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Thursday, February 17, 2005
Moody's hands down two-notch downgrade on RP
MANILA -- Moody's Investor Service downgraded Wednesday the Philippines's long-term foreign and local currency ratings by two notches.
Malacañang described the downgrade as "quite severe." But three senators were not bothered at all by the downgrade.
"We believe Moody's decision is quite severe but we take this as a challenge to pursue reforms with a greater sense of urgency," Press Secretary Ignacio Bunye said.
Bunye said government sees a reversal of the ratings once the economy surges following the fiscal reforms initiated by the Arroyo administration.
He said the Executive Branch and Congress remain committed to carrying out a shared agenda of improving the revenue base and significantly reducing the country's debt levels.
Moody's said the fiscal reforms implemented by government to address the large build-up of its external debt were not enough.
Moody's lowered the country's foreign-currency rating for government bonds to B1 from Ba2, the long-term foreign-currency country ceiling for bonds to B1 from Ba2, the long-term foreign-currency ceiling for bank deposits to B1 from Ba3, and the local-currency rating of the government to B1 from Ba2.
But Moody's maintained a "stable" outlook on the country.
Bunye also tried to downplay Moody's downgrade by citing the BBB-(investment grade) credit rating given by Japan R&I (Research and Investment Information, Inc.) to the Philippines.
He said R&I's affirmation of the BBB-rating, "notwithstanding a change in outlook from stable to negative," cites the rapid GDP growth and the government's resolve to restoring its finances.
"We feel that putting us on negative outlook compared with the drastic action taken by Moody's fairly recognizes our response to the continuing challenges we face in addressing the country's fiscal issues. We reiterate government's commitment in pursuing the administration's reform agenda with a greater sense of urgency as both the executive and legislative branches of government share the same goals in sustaining our economic gains," he said.
President Gloria Macapagal-Arroyo, in her speech at the launching of the UN Millennium Project in Makati City, said: "We are turning the corner. We are poised for an economic turnaround and a leap forward in the fight against poverty."
Arroyo said the Philippines has just come off the watch-list of the Financial Action Task Force, is forging fiscal discipline, enforcing law and order, and filing cases against corrupt officials.
The President said she expects her new economic team to work towards prosperity and growth and Congress to pass the budget and her tax bills that will fund her pro-poor agenda.
The Philippine Stock Exchange was the first to react on Moody's rating action, it closed down 11.62 points, or 0.6 percent, at 2,078.48, after Tuesday's 0.3 percent rise for its best close in over five years. Decliners led gainers 71 to 44, while 41 stocks were unchanged.
The index climbed early but quickly retreated after news of Moody's action filtered into the market.
The ratings cut was worse than what the central bank had expected of just a one-notch downgrade.
"It was a slap in the face, considering all the initiatives of the government to address its fiscal problems," said Astro del Castillo, a director of the Association of Securities Analysts of the Philippines. "Investors have put on the brakes and are now reassessing the situation and what their next market strategy will be."
AB Capital Securities research director Jose Vistan was optimistic that the Moody's downgrade is a temporary setback.
"I think the fiscal situation of the government...can only get better. The government is tightening its belt, it is introducing new taxes, not cutting them, so that should improve revenues," he said.
Meanwhile, Senator Ralph Recto, chairman of the Senate ways and means committee said he is not worried by the downgrade because it is not the real determination of economic development.
He explained that the government should not give emphasis on the credit rating but on the stock market, which is the first indicator of business confidence.
"The credit rating agencies are always behind the eight ball. Laging huli yan (That's always the last)," Recto said.
He added that the important things for the government to do are: finance its program, plug the budget deficit, and pass tax measures.
Senate President Franklin Drilon, on the other hand, said the public should not be discouraged by the downgrade because it is an expected reflection of the rise of Philippine bonds in the capital market.
He expressed confidence that the government could recover from the downgrade and convince the rating agencies that it can institute the needed reforms.
"I'm saddened but I'm not discouraged. We just have to work and put our acts together to recover from this," Drilon added.
Senate Majority Leader Francis Pangilinan, on the other hand, said the country doesn't deserve the two-notch credit downgrading because the economic fundamentals are improving and key fiscal reforms are on track.
"I believe that Moody's two-notch downgrade is excessive. We have been removed from the list of non-cooperative countries and territories. Our currency is strengthening and tourist arrivals are reaching records highs," he said.
He vowed that the Senate would work double time in passing key bills that would improve the country's revenue base.
Senator Juan Ponce Enrile, meanwhile, said the two-notch credit downgrade is painful and would have an impact on the government's credit position. (RB/JPM/AP)
(February 17, 2005 issue)
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