MANILA, Philippines - Senate finance committee chairman Sen. Franklin Drilon yesterday directed the government’s finance and economic managers to provide the committee with possible impacts on budget assumptions of the decision of Standard and Poor’s (S&P) to cut the triple A rating of the United States.
Speaking before the committee during the Department Budget Coordinating Committee (DBCC) on the 2012 National Expenditure Program yesterday, Bangko Sentral ng Pilipinas (BSP) Governor Armando Tetangco and Budget Secretary Florencio Abad admitted that they have not yet taken into account the possible impacts of the US credit rating downgrade on the 2012 national budget.
“Mr. Chairman, this has not been discussed by the DBCC yet because the downgrade happened only last Saturday. I think we need some time to assess the potential impact,” Tetangco said.
Drilon stressed the need for the finance and economic managers to look into how the downgrade will affect the Philippine economy in a bid to plug possible leaks during discussions on the 2012 national budget.
“This is very critical, we are talking here about the budget. I mean what happened over the weekend could change our assumptions and projections,” Drilon said.
He gave the country’s finance and economic managers 60 days to come up with a position on the issue.
“From the discussions earlier, we are confident that we can cope with the downgrading. I want a definite answer, are we going to revise our projections? How will it affect our assumptions?” Drilon said.
Abad said they didn’t have enough basis to revise the assumptions “at this point.”
Finance Secretary Cesar Purisima asked for more time to be able to determine what markets will react to the US downgrade, and how it will impact on the Philippine economy.
Drilon said the issue of the downgrade is “most challenging” because it might affect unemployment and underemployment in the country.
Short-lived
But the BSP believes that the impact of the decision of S&P to downgrade the triple A credit rating of the US – the first time since 1917 – over the weekend on emerging markets including the Philippines would be short-lived.
Tetangco told reporters that the downgrade would reflect in the greater volatility in foreign exchange markets.
Tetangco said monetary authorities would speed up the review of possible refinements in the non-deliverable forwards market to impose prudential limits in order to stem excessive volatilities in the foreign exchange market.
According to him, the BSP would continue to be watchful of developments in aggregate global demand, particularly on international commodity prices that form a critical factor in the country’s domestic inflation processes.
The BSP chief reiterated that the central bank would continue to review the composition of the country’s assets, the bulk of which are in US treasuries.
For his part, BSP Deputy Governor Diwa Guinigundo said the impact of the US credit rating downgrade on global markets will be short-lived.
“What happened last week was a knee-jerk reaction of the risk aversion but what we are hoping for is that the market will be more discriminating, more discerning and the market will realize that some emerging markets continue to be very resilient, that their macro economic fundamentals continue to be sound and stable,” Guinigundo said.
No immediate impact
Meanwhile, S&P yesterday clarified that there is no immediate impact on Asia-Pacific sovereign ratings resulting from the lowering of the issuer credit ratings on the US as well as the weakening sovereign creditworthiness in Europe.
“Uncertainties in the global financial market and weakened prospects in the developed economies have further undermined confidence. The potential longer-term consequences of a weaker financing environment, slower growth, and higher risk aversion are negative factors for Asia-Pacific sovereign ratings,” S&P said.
S&P said the Philippines together with Thailand, Taiwan, Korea, Malaysia, Japan, Australia, and New Zealand are likely to experience export-driven slowdowns either through weaker demand or lower export prices, or both.
Same target
Abad said the government is keeping the budget deficit target for the year at roughly P300 billion or 3.2 percent of gross domestic product while Purisima said balancing the budget is not a priority of the government.
The finance chief said the government is also assessing the effect of the downgrade on the country’s dollar debts.
He said that as a trading partner, the US accounts for 17 percent of the country’s exports. Nevertheless, he said that China has also been driving global growth in recent years.
The finance chief believes that the dollar will weaken against most currencies in the world.
As such, investors are expected to move to safer currencies.
Purisima added that in light of the recent developments in the US, the administration will continue to increase the competitiveness of local industries for the economy to thrive.
Yesterday, the Department of Labor and Employment, for its part, said all American-owned firms and export establishments nationwide are now under tight watch for possible temporary closure and retrenchment of workers.
‘Review trade dealings’
Sen. Sergio Osmeña said the impact on the Philippines of the ratings downgrade will be based on its impact to the US and European economies as well as China, while Sen. Francis Escudero said the government should review its trade dealings with the US.
Aurora Rep. Juan Edgardo Angara said, “We should be prepared for the worst case scenario which is recession in the US and Europe.”
Ang Kasangga sa Kaunlaran party-list Rep. Teodorico Haresco, vice chairman of the House committee on small business and entrepreneurship development, said one possible measure is for the government to start imposing capital control as he noted the Philippine peso is “artificially appreciating versus the US dollar.”
Foreign Secretary Albert del Rosario, meantime, is optimistic that the country is prepared to survive the effects of the rating downgrade. – With Iris Gonzales, Mayen Jaymalin, Paolo Romero, Pia Lee-Brago, Lawrence Agcaoili