May 22, 2006 (STAR) By Des Ferriols - Finance officials have expressed optimism that credit rating agency Standard & Poor’s (S&P) would take a more positive view of the country’s macroeconomic position and fiscal consolidation.

S&P began its annual credit review on the Philippines earlier this week, with Finance officials preparing to make presentations to apprise the credit rating agency of the progress in the fiscal program, particularly the implementation of the tax reform package.

Finance Secretary Margarito B. Teves told reporters that the government is prepared to brief S&P on the latest fiscal data indicating that the Arroyo administration managed to generate a budget surplus in April despite missing its income tax collection target.

Teves declined to speculate on how S&P would appreciate the fiscal performance and whether this could lead to at least an upgrade of the country’s credit rating outlook.

But Teves said he is optimistic. "There are some new information that we will take up with them and I am hoping they would acknowledge the progress that has been made," he said.

"The story is that we have a surplus in April and while we have to sort through the shortfall in income tax collection, we will endeavor to ensure that the fiscal momentum will be sustained," he said.

S&P itself expressed optimism that the country’s fiscal consolidation would continue as its evaluation team arrived in the country for its annual credit ratings review.

The team headed by Agost Bernard, S&P associate director for sovereign ratings, said earlier there was cause for optimism especially since the political instability that momentarily distracted the Arroyo administration had cleared up.

Bernard and his team met with officials from the Bangko Sentral ng Pilipinas (BSP) to start off the week-long evaluation that Philippine officials are hoping could lead to an upgrade in the country’s outlook rating from "stable" to "positive".

But he also declined to speculate on the outcome of the review although he indicated S&P’s meetings with Philippine officials started off on a positive note.

"There is optimism that the fiscal consolidation will continue," he told reporters. "There is a good economic team in place so there is reason to believe that there will be further fiscal consolidation."

More significantly, Bernard said there had been significant improvements in the country’s political situation following the declaration of a state of emergency in February.

"The political situation has improved considerably," Bernard said, adding that it augured well for the Arroyo administration’s efforts to further consolidate its fiscal position.

An earlier analysis by S&P indicated that the credit rating agency was less certain about the country’s political situation, saying that there was "no credible unified opposition to the incumbent, and no credible alternative government."

"Nevertheless, the disruption of any future impeachment effort and general politicking are likely to distract from economic reform. And without more proactive policies and fiscal flexibility to address longer term economic issues, credit improvements are likely to be limited," S&P said in the paper.

Chief News Editor: Sol Jose Vanzi

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