Subliminal endorsement Fitch Ratings strangely issued a report affirming the investments grade on the Philippines which also indicated a stable outlook. In layman’s term, the report offered nothing new except restating a previous action. It, however, issued a warning that the level of governance remains below par the norm among countries with the same rating. The credit watchdog was the first to issue this warning among the three closely watched agencies, the other two being Moody’s and Standard and Poor’s on Noynoy’s much pursued investments grade. Regrettably despite the grand slam of attaining the ratings target, the lives of Filipinos failed to dramatically improve while more significantly, foreign investors continue to shun the country in favor of its neighbors in the fast-growing region. According to Fitch, the governance situation under Noynoy, despite the straight path or tuwid na daan catchphrase, remains weaker than the country’s rating peers as measured by international indices such as the World Bank’s framework. It, however, conceded that some countries in the category fare worse than the Philippines. It noted, however, the irony that governance reform has been the centerpiece of the Aquino administration’s policy efforts. What was also notable to Fitch was that remittances from Filipinos working abroad continue to be a main driver of growth and consequently improvement in the state of ordinary Filipino families. In its report affirming the credit rating for the Philippines, Fitch said while the average per capita income remains low at $2,794 last year compared countries with the same investments grade which averages $10,880 per capita, the figure “does not capture the significant support to living standards provided by overseas Filipinos’ remittances.” Fitch, however, seems to have digressed when it stated that a negative ratings action might be necessary in the event of “deterioration in governance standards and/or a reversal in reforms implemented under the Aquino administration.” It wouldn’t be too far-fetched that the particular line was suggested by a Palace insider who has a degree of influence with the ratings agency. It is inconceivable for the ratings firm to suggest that a change in policy direction which obviously would result in the handover of the government to a non-ally may affect the momentum of reform while in the same report it said that not much of a change in the level of governance happened for the past three years. Moreover, Fitch also set as a condition for a further improvement in the country’s ratings, the “improvement in governance and the investment climate, which boosts both domestic and foreign direct investment and overall productivity.” The warning on the deterioration in governance standards or reversal of reforms under the Aquino administration seems contradictory with its own view that further reforms are needed. Fitch also warned of a period of economic overheating which would result from high inflation or a property bubble or financial instability without appropriate fiscal and monetary policy settings is not at all remote and may consequently lead to a ratings downgrade. The report was not entirely a bed of roses for Noynoy since it came with a clear warning that any miscue in the runup to the 2016 elections may affect the country’s ratings. It did offer some sort of support, albeit likely solicited, to Noynoy and his Liberal Party clique with the warning about the risks of a shift in the reform path. Curiously the ratings agency, which was the first to give in to the lobby initiated by Finance Secretary Cesar Purisima, who has extensive connections with multilateral agencies and investment banks to give the country an investments grade, seems to now be pitching for a Noynoy designate to continue his reforms. The report came off as a cheap endorsement for the Aquino administration with nothing new in terms of a ratings action of which to speak.
Posted on: Wed, 26 Mar 2014 16:22:56 +0000
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