LET’S be happy that the Japan Credit Rating Agency, Ltd (JCR) has recently upgraded the country’s foreign currency rating from BBB-/Negative to “stable.”
Theoretically, an upgrade means that the country could borrow money at favorable terms, thus reducing the cost of capital needed to boost the performance of the Philippine economy. The JCR identified three positive factors for the rating, namely, good policy management, relatively stable economic performance, and relatively sound foreign liquidity position. Other positive factors cited include a 5.5-percent growth rate in the first quarter, the recovery in exports, and a slight decline in fiscal deficit in January to May this year. JCR has also identified several lingering problems like political instability, weak fiscal position, and poverty but, apparently, the ratings agency thought the positive outweighs the negative.
It’s actually the second upgrade from JCR this year. In April, JCR had upgraded its ratings for the country’s domestic currency from BBB-/Negative to stable, owing to factors like President Arroyo’s survival from impeachment charges and coup attempts, and the implementation of the expanded value added tax.
That’s one rare good news that Filipinos need to savor because, in a sense, the upgrade could also trigger an improvement on how foreign investors look at the
What is funny though is the government’s reaction to the new ratings. No less than President Arroyo herself said that the new rating is proof of the soundness of the tough economic decisions she had made to improve investor confidence in the country.
In truth, there’s nothing really there to indicate that improvements in the economy were due to government policy decisions. Factors like “good policy management” sound so hollow in the face of the government’s failure to pass the budget, its inability to provide leadership for the passage of the fiscal rationalization bill, and its continuing failure to provide money for infrastructure development.
“Stable economic performance” is certainly valid with the 5.5-percent growth rate in the first quarter and it seems the trend is likely to continue in the second half. Again, its something that could never be credited to better governance as the growth figure has, in the last 10 quarters, largely been underpinned by the ever-growing dollar remittances from overseas Filipino workers.
The recovery in exports simply reflects the recovery of global demand for electronics that comprise more than 70 percent of the country’s exports.
Investors have been complaining about the country’s rickety infrastructure and yet our national income accounts reflect the government’s continuing failure to boost investments in much-needed roads, bridges, schools, research and development that are needed to enhance competitiveness. Same with “sound foreign liquidity position”—it’s all about rising remittances from people who in the first place have escaped the
The ratings upgrade, therefore, is really just a case of people trying to make the best out of everything regardless of constraints. To some extent, the Philippine economy has developed certain firewalls against the political turmoil. However, this is largely due to the growing globalization of certain sectors of the Philippine economy, a trend that has nothing to do with how well the government runs the affairs of the state. In fact, these globalized sectors of the economy—exports, migrant labor, outsourcing, among others—could have grown a lot faster had poor governance not got in the way.
The key factor that could really make a difference is improvement in governance and, sadly, they remain in the “negative” side of the balance: political instability, weak fiscal position, lingering poverty, among others.
Are there clear efforts to effectively address the inadequate infrastructure system? Are there consistent efforts to reform and upgrade the education system? Are there sincere efforts to address leakages in tax collection system besides imposing more taxes? Are there consistent efforts to address poverty? These are all questions that the government needs to show good records on before it can really claim credit for improvements in credit rating.