RP'S POLITICAL RISKS WOULD FIGURE IN ONGOING RP CREDIT RATING REVIEW
MANILA, FEBRUARY 20, 2008 (STAR) By Des Ferriols - Standard & Poor’s (S&P) said yesterday that the country’s political risks would figure in the on-going review of its sovereign ratings, saying that political risks, such as domestic instability and weak policy environment directly constrain ratings.
The S&P is in the country to conduct its annual sovereign ratings review and according to credit analyst Agost Benard, political risks are being factored into the ratings.
Benard said that the world economy shifted into lower gear and liquidity becomes scarcer, the political and policy environments of Asia-Pacific governments, in general, would get closer scrutiny.
“This is because a government’s policy response can either attenuate or exacerbate the macroeconomic challenges,” Benard said.
Emerging from his initial meetings with Philippine officials, however, Benard said the S&P is still “hopeful” that the government would be successful at replicating its fiscal efforts in 2007.
“I am hopeful especially where it concerns the increase in revenues, the increase in contribution from tax revenues as distinct from privatization,” Benard said. “I am hopeful that the fiscal position will continue to improve.”
Beyond fiscal consolidation, however, Benard admitted that political risks were the other side of the coin that could ultimately have an impact on and possibly even undermined macro-economic fundamentals.
In his report called “Politics And Policy Environment: Credit Constraint For Many, Support For A Select Few In Asia-Pacific,” S&P said political and policy environments have received less attention especially when times are good.
Benard pointed out that political risks did not figure significantly during the good times when rising corporate profitability and soaring markets buoyed investor sentiment, while governments had scope to boost spending, without diminishing their credit standing.
Benard said that sovereigns like the Philippines have vastly improved their external liquidities, banking systems, fiscal consolidation and reduced their debt since the Asian financial crisis.
“However, a significant number of the 22 sovereigns rated by S&P in Asia-Pacific continue to face political risks, such as domestic instability, weak policy environment, or in some cases external political risk, which either directly constrain their rating, or negatively affect other credit fundamentals,” said Benard.
In eight of the 22 rated sovereigns in Asia-Pacific, political or policy risk feature as an explicit constraining factor for their creditworthiness, Benard said.
Benard said that Australia and Singapore were the only two Asia-Pacific sovereigns that appeared to possess the kind of political stability where their longevity and proven track record made political stability an explicit credit-supporting factor.
“It is likely no coincidence that these two sovereigns, Australia and Singapore, are also the only ones in the region having the highest credit rating of ‘AAA’,” Benard said.
”Clearly, sovereigns facing the greatest risk to ratings from their political and policy environment are those where administrative and institutional weaknesses coexist with severe domestic political instability, which may include security risks or outright civil conflict,” Benard pointed out.
Chief News Editor: Sol Jose Vanzi
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