Captain Kirk and the Philippines ratings debate

The results of our spot poll following S&P''s change in outlook for the Philippines make for interesting reading.

Last Tuesday (October 29), Standard & Poor's changed its credit outlook on the Philippines from stable to negative. The decision came after the government's announcement that the nine-month budget deficit had reached Ps166.5 billion ($31.4 billion), already over the official Ps155 billion prediction for the full-year.

With concern over the government's inability to curb spending and failure to generate sufficient revenues, primarily from taxes, there seems every chance that a downgrading of both the foreign currency rating (currently BB+) and local rating (BBB+) might follow.

Optimism is pretty thin on the ground at the moment when it comes to the Philippines' economic fortunes. However, FinanceAsia invited its readers last week to think positively and predict the following:

  1. When will the Philippines get a single-A credit rating?
  2. When will it obtain an investment grade rating?

An investment grade rating is certainly more likely than an A rating, but our readers are still cautious on the likelihood of this happening. Most put forward best case and worst-case scenarios for Philippines reaching investment grade ratings. The average view suggested 2008 as a best-case scenario and 2015 for the worst case.

A couple of readers felt that the Arroyo administration is actually doing a good job and is crucial to the best-case scenario coming to pass. "If the current government gets re-elected, then another five years of sound administration could see the Philippines get upgraded to investment grade," was one response. Another said, "Assuming fiscal consolidation begins after the presidential polls, the earliest opportunity for investment grade status would be 2005."

However, many more respondents were less impressed with the current government and feel that the way the political system works in the Philippines is what will keep the country from getting an upgrade in the short to medium term.

"The Philippines might be upgraded as early as 2007 if it gets a good leader in 2004," says one reader. "But if the leader is bad, we're going to go through another round of political cleansing, and will not get investment grade status until at least 2009-2010."

When it came to the first question, aside from a few upbeat predictions - the most upbeat being 2010 and some punters suggesting 2015 for the best-case scenario - the general feeling was mostly negative. Over half the respondents said they did not believe a single-A rating was ever possible if the Philippines continue in the direction it is heading.

"I am tempted to say never to that question," says one FinanceAsia reader. "I doubt whether the Philippines will be able to achieve an A rating within the next 10 years. When I look around the region, the three countries that get hit hardest by China's growth are Indonesia, the Philippines and Thailand (in that order). They all compete with China on exports and direct foreign capital investment. In addition to that, there are a lot of structural vulnerabilities in the Philippines."

Another reader suggested what the Philippines needs is a minor miracle to get an A rating, something along the lines of "discovering the largest oil reserve outside of Saudi!"

Finally, the most pessimistic response was probably also the wittiest. "I predict single-A credit status for the Philippines in 2264 - the year when Captain Kirk first commanded the USS Enterprise," the reader says. We trust he was joking.......

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