MANILA, August 29, 2004 (STAR) By Des Ferriols - Despite a warning by a group of prominent economists and President Arroyo’s admission that the country is in the midst of a fiscal crisis, the Bangko Sentral ng Pilipinas (BSP) insisted that the Philippines is still a long way from plunging into a crisis similar to the Argentina experience in the late 1990s.

A BSP official said while parallels have been repeatedly drawn between the two countries, the BSP is taking exception to the comparison, saying that the Philippines is still nowhere near the magnitude of Argentina’s problems.

According to the BSP, Argentina has been rated in selective default by Standard and Poor’s and by Fitch Ratings. Moody’s rated it Caa1, also below investment grade.

In contrast, the Philippines is BB stable with S&P, Ba2 negative with Moody’s, BB stable with Fitch and BBB negative (investment grade) with the Japan Credit Rating Agency.

The BSP said Argentina, unlike the Philippines, has been nearing global isolation due to a number of factors, primarily since its government has been in default for over 24 months.

"It’s also still intransigent," said the BSP official. "This means that it doesn’t talk to its creditors. It’s like when a collector knocks at your door and you’re always not there."

Argentina’s external debt is now estimated at $148 billion, significantly above the Philippines’ $57 billion, although both countries have gross international reserves of around $16 billion.

Nevertheless, the official admitted that there were clear parallelisms between the two countries, particularly in their government’s propensity for breaking contracts and taking populist measures to the detriment of public policy.

Since Argentina has been in default for over 24 months, it has not been able to borrow from any source outside the country and its capital inflows have stopped.

In effect, Argentina has no other source of funds other than internally-generated revenues. In contrast, the Philippines still has healthy access to the domestic and foreign credit markets.

Argentina also has problems in the banking sector unlike the constraints and pressures in the Philippine banking sector. "For one, banks in Argentina have negative net worth," the BSP source said.

Argentina’s gross domestic production is still expected to grow by 6.2 percent this year on the strength of domestic consumption and trade but this is expected to trickle down to 2.9 percent in 2005.

More problematic, however, is the prospect of an ever-shrinking domestic credit that would soon choke the government, which still needs funds to bankroll its spending.

"Banks there have no choice but to wait for their government to start negotiating with its creditors," the source said.

However, the BSP official said that the Philippine situation still does not rule out the possibility of spiraling out of control so that the country might soon end up in a worse position than Argentina.

"That’s why we have to take painful measures now so that this doesn’t happen to us tomorrow," the source said.

Reported by: Sol Jose Vanzi

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