According to the Institute for Development and Econometric Analysis, Inc. (IDEA) Economic Trends, “while the rest of the rating agencies maintained the Philippine credit rating in the previous year including short term rating, the decision of Fitch to downgrade the local long term currency rating was grounded on the mounting political unrest that plunged the future administration in uncertainty.
The people power demonstration of EDSA II calling for the ouster of then President Estrada lasted for four days on January 2001. Another mass movement was launched four months later calling to reinstate the ousted president.
The movement was sparked by the arrest of Estrada. Although the number of people who participated in the said movement was significantly less than those who participated in EDSA II, the threat it posed to the new administration could not be undermined that then president Arroyo declared a state of rebellion in the capital region. Inflation was decreasing by the end of 2002 while the real GDP was growing at 4.4 percent, more than twice of the previous year.
However, the worsening fiscal deficit which was at 5.2 of GDP coupled with further political unrest with the series of bombings by the separatist rebels of the south kept the credit ratings unchanged.”
It was further reported that “the 2010 national elections saw record turnout rates with the massive campaign on the civic duty of voting. The automated election was a first in the country and it greatly increased the credibility of the voting tally. President Aquino was inaugurated on June as the 15th president.
With the new administration, investor confidence has been upbeat as evident in the recent records set in the stock markets and the continuously declining Treasury bill rates. This is attributed in part to the inflow of hot money seeking shelter from the economic difficulties of developed countries. Moreover, real GDP growth jumped to 7.3 percent in 2010 from the meek 1.1-percent growth in 2009. Inflation was also kept in check by the Bangko Sentral ng Pilipinas within 3-5 percent target level. As expected from the recent events and figures, the long term foreign currency rating of the Philippines was upgraded in 2011 by S&P, Fitch, and Moody's. The long term local currency rating has also been reinstated to the investment grade category by S&P.”
Thru the period discussed, real GDP growth, inflation rates, Treasury bill rates, political risk, and government credibility along with other economic indicators helped in shaping credit ratings earned by the Philippines. Positive ratings increase the efficiency of the direct encouragement efforts of the government to bring in more investments into the country as it provides a firm basis for consideration.
Furthermore, investors are looking forward to the passage of the freedom of information bill that could address corruption issues that have long been detrimental to business investments. With the current transparency of the administration as well as its efforts to make the government accountable, political conditions are ripe for another upgrade.
However, the threat of inflation due to the instability of oil prices and the lower than expected GDP growth for 2011 could dampen positive prospects. A single notch upgrade in the medium term is possible but there are uncertainties that could dampen it, according to IDEA.
Editor’s Note: For comments, rejoinders and questions related to credit & collection, Mr. Ed F. Limtingco can be reached at elimtingco@yahoo.com.