that rating upgrade

02 April 2013

… is good news only for the minority rich, not for the majority poor.

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

20 Responses to that rating upgrade

  1. April 2, 2013 at 6:39 pm
    Bert

    So, that rating upgrade is not good news for me since I’m poor. Right? So now, do I have to start praying for rating downgrades before I start getting euphoric, eh, Ben Kritz? Is that how you and benignO hoping to happen to the Philippine economy? I know you guys. I believe you.

    • April 2, 2013 at 7:03 pm

      Right on Mr. Bert. Yes, we should demand downgrades, just to keep certain types seemingly happy. They never are, but what’s new?

    • April 2, 2013 at 9:10 pm
      baycas

      Yeah!

  2. April 2, 2013 at 7:09 pm

    c’mon guys, he’s just one of many messengers saying the same thing

    • April 3, 2013 at 12:30 am

      Agreed. They don’t think we’re junk, but that’s only until we become the next Ireland, Greece, Cyprus, Spain, etc. By then, they would have laughed all the way to the banks they won’t bail out no more.

  3. April 2, 2013 at 8:07 pm
    jojie

    according to my son,a medical doctor who is very much crazy about stcok market now,while spending holiday weekends in our house with his family of five,he sits on laptop and attends to his homework doing some calisthenics on his favorite stocks which he claims prices are still “under valued” and a would be wise to hold as a good investment. So it seems, for me bench marking an economic data is like looking at the glass of water as either half full or half empty. It maynot be good news to some but it better than waiting for the proverbial economic meltdown or financial crash.

  4. April 3, 2013 at 12:24 am

    Benjamin Diokno: OFWS DESERVE THE CREDIT
    …The investment grade simply means “the capacity for timely payment of financial commitments is considered adequate.” The upgrade may be attributed largely to the steady and crisis-resilient flow of remittances from overseas Filipinos.

    I consider the more than $20-billion annual inflows coming from the sweat and blood of hard-working OFWs as the most important factor for the investment upgrade. Ironically, it’s primarily the spouses, sons and daughters of these OFWs who will bear the brunt of adjustment should the monetary authorities fail to stem the appreciation of the peso as a result of the tidal wave of “hot” money that will be induced by the upgrade. – http://www.bworldonline.com/content.php?section=Opinion&title=Benefits-of-upgrade-are-grossly-exaggerated&id=68037#sthash.UZwCdUt0.dpuf

  5. April 3, 2013 at 12:30 am

    Herman Tiu Laurel: We must drum it into our people’s consciousness that the “ratings upgrade” is paid for by the people’s (particularly the OFW’s) blood, sweat, and tears; and it is a commodity that we do not need to buy at all.
    We must devote our blood, sweat and tears not to borrow more and accumulate more burdensome debt service but to break free from the old private debt-based financial concepts that enslave the nation by socializing or nationalizing credit and banking to serve the nation’s development needs — instead of the bankers’ greed and chicanery. Too radical, you’d say? Not even in the US of A.

    While the rest of the US is in financial collapse, North Dakota, where unemployment is just 3.3 percent (the lowest in the union), is in continuous budget surplus since 2008. Lawyer-economist Ellen Brown explains, “Oil is certainly a factor, but it is not what has put North Dakota over the top. Alaska… produces nearly twice as much oil, yet unemployment (there) is running at 7.7 percent … North Dakota has one thing that no other state has: its own state-owned bank … North Dakota’s money and banking reserves are being kept within the state and invested there.” http://www.tribune.net.ph/index.php/commentary/item/12372-upgrade-on-people%E2%80%99s-tears

  6. April 3, 2013 at 4:49 am
    GabbyD

    i think this whole discussion is pretty silly. as always, there are costs and benefits, and pundits choose which ones to play up.

    what i found interesting was atty dulay’s analysis, which is a step beyond what a proforma “pro vs con” column.

    check this: “Second, it was the Aquino government that requested (and paid for) a rating from Fitch…. And as is usual, an issuer gets a higher rating after having solicited a rating from a rating agency like Fitch. This is probably the reason why the country received eight credit rating upgrades during the Aquino administration.”

    wow, insinuating na “binayaran” ang resulta… without any proof or argument, or anything.

    1) so kung binabayaran ang resulta, then those who pay the most should have the highest ratings. thats crazy and flat out wrong.

    2) other pundits says that this upgrade has been “priced in” already (see diokno, and benk i think), and that the upgrade is merely a reflection of that.

    if its priced in, then why “pay” for an upgrade whose benefits have already kicked in? so either the upgrade was an inevitable reaction to market pricing it in, or it was “paid for”, and would not have happened without having paid for it.

    ano ba tlga kuya?

    • April 3, 2013 at 10:07 am
      jojie

      Tito gaby, simply lang, in the short run, good credit ratings mean more borrowings at lower costs. In the long run, putting your money in stock investments is a form of savings which create economic growth and trickles down as jobs and market expand. FDI will come in if there are local counterpart investors which the govt encourage. Since we are in an election period, we are in for a”Praise Release” campaign to divert our attention from the Sabah issue, Kristel’s suicide and questionable appointment of the Comelec commissioner.

  7. April 3, 2013 at 10:13 am
    Bert

    Some guys are really hard to figure out, one can almost imagine how they were able to determine what’s best and what’s worse for their country, arguing against rating upgrade as if it’s the worst thing that could happen to the Philippine economy, as if downgrade is the best.

    The OFW remittance phenomenon has been there for a long time and we’ve been downgraded before in spite of that, but some of those hard to figure guys are still saying that OFW remittances caused the upgrade, some even ventured to the absurd. Silly.

  8. April 3, 2013 at 6:45 pm

    Only in the Philippines would good news be spun so relentlessly into bad news. This is a nation of masochists, getting their kicks by beating up on their own homeland. Crazy. As if the upgrade were “bad news”. The envy around this place, when someone else gets ahead or succeeds . . .and the righteous self-justifications . . . just incredible.

    • April 3, 2013 at 7:03 pm

      It’s okay Joe. We envy each other and you as well, for different reasons. The first, for being funnier. The second, for being more decent. You can’t take your pick.

  9. April 3, 2013 at 7:34 pm
    manuel buencamino

    Dati mahirap tayo na nakakatakot pautangin.
    Ngayon mahirap pa din tayo na hindi na nakakatakot pautangin.
    Ano kaya ang mas okay dun?

    Huwag mangutang? Me ganun? Meron bang mahirap na bayan na kahit kelan hindi kelangan mangutang?

    • April 7, 2013 at 8:54 pm
      jojie

      mb :-)) Mahirap mangutang sa bangko pag wala kang collateral. Ang ating govt malakas ang loob mangutang dahil ang collateral ng bayan ay ang STRONG value ng Peso ngayon. hhh .

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