Wednesday, April 27, 2011


With about $63 billion in the coffers, Philippine Finance Secretary Cesar Purisima travelled to Washington DC and New York last week to convince credit managers the country now deserves a better deal.

Purisima and Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. led the country’s delegation to the spring meetings of the World Bank Group and International Monetary Fund April 16-17 in Washington DC .

But it was Purisima’s trip to New York that drew closer watch. Diplomatic sources told the Manila Mail he met top Wall Street executives, including Standard & Poor’s that only recently lowered America ’s long-term credit rating from “stable” to “negative”. The two other major rating agencies are Moody’s and Fitch Ratings.

Standard & Poor’s currently rates the Philippines ’ two notches below the coveted investment grade level. The Philippines is now lending to the IMF in sharp contrast to the 1980s when former strongman Ferdinand Marcos was forced to institute painful reforms that observers say, exacerbated his already precarious political situation.

Fitch Ratings rates the Philippines at BB, or two steps below investment grade. Moody’s maintains a BAA rating or three steps below investment grade although it raised the country’s outlook to “positive” last January.

A credit rating upgrade would provide the administration of President Benigno “Noynoy” Aquino III a much-needed boost. It will almost right away, lower interest payments on the country’s loans. That would encourage more investments and produce the jobs that he’s made a centerpiece of his 6-year term.

It could also enhance the President’s political stock back home after a fumbling start that saw a botched hostage rescue and an ineffective jab against the country’s top court.

Purisima’s mission, according to The Wall Street Journal, “highlights the improving prospects of Asia’s fast-growing economies compared with the mounting debt worries in the US and some European nations.”

In contrast, the US dollar tumbled against major currencies and gold prices reached record highs of over $1,500 per ounce, as the fall-out over Standard & Poor’s downgrade continued to spread in America . The rating agency warned it could downgrade America ’s premium AAA rating if Democrats and Republicans fail to agree on a way to pare down the nation’s $14 trillion debt.

With signs the US economy is slowing down again because of weak job growth and rising gas prices, it is the US companies operating abroad that are actually faring better. That would open a window of opportunity for the Aquino administration if it can weather its own domestic challenges arising from higher fuel prices and the damaged economies of major trading partners like the US and Japan.

“If the negative outlook becomes an actual downgrade, more foreign capital inflows will go to emerging markets,” Wick Veloso, treasurer of the Hongkong Shanghai Banking Corporation in Manila predicted.

The Philippines reported foreign capital inflows of $4.6 billion last year, a whopping 1200 percent increase from 2009’s $388 million.

Experts blame the Federal Reserve’s near-zero interest rate policy and the decision of more countries to wean their currencies away from the US Dollar.

The BSP forecast a balance of payments surplus of $6.7 billion and a current account surplus of $5.6 billion by the end of 2011 that’s expected to further boost the Philippines ’ foreign exchange reserves to $70 billion, exceeding the country’s total external debt with change to spare.

President Aquino, an economist by training, has promised to stem corruption and go after tax evaders, something the US credit agencies have signaled they want.

Earlier this month, the Bureau of Internal Revenue sued Congressman Mikey Arroyo, former President Gloria Macapagal Arroyo’s eldest son, for unpaid taxes in connection with the solon’s houses in the US . The President’s allies in Congress also impeached Ombudsman Merceditas Gutierrez, who’s accused of shielding Mrs. Arroyo from corruption charges. That sparked a word war between the former and current occupants of Malacanang but President Aquino appeared unfazed and promised a relentless campaign

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