Philippines: Beers has fears

S&P''s global head of sovereign ratings, David Beers shares his views on the Philippines, whose outlook has just been moved to ''negative''.

Should your recent rating action on the Philippines to 'negative' be interpreted as a prelude to a full downgrade?

An outlook change is a way signaling to folks in the marketplace that the possibility of a rating change has increased. We publish figures that show on average outlook changes proceed an actual ratings change more than 50% of the time.

But it's not inevitable. There's a chance the Philippine government is regaining control of public finances. If we thought it was inevitable, then we would have lowered the rating straightaway.

Indeed, the rating level of the Philippines has been the same since the Asian financial crisis, but we have changed the outlook several times.

Outlooks are designed to give our current view of what we think the underlying tendency of the rating would be, absent any counterbalancing efforts by the government.

Are you encouraged by the fact that the Bureau of Internal Revenue has seen collections go up 30% in September, year-on-year?

It's an encouraging number. The bigger problems in the Philippines - which go back decades - are tax administration and tax compliance issues. Typically, in most countries these are problems that require years of sustained effort to turn around. It's not a function of having a better administrator at the top. It requires root and branch reform; getting more effective personnel; it means more effective laws and compliance and discipline. This is not a new issue in the Philippines, but it will take some years to see if the government's initiatives are bearing fruit in this area.

Is there any truth to the proposition that the Philippines looks and behaves (in a cultural and credit sense) more like a Latin American country than an Asian one?

That again is another age old question. Frankly, I am not sure how to answer that. I don't know if it illuminates anything in credit terms. It does perpetuate a myth that says compared to Asians all Latin American countries are deadbeats. That is not true; just like in Asia, there are a range of credits, and the most highly rated is Chile, which is single A.

To say the Philippines has a Latin legacy, is to do people in the Philippines and Latin America a profound injustice. The truth is Latin America is not all the same.

But other Asian countries have tended to have good public finances.

Yes, but people used to say that about Japan, and it has undergone a profound shift in its debt profile.

The Philippines is not a country that is condemned to lacklustre growth or fiscal mismanagement. But its got some institutional challenges in terms of sustaining and creating a consensus about a variety of issues regarding economic management.

Some might think the question is relevant because while governments come and go, cultures don't.

Some perceptions are considered to be conventional wisdom and then get turned on their head. This may be a case in point. This is a region that had a profound financial crisis four years ago, and lots of conventional wisdom at the time was turned on its head. One of the ironies of the Asian crisis was that the Philippines was comparatively unaffected.

Tomorrow: Beers gives his views on the rest of Asia.

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