WHAT WENT BEFORE: PH's CREDIT RATINGS THROUGH THE YEARS

In May last year, the Philippines obtained an investment grade from international credit rating agency Standard & Poor’s, just less than two months after getting its first investment grade from Fitch Ratings. S&P said that it had raised the country’s credit rating by a notch from BB+ to BBB- —the minimum investment grade—citing the country’s rosy macroeconomic fundamentals amid global economic problems. It also assigned a stable outlook on the country’s new rating, which means the rating will likely be unchanged over the short term barring unexpected developments that could change the country’s macroeconomic indicators. A credit rating is used mainly by foreign creditors when deciding to lend money to the government or private corporations. More broadly, however, an investment grade signals to the investors that a country is a place suitable for business, and that its government and private enterprises have the ability to pay their obligations, resulting in lower borrowing costs. The Philippines got its first credit rating in the early 1990s. In 1993, it received its first rating, a BB-, from S&P. READ MORE ON Downgrade:.....

ALSO: Financial markets cheer PH credit rating upgrade from S&P

The Philippine peso and stocks rallied on Friday on the back of a surge in investor confidence after Standard and Poor’s upgraded the country’s long-term sovereign credit rating by a notch, with a stable outlook. Analysts view the country’s rating upgrade to BBB from BBB- as an affirmation of the country’s strong macroeconomic fundamentals.
“The rating upgrade is a signal that the country’s overall economy is doing well,” First Grade Finance Managing Director and economist Astro del Castillo told The Manila Times. “This will attract more investors and fund institutions to take another look at the Philippines given that S&P already affirmed our capacity to pay our debts,” he added. Economist Cid Terosa from the University of Asia and the Pacific said the upgrade should help boost the country’s investment credibility. “At the same time, we can get lower interest rates for our loans. In short, it will heighten our business and investment prospects,” Terosa added. The government of President Benigno Aquino boasts its 18th positive rating action from a credit rating agency and the fourth from S&P. Budget Secretary Florencio Abad said S&P’s BBB rating with a stable outlook is the highest rating ever given to the Philippines—“another welcome affirmation of the country’s strong economic fundamentals. At the same time, it validates the progress and expected sustainability of the Aquino Administration’s governance reforms.READ MORE...

ALSO: ‘S&P upgrade irrelevant’, says former budget manager

INSTEAD of harping on the recent rating upgrade of Standard & Poor’s rating agency, the Aquino administration should focus on unemployment and underemployment which is the most pressing concern of Filipinos, a noted economist said on Saturday. “[The upgrade] still doesn’t mean anything for the common man,” said economist and former budget secretary Benjamin Diokno. “For them, the BBB rating is practically irrelevant, if not alien.” International credit ratings usually focus on a government’s ability to repay them and foreign investors are already well aware of the growth of the Philippine economy. But Diokno stressed three million Filipino remain unemployed with 7.5 million more underemployed and 1.1 million new workers joining the the labor force every year. The Palace, however, insisted that the government did not wait for recent economic gains to trickle down to the poor and implemented the conditional cash transfer (CCT) program with even more family beneficiaries this year. “As a Filipino citizen, I am glad at the Standard and Poor’s credit ratings report that, in their view, there is basis for hope that current reforms and the Philippine economy’s good performance will be sustained beyond the term of the Aquino administration,” said Presidential Communications Operations Office Secretary Herminio Coloma Jr. “In my opinion, this is the more important aspect of the Standard and Poor’s investment upgrade report,” he said.

ALSO: Of Goose and Gold (Part 1)

Many of you may have heard of the story of the goose that lays the golden eggs. The farmer thought that if he killed the goose, he would be able to get all the golden eggs inside. So the farmer did kill the goose, and thus, he had no more golden eggs. This children’s story reminds all of its readers not to be greedy, like the farmer. However, this begs the question, “Is there really a goose that lays the golden egg?” Before the goose can lay its eggs, the goose would have to be fed, tended and even vaccinated. Otherwise, it may not lay eggs because it is unhealthy. Similarly, if one thinks of having an investment portfolio or a business, one has to actively take care of it, or entrust it to competent managers, for it to earn money. Thus, it is actually possible to have a goose that lays golden eggs. One of the first steps of owning this magical goose is through developing a savings mentality. CONTINUE READING...

ALSO: Of Goose and Gold: The Illiquidity Trap

Last time, we talked about the possibility of a goose that can lay golden eggs, in the form of passive income. This goose comes about from the discipline and hard work of saving. Thus, it was argued that savings should not come about from a “tira” mentality, but from a mindset that savings is an initial payment to the self. Capitalizing on this concept, many financial institutions and businesses have embarked on campaigns to encourage people to invest. Walking along the malls, one can see and hear people dressed in business attire handing out flyers for condominiums as investment options with low monthly payment plans. Banks are also encouraging people to invest by lowering required initial investments. Although investing seems to be the next logical step after saving, two important aspects to financial health are often overlooked: debt management and liquidity. Liquidity is defined as the measure of the extent to which a person has cash or liquid assets on-hand to meet short-term obligations. But stretching the definition further, liquidity can be understood in simple terms as having enough money to meet both basic needs and cover emergency situations. This is important as many young workers who start investing forget to build a pool of funds to tap in case of emergencies. Thus, when these emergency situations arise, these young investors are forced to liquidate or sell their investments, even for very low prices, due to the need for funds. READ MORE...


READ FULL MEDIA REPORTS:

What Went Before: PH’s credit ratings through the years


Philippine GDP annual growth from 2001 to 2012. Notice the 3-year growth fluctuation during election seasons of 2004, 2007, and 2010.

MANILA, MAY 12, 2014 (INQUIRER) In May last year, the Philippines obtained an investment grade from international credit rating agency Standard & Poor’s, just less than two months after getting its first investment grade from Fitch Ratings.

S&P said that it had raised the country’s credit rating by a notch from BB+ to BBB- —the minimum investment grade—citing the country’s rosy macroeconomic fundamentals amid global economic problems.

It also assigned a stable outlook on the country’s new rating, which means the rating will likely be unchanged over the short term barring unexpected developments that could change the country’s macroeconomic indicators.

A credit rating is used mainly by foreign creditors when deciding to lend money to the government or private corporations.

More broadly, however, an investment grade signals to the investors that a country is a place suitable for business, and that its government and private enterprises have the ability to pay their obligations, resulting in lower borrowing costs.

The Philippines got its first credit rating in the early 1990s. In 1993, it received its first rating, a BB-, from S&P.

Downgrade

In 1995, S&P upgraded the Philippines’ rating to BB and in 1997 to BB+. However, a downgrade to BB-, the country’s worst rating from S&P, came in 2005 with the credit rating firm citing the government’s “inadequate” response to its fiscal problems.

Prior to the upgrade from S&P in May, Fitch was the first to recognize the Philippines’ improved economic standing.

In March, Fitch announced that they upgraded the status of the Philippines from BB+ to BBB-, saying the Philippine economy is resilient and now experiencing a level of foreign currency inflows that is even more comfortable than those of many industrialized nations.

In October, the Philippines obtained its third investment grade rating for the year when Moody’s rated the country “Baa3,” a notch higher than the previous “Ba1.” Moody’s also revised its outlook for the Philippines’ government debt rating to positive, indicating the possibility of another upgrade in the next 12 to 18 months.—Inquirer Research Sources: Inquirer Archives, gov.ph, senate.gov.ph, pids.gov.ph

FROM MANILA TIMES

Financial markets cheer PH credit rating upgrade from S&P May 9, 2014 9:58 pm by MADELAINE B. MIRAFLOR AND VOLTAIRE PALAÑA REPORTERS
 

The Philippine peso and stocks rallied on Friday on the back of a surge in investor confidence after Standard and Poor’s upgraded the country’s long-term sovereign credit rating by a notch, with a stable outlook.

Analysts view the country’s rating upgrade to BBB from BBB- as an affirmation of the country’s strong macroeconomic fundamentals.

“The rating upgrade is a signal that the country’s overall economy is doing well,” First Grade Finance Managing Director and economist Astro del Castillo told The Manila Times.

“This will attract more investors and fund institutions to take another look at the Philippines given that S&P already affirmed our capacity to pay our debts,” he added.

Economist Cid Terosa from the University of Asia and the Pacific said the upgrade should help boost the country’s investment credibility.

“At the same time, we can get lower interest rates for our loans. In short, it will heighten our business and investment prospects,” Terosa added.

The government of President Benigno Aquino boasts its 18th positive rating action from a credit rating agency and the fourth from S&P.

Budget Secretary Florencio Abad said S&P’s BBB rating with a stable outlook is the highest rating ever given to the Philippines—“another welcome affirmation of the country’s strong economic fundamentals. At the same time, it validates the progress and expected sustainability of the Aquino Administration’s governance reforms.

On Friday, the day after the announcement of the upgrade, the peso gained further strength against the US dollar to P43.65. The Philippine currency already hit its highest level in nearly five months the day before, strengthening by 3 centavos to P44.19 from Wednesday’s P44.22. That was the peso’s strongest since it closed at P44.15 on December 16, 2013.

“The improvement in the Philippine peso has been expected as the S&P upgrade puts the Philippines on a win-win [position from the investors’] view,” del Castillo said.

On the Philippine stock exchange, shares advanced to push the benchmark index past the 6,800-point psychological barrier on Friday, hitting its highest level in nearly 11 months, with sentiment buoyed by the S&P rating upgrade. The benchmark PSEi finished the day’s trade up 82.05 points or 1.21 percent at 6,847. This is the main index’s highest closing level since June 10 last year, when it closed at 6,875.60.

S&P expects sustained reform

As announced late Thursday, the S&P raised the Philippines’ long-term sovereign credit rating to BBB from BBB-, citing the country’s strong external liquidity and effective monetary policy that has sustained low inflation and interest rates.

In raising the ratings on the Philippines, S&P said: “We expect ongoing reforms on a broad range of structural, administrative, institutional, and governance issues to endure beyond the term of the current administration.”

S&P also expressed optimism that the gains in revenue generation, spending efficiency and improvements in public debt profile, as well as the investment environment, will be sustained under the next administration.

Government boasts major feat

“We are very pleased that S&P has recognized the Philippines’ remarkable economic comeback,” Finance Secretary Cesar Purisima said.

Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said: “The BSP welcomes the decision of S&P to upgrade the Philippines’ long-term sovereign credit rating by one notch.”

He pointed out it was a major feat “as S&P did a straight upgrade. They no longer assigned a positive outlook before upgrading the rating.”

Tetangco stressed that the latest upgrade from S&P “is further affirmation of the country’s strong macroeconomic fundamentals. Since S&P raised the Philippines’ credit rating to investment grade in May 2013, the Philippines proved that it is able to sustain high economic growth despite external volatility.”

The central bank chief added that the rating upgrade “is a recognition that the structural reforms that we have put in place continue to gain traction, as demonstrated by the significant improvements in the country’s position in international governance and competitiveness surveys.”

“The BSP will continue to support sustained and inclusive economic growth amid a low-inflation environment. We stand ready to adjust our monetary policy stance and adopt macroprudential measures, as appropriate, to guard against risks that would unsettle inflation expectations and threaten the soundness of our financial system. We will also continue to craft external sector policies that will help keep our external liquidity position strong.”

Abad cited S&P’s recognition of the gains brought about by the public financial management reforms instituted by the government.

“We are on the right track in terms of continuously improving our public spending efficiency primarily in ramping up investments for infrastructure projects, among other key priority and substantial programs and projects.

“Moreover, this vote of confidence from international investment analysts also raises our international competitiveness and further increases our attractiveness to foreign investors. The positive outlook on our investment position will, in turn, significantly aid our ability to generate more jobs and livelihood opportunities.

“S&P’s upgrade also serves as a reminder for us to remain committed to continuity and ensure the sustainability of our reforms. Our main agenda will always be to advance rapid, sustained and inclusive growth—one that aims to make substantial strides against our longstanding struggle against poverty—through honest and effective governance.”

Direct impact

In terms of foreign direct investment (FDI), del Castillo said it may take some time before bigger FDI inflow due to the latest upgrade could become apparent, given the remaining improvements that need to be done by the government.

“The Philippines have to earn it [FDI]. The government should, somehow, continue with the reforms. Improve infrastructure, peace and order issues, and the power crisis we’re facing. There’s still really a lot of things that the government should do before it could attract more FDI,” he added.

Economist and Former Finance Secretary Benjamin Diokno said he believes the rating upgrade from S&P will have very little impact on the lives of the common man.

“It’s another indication that the risk of lending to the Philippines has improved. But the whole world knows that already. It’s reflected in the spread on RP (Philippine) bonds. There’s no need for rating agencies to validate that. Given our current economic realities, getting even higher ratings should be the least of our priorities,” Diokno said in a text message to The Times.

The government should be more concerned with creating jobs for the 3 million unemployed, 7.5 million underemployed and the 1.1 million new workers who join the labor force every year.

“For them, the BBB-rating is practically irrelevant if not alien,” Diokno added. WITH RAADEE SAUSA

FROM THE MANILA STANDARD

‘S&P upgrade irrelevant’ By Joyce Pangco Panares | May. 11, 2014 at 12:01am


DIOKNO

INSTEAD of harping on the recent rating upgrade of Standard & Poor’s rating agency, the Aquino administration should focus on unemployment and underemployment which is the most pressing concern of Filipinos, a noted economist said on Saturday.

“[The upgrade] still doesn’t mean anything for the common man,” said economist and former budget secretary Benjamin Diokno. “For them, the BBB rating is practically irrelevant, if not alien.”

International credit ratings usually focus on a government’s ability to repay them and foreign investors are already well aware of the growth of the Philippine economy.

But Diokno stressed three million Filipino remain unemployed with 7.5 million more underemployed and 1.1 million new workers joining the the labor force every year.

The Palace, however, insisted that the government did not wait for recent economic gains to trickle down to the poor and implemented the conditional cash transfer (CCT) program with even more family beneficiaries this year.

“As a Filipino citizen, I am glad at the Standard and Poor’s credit ratings report that, in their view, there is basis for hope that current reforms and the Philippine economy’s good performance will be sustained beyond the term of the Aquino administration,” said Presidential Communications Operations Office Secretary Herminio Coloma Jr.

“In my opinion, this is the more important aspect of the Standard and Poor’s investment upgrade report,” he said.

Aside from poverty alleviation, Coloma said the government is carrying out three major thrusts to address the weaknesses in the economy as it envisions continuing and inclusive growth.

Among the issues mentioned by S&P include narrowing the revenue base, shortage of basic infrastructure, government services, and low-income level.

Coloma mentioned three primary government measures to address those issues.

He said that to narrow the country’s revenue base, the government through the Bureau of Internal Revenue, works to increase the taxation-to-gross domestic product ratio to 1990s levels.

Coloma said that during the Ramos administration, before the onset of the Asian financial crisis, the country’s taxation-to-GDP ratio was at 16 to 17 percent of the GDP. Currently, he said the Philippines is at 12 to 13 percent of the GDP.

In area of infrastructure development, Coloma said the government acknowledged the need for more infrastructure it has been carrying out several measures to address this need.

FROM PHILSTAR

Of Goose and Gold (Part 1) By Lester Yee, contributing columnist (philstar.com) | Updated May 8, 2014 - 11:54am 0 80 googleplus1 4


Photo from www.tumbletales.com

Many of you may have heard of the story of the goose that lays the golden eggs.

The farmer thought that if he killed the goose, he would be able to get all the golden eggs inside. So the farmer did kill the goose, and thus, he had no more golden eggs.

This children’s story reminds all of its readers not to be greedy, like the farmer. However, this begs the question, “Is there really a goose that lays the golden egg?”

Before the goose can lay its eggs, the goose would have to be fed, tended and even vaccinated. Otherwise, it may not lay eggs because it is unhealthy.

Similarly, if one thinks of having an investment portfolio or a business, one has to actively take care of it, or entrust it to competent managers, for it to earn money.

Thus, it is actually possible to have a goose that lays golden eggs. One of the first steps of owning this magical goose is through developing a savings mentality.

Many people consider savings as what is leftover, in Tagalog, “tira”.

In fact, many people complain about not having enough for daily needs, leaving no room for savings.

However, the reality of savings opens up the possibility of passive income. The goose that lays the golden eggs of passive income comes from the discipline and hard work of saving.

The attitude towards savings should not be that of leftovers. Rather, the act of saving should be viewed as an initial payment to yourself. Savings should be the first deduction from active income.

For instance, if your monthly take home pay is Php12,000, saving Php1,000 a month would yield Php12,000 a year. Moreover, since there are only 12 months a year, you can develop the discipline to live within the remaining Php11,000, and aim to save at least half of the thirteenth month pay.

The goal will be to build liquidity, which is the next step to help attain the goose that lays the golden eggs.

Of Goose and Gold: The Illiquidity Trap By Lester Yee, contributing columnist (philstar.com) | Updated May 9, 2014 - 4:19pm 0 52 googleplus1 3



Last time, we talked about the possibility of a goose that can lay golden eggs, in the form of passive income.

This goose comes about from the discipline and hard work of saving. Thus, it was argued that savings should not come about from a “tira” mentality, but from a mindset that savings is an initial payment to the self.

Capitalizing on this concept, many financial institutions and businesses have embarked on campaigns to encourage people to invest. Walking along the malls, one can see and hear people dressed in business attire handing out flyers for condominiums as investment options with low monthly payment plans.

Banks are also encouraging people to invest by lowering required initial investments. Although investing seems to be the next logical step after saving, two important aspects to financial health are often overlooked: debt management and liquidity.

Liquidity is defined as the measure of the extent to which a person has cash or liquid assets on-hand to meet short-term obligations.

But stretching the definition further, liquidity can be understood in simple terms as having enough money to meet both basic needs and cover emergency situations.

This is important as many young workers who start investing forget to build a pool of funds to tap in case of emergencies. Thus, when these emergency situations arise, these young investors are forced to liquidate or sell their investments, even for very low prices, due to the need for funds.

Thus, before beginning on an investment journey, it is important to build a pool of funds which can be tapped for emergency situations.

The amount in this fund would vary on your own situation. For instance, if you have immediate family approaching retirement and are at risk for certain health problems, then you may need to build a larger pool.

If you have a small family with young children, then a pool to pay for tuition fees and other children-related expenses would be needed. This pool of funds can be a source of peace of mind, especially when emergencies arise, and at the same time, it can prevent you from sinking into debt and prematurely liquidating investments at losing prices.

But what if you are plagued by bad debt? The goose that lays golden eggs cannot thrive in an environment of bad debt. Thus, the next piece will talk about debt management.


Chief News Editor: Sol Jose Vanzi

© Copyright, 2014 by PHILIPPINE HEADLINE NEWS ONLINE
All rights reserved


PHILIPPINE HEADLINE NEWS ONLINE [PHNO] WEBSITE