Nevertheless, we have noted in the past the personality-based nature of Philippines politics, and the weakness and fractiousness of the country’s institutions, are factors that can undermine confidence and the predictability of economic policy," said Chih Wai Liew, credit analyst at Standard & Poor’s Sovereign Ratings Group in his report late last year.

With much of the countrys external debt denominated in foreign currency, S&P warned that any collapse in confidence and rapid fall in the value of the peso could cause financial disruption.

"Given the uncertain political landscape, Standard & Poor’s will continue to evaluate fiscal policy in particular, as well as trends in the exchange rates, in the run-up to next year‚s presidential election" Liew said.

S&P has warned that the Philippines’ rating will remain below investment grade without substantial improvement in its fiscal profile and external liquidity, warning that failure to adhere to credible fiscal strategy could renew pressure on the currency.

In a report prepared by S&P analysts Takahira Ogawa and Joydeep Mukherji, the agency said the country’s stable outlook was based on expectation that the government will slowly stabilize the erosion of public finances witnessed in recent years.