that rating upgrade
check out cielito habito’s An early Easter gift
So what’s in the credit rating upgrade for the ordinary Filipino? It’s actually a mix of good news and bad news. The positive side is that more investments—both of the job creating (FDI) and the “hot money” kind—should be drawn into the country by this new vote of confidence; let’s hope there will be much more of the former. Government and firms could borrow funds more easily and more cheaply. Lower interest rates would mean lower costs for government debt, freeing up more funds for health, education, infrastructure and other public investments to uplift people’s lives.
But the negative side is that a major segment of our population faces the very real prospect of lower incomes. Families relying on remittances from abroad, or from earnings in import-substituting or export-oriented industries (including tourism) will be hurt by a rising peso induced by the surge in foreign inflows. Pensioners, retirees and other savers relying on interest earnings from fixed-income placements will also see their incomes drop further. A retiree recently wrote me complaining that his interest income had dropped 40 percent in the past year alone because of falling interest rates, and laments that he now faces a serious problem with making ends meet.
and ben kritz’s Curb the ratings upgrade euphoria
President Aquino’s statement described the positive outcomes of the ratings upgrade as lower interest costs on government debt, making Philippine securities more attractive to investors, and “fiscal space” from the savings on debt costs, savings that can be used “to sustain and further improve on social protection, defense, and economic stimulus, among others.” The only part of that statement that is completely accurate is the first part. The specific meaning of the rating is a judgment of the country’s ability to pay foreign-denominated debt on time and in full, and because the Philippines is now judged to be at lower risk of default by one agency, the government will not have to pay so much to incur debt; interest on direct loans will be a bit lower, as will yields on government bonds.
As for the “savings” that can be applied to other activities, that presumes the government will incur new foreign debt, which most would consider a rather novel conception of “savings.” Furthermore, in a memo released on March 17, Treasurer Rosalia de Leon informed bond dealers that the Treasury will be increasing its monthly auction of 3-, 5- and seven-year bonds and treasury bills from P120 billion to P150 billion through the second quarter, as part of an effort by the government to source all its debt locally for 2013. In other words, the government has no plans for now to access the foreign credit market where the impact of the ratings upgrade would be felt the most.
and gary olivar’s Early Easter gifts
Perhaps the most important thing to remember about this credit rating upgrade is this: At the end of the day, it really matters only to professional portfolio managers who may be restricted from putting their money in non-investment-grade credits. Even with its shiny new investment grade, the Philippines will still have to compete with its new peer group for portfolio attention. And direct foreign investors—the ones who really bring in the jobs—will be totally unimpressed since they’re concerned with an entirely different set of issues altogether.
The new rating—like any other credit rating—speaks only to the country’s ability to repay its foreign-denominated debt, nothing more. It says less about whether or not equity investors can expect to earn the right returns on bricks and mortar on a level playing field. And it says nothing about whether we are investing properly for future growth, or creating more jobs through the right kind of growth, or improving our productivity as the only way to sustain long-term growth.
Unfortunately, like most early gifts, the packaging may be nice and glitzy—as the Palace will try to hype it up—but what’s inside is not what we really need.
read, too, atty. dodo dulay’s What PNoy isn’t saying about PH’s rating upgrade