MANILA, September 6, 2003  (STAR) US investment bank Lehman Brothers said yesterday the Philippines remains vulnerable to financial shocks and contagion due to its huge debts.

It said the Philippines measured 31 on a recent study of 15 developing countries using a Lehman proprietary early warning system to identify the likelihood of countries entering into financial crises.

A score of 75 or more means the country is vulnerable to financial crisis.

This "suggests fairly low susceptibility to financial crisis. However, its economy is structurally weak and vulnerable to shocks and contagion," a Lehman Brothers statement said.

The index spiked to more than 75 for the Philippines in 2001 after the Sept. 11, 2001 attacks in the United States and the Argentine financial crisis, it added.

The Philippines, along with Thailand, South Korea, Indonesia and Malaysia, were the countries that suffered a meltdown during the 1997-1998 financial crisis.

"To lower its susceptibility, the country needs to persevere in reducing its large fiscal deficit and trim public and external debt, which are currently above 70 percent of GDP (gross domestic product)," Lehman Brothers said.

"A key challenge for the Philippines is to not drop the ball on economic reform in the lead-up to the presidential elections next year," said Rob Subbaraman, senior economist for Asia of Lehman Brothers.

Subbaraman had developed the index, called "Damocles," that measures 10 variables including the ratios of foreign reserves to imports as well as short-term external debt, external debt to GDP, short-term external debt to exports, current account to GDP, and domestic private credit to GDP.

The other factors are foreign reserves, real short-term interest rate, stock market index, and real trade-weighted exchange rate.

Lehman Brothers said Asia overall has notably reduced the risk of crisis across the region since the meltdown six years ago.

"There are growing signs that global capital is now returning to Asia," and the region "is in a much better condition to weather future financial storms," it added. — AFP

Moody’s rating elates GMA  The Philippine Star 09/06/2003

President Arroyo expressed elation yesterday over the latest stable credit rating given to the Philippines by US-based Moody’s Investors Service.

Even after the failed power grab staged by more than 300 soldiers against the government on July 27, Moody’s assessment is that the government "is capable of maintaining political and economic stability."

Moody’s retained the stable outlook on Manila’s Ba1 foreign currency rating and the negative outlook on its Baa3 rating for government obligations.

"Policy consistency and good governance have paid off. This is the benefit we gain from focusing the government away from partisan politics and towards the essential task of security, development and reforms," the President said.

"We will continue this course and it will continue to pay dividends in terms of international and domestic confidence," she vowed.

Mrs. Arroyo said it comes as no surprise that our country is being counted on as one of the most stable emerging economies, despite our transient problems.

"Whoever thinks our country is a political risk, fails to read the basic factors of stability — effective leadership, sound policy directions, and an enterprising and resilient people," the President pointed out.

For Mrs. Arroyo to succeed in her remaining nine months in office, Moody’s said she "will need to demonstrate that such incidents as the July 27 revolt were isolated events and do not portend greater upheaval in the run up to next year’s elections."

Mrs. Arroyo blamed certain political quarters as behind new rumored coup plots as part of their "destabilization" schemes against the government since her administration has already beaten them.

"These (Moody reports) are much, much more ascendant than the bad news being peddled by a few who are blinded by raw ambitions of power," she assured. — Marichu Villanueva

Reported by: Sol Jose Vanzi

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