MANILA, February 15, 2006
 (STAR) By Pia Lee-Brago - Washington is paying close attention to the gains being made through the Arroyo administration’s economic reforms, particularly improvements in the Philippines’ business climate.

"We do not usually comment. But in a more general sense we do see, I would say, some buildup of fiscal capacity like the expanded value-added tax (EVAT)," Robert Ludan, the US Embassy’s economic affairs counselor, told a press briefing yesterday.

"We see some improvement overall in the national government deficit," he said, referring to President Arroyo’s efforts to ease the burgeoning budget deficit and avoid a fiscal crisis that could derail her economic program.

Ludan added the US government has also noted the slight reduction in the local interest rate — which could indicate economic growth.

What Washington is most concerned about, he said, is the state of medium- and long-term private investments.

"The Philippines still has low level of investments in the private sector compared to other countries in the region," Ludan said.

"We believe that these investment numbers are key to improving job opportunities and long-term economic stability. We continue to watch that very closely. That is one reason why we are very concerned about the business climate that drives… investments," he said.

The Arroyo administration needs to invest more in infrastructure, education and health care to ensure sustained economic growth, Ludan added.

Last Monday, international credit rating agency Fitch Ratings announced it had upgraded its outlook on the Philippines’ foreign currency and local currency ratings from "negative" to "stable"due to the country’s improving fiscal and political situation.

Fitch joined Standard & Poor’s, which also recently upgraded its outlook on the Philippines, although another rating agency, Moody’s Investors Service, has said it was maintaining its "negative" outlook despite recent economic reforms.

 ‘Bitter pill taking effect’

Mrs. Arroyo said Fitch’s rating upgrade proved that the "bitter pill" of economic reforms — especially the EVAT — was finally "taking effect and was mopping up the structural weakness in the Philippine economy.

"The scent of victory in our economic offensive is already in the air and we must clinch it with greater unity, enterprise, optimism and hope," she said in a statement issued by Malacañang.

"The world is also taking notice of our emergent political stability and we must match our positive credit ratings with better security ratings in the drive for the rule of law and easing armed conflict," referring to the decades-long communist and Muslim insurgencies.

Mrs. Arroyo reiterated that while economic reforms would initially hurt, easing the budget deficit would mean borrowing less to pay off the country’s debts and more money for programs needed for economic growth.

"The people shall be the prime beneficiaries of our economic strength, and every centavo we save and spend shall be accounted for with diligence and vigilance," she added.

Her spokesman, Press Secretary Ignacio Bunye, said Fitch’s outlook upgrade was a "morale booster for all Filipinos as it acknowledges our determined, collective effort to strengthen the economy, increase government revenues and cut down on irresponsible spending.

"We call on all sectors to promote stability on the political and economic fronts. Let us perform our duties as responsible citizens by paying correct taxes, abiding by our laws and doing our share to promote a safer and cleaner environment," he said.

The peso’s performance in the past days "tells us that our fighting chance to fulfill our potential as a new center of growth and development in Asia is now, and we have to seize that chance and build upon it for a brighter future," he said.

Mrs. Arroyo also called on the opposition to stop its months-long campaign to force her from office over vote-rigging allegations, saying the resulting political stability would throw the country’s economic recovery efforts off track.

"Credit rating agencies, especially Fitch, pointed to excessive politicking. That — too much politics — should be really reduced, so that our country’s economic progress can be sustained," Mrs. Arroyo said in an interview over radio station dzRH.

Fitch expressed apprehension over political uncertainties — such as the possibility of another impeachment bid against Mrs. Arroyo this year — which the agency said could derail the administration’s efforts to stabilize the country’s fiscal standing.

It also warned that "political developments could still affect creditworthiness," citing continuing efforts to revise the Constitution and a likely revival of the opposition’s efforts to force Mrs. Arroyo from office on charges that she cheated to win the May 2004 elections.

Reps. Jesli Lapus of Tarlac and Exequiel Javier of Antique said Fitch’s credit rating upgrade is a recognition that the country is moving in the right direction and the implementation of the EVAT was paying off.

"In fact, this is a delayed reaction by theoretical ratings agencies. They cannot ignore the real score in the marketplace. Even the country’s corporate and banking bond floats never had it so hot," said Lapus.

Javier is confident that rating agency Moody’s would upgrade its credit rating outlook on the Philippines once revenue from the EVAT showed positive results.

Mrs. Arroyo raised the EVAT rate — the centerpiece of her economic reform program — from 10 to 12 percent on Feb. 1. — With Aurea Calica, Paolo Romero, Jess Diaz

Chief News Editor: Sol Jose Vanzi

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