, February 17, 2005
(STAR) By Marvin Sy  -  Malacañang described the two-notch slash in the country’s sovereign debt rating by Moody’s Investors Service as "severe" but said it serves as a challenge for the administration and Congress to "pursue reforms with a greater sense of urgency."

"The executive and Congress remain committed to carrying out a shared agenda for improving our revenue base and significantly reducing our debt levels," Presidential Spokesman Ignacio Bunye said in a statement.

The ratings cut to B1 from Ba2 — four levels below investment grade — is the lowest ever rating given by Moody’s for the Philippines since it started monitoring the country in 1993.

With a lower credit rating, the country’s cost of borrowing becomes more expensive.

Moody’s cited the Philippines’ mounting debt and inability to pass several of the Arroyo administration’s tax proposals meant to address the widening budget deficit as one of the primary reasons for the downgrade.

Bunye urged Congress to pass the remaining tax measures proposed by the administration as only two of the eight have been approved.

Congress is in the process of tackling the third bill regarding the value-added tax (VAT) but so far, there is no consensus on the subject.

"We already have our fiscal reform measures in place but in their (Moody’s) opinion these are not enough. With the expected passage by late March of these proposed bills, the credit ratings could still be reversed," Bunye said in an interview over radio station dzBB.

"We are hopeful that our legislators will share the same sense of urgency that we are feeling to get our fiscal house in order," he added.

Both Moody’s and S&P’s said, however, that the outlook for the Philippines remains stable despite the downgrade.

Philippine Stock Exchange (PSE) president Francis Lim also expressed optimism that the Moody’s downgrade is a temporary setback and that investors will be able to sustain the good fundamentals underlying the macro-economic picture of the country.

Lim believes the credit slash will not have a long-term adverse effect on the stock market, given an improving economy, a stronger peso, the expected passage of revenue-generating measures and improvement in fiscal data.

"We should look at the positive side of this downgrade. With higher interest rates on debts that may result from this credit rating, our corporates should be encouraged to raise needed funds through the stock market, which is a much cheaper alternative for raising capital," Lim said.

After the sale in January of $1.5 billion in long-dated bonds, the government needs to raise around another $2.5 billion internationally this year. However, it isn’t expected to return to the international bond market until the second half of the year, by which time market conditions could change.

Lawmakers, in whose hands lies the fate of the Arroyo-endorsed tax bills, also expressed confidence that the country will surmount the Moody’s rating downgrade through the completion and proper implementation of its urgent fiscal reform agenda.

"The value-added tax hike and the lifting of VAT exemptions on certain items are on the way. Our timely action on them will convince Moody’s to improve our rating in the future based on our ability to act on needed reform and revenue measures," said Rep. Abraham Khalil Mitra, vice chairman of the House committee on energy.

Other lawmakers are banking on the resiliency of the peso and the stock market in weathering the onslaught of negative events.

Reps. Vincent Garcia, member of the House committee on economic affairs, and Wilhelmino Sy-Alvarado, chairman of the committee on entrepreneurial development, said the two negative events in the past few days — the bombings in Metro Manila, Davao and General Santos and Moody’s action — could have already led to a mini-meltdown in the economy if the underlying fundamentals and business confidence in the country were weak.

They warned, though, that markets may be adversely affected if the government falters in its reform measures and delays the passage of the tax measures.

Senate Majority Leader Francis Pangilinan said that the downgrade is "excessive" and should have factored in the reforms made by the government, though he admitted that the country’s large external obligations make it vulnerable to shocks.

Pampanga Rep. Jose Miguel Arroyo reiterated that the downgrade should spur the government to work harder and keep the momentum of passing revenue measures.

"We in the upper chamber are committed to work double-time in passing key bills that will improve our revenue base," Pangilinan said. – With Paolo Romero

Reported by: Sol Jose Vanzi

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