Moody's raises 3rd time Philippines' credit ratings

The Philippines received its third rating upgrade well within the first year of the Aquino administration after New York-based Moodys Investors Service raised the country’s credit rating, with a stable outlook amid the gains made in fiscal consolidation, sustained macroeconomic stability and robust external payment position.

The Aquino administration welcomed the upgrade by Moody’s saying that the improvement in the country’s debt rating had a lot to do with progress made in fiscal consolidation.

Moody’s raised the Philippines’ foreign and local currency long-term bond ratings to Ba2 from Ba3 with a stable outlook. Ba2 is classified as non-investment grade speculative debt and still two notches below investment grade.

The government said the upgrade, which it described as long overdue, affirms its economic agenda, particularly efforts to trim the budget deficit.

“This is an affirmation of the economic agenda and leadership of President Aquino, particularly our fiscal sustainability program,” Finance Secretary Cesar Purisima said.

The Finance chief said that with the Ba2 rating, the country is now a step closer to achieving an investment grade from global debt watchers.

“We are now one step closer to our goal of attaining investment grade rating which is crucial in further lowering our borrowing costs and attracting more foreign direct investments,” he said.

Moody’s assistant vice president Christian De Guzman and senior vice president Thomas Byrne said the “key drivers” to the upgrade include the progress made in fiscal consolidation by the Aquino administration as well as the sustained nature of macroeconomic stability coupled with continued strength in the country’s external payments position against a background of a significant pick-up in the momentum for economic growth.

This is the third rating upgrade received by the Philippines under the leadership of President Aquino who assumed office June 30 of last year.

Moody’s upgraded the country’s credit rating outlook to positive from stable last January while New York-based Standard and Poor’s (S&P) raised the credit rating of the Philippines to two notches below investment grade from three notches last November 12 on the back of the country’s rising external liquidity.

With the upgrade, international credit raters Moody’s, S&P, and London-based Fitch Ratings now rate the country’s sovereign credit at two notches below investment grade with a stable outlook.

Likewise, the country’s long-term foreign currency bond ceiling was also raised to Baa3 from Ba1 while the long-term foreign currency deposit ceiling was upgraded to Ba2 from Ba3. The short-term foreign currency bond ceiling was raised to P-3 while the short-term foreign currency deposit ceiling remains at Not Prime.

In a related rating action, Moody’s also upgraded the rating of the Bangko Sentral ng Pilipinas (BSP) to Ba2 from Ba3 with stable outlook.

Fiscal authorities have committed to trim the budget deficit to two percent of gross domestic product (GDP) starting 2013 until the end of the term of President Aquino in 2016.

The Philippines intended to reduce the deficit to about P290 billion or 3.2 percent of GDP this year from a record level of P314.4 billion or 3.7 percent of GDP last year. The country posted a surplus of P61 million in the first four months of the year, a complete reversal of the P131.8 billion deficit booked in the same period last year.

“Over the first four months of 2011, the national government recorded a small fiscal surplus, building upon the notable turnaround in fiscal management seen during second half of 2010. Much of the improvement has been attributed to expenditure restraint, but there is also evidence of an uptick in revenue generation,” Moody’s explained.

Data showed government revenues surged 18.22 percent to P461.4 billion from January to April compared to P390.21 billion in the same period last year on the back of improved collections by the Bureau of Internal Revenue (BIR) and the Bureau of Customs (BOC) while expenditures fell 11.6 percent to P461.35 billion from P521.87 billion as interest payments plunged reflecting the continued success of the Bangko Sentral ng Pilipinas (BSP) in anchoring inflation expectations and consequently debt-servicing costs.

 

“While we expect expenditures to increase significantly in the second half of 2011, as the government commences its cornerstone infrastructure investment program, the rise will not likely derail the trend towards fiscal consolidation. By demonstrating firm fiscal restraint, the government has bolstered its policy credibility and has improved prospects for reform,” Moody’s added.

The rating agency, however, cited the continued uncertainty over the implementation of structural measures to improve revenue generation as well as the government’s budgetary interest burden and its debt overhang that remain high when compared with its rating peers.

“Moody’s further notes that owing to continued prudence in macroeconomic management, solid growth momentum in the Philippines has not produced substantial overheating pressures — either through inflation or a large deterioration in the current account,” the rating agency added.

Moody’s also said the country’s external payments position is strong in relation to its rating peer as growing foreign exchange reserves continue to mitigate vulnerabilities related to a possible sudden stop of capital inflows.

BSP Governor Amando Tetangco Jr. said that the rating action of Moody’s confirmed that the macroeconomic policy setting of the Philippines are consistent with stronger sovereign credit fundamentals.

“They specifically mention that the Republic benefits from the absence of economic overheating and inflation pressures, which has been due largely to the adoption of an appropriate policy mix. The monetary policy stance which has contained inflation, while remaining supportive of economic growth, and the appropriate management of the country’s external position have helped to secure macroeconomic stability,” he said.

The BSP chief said monetary authorities would continue to pursue prudent monetary and banking policies and reforms to ensure the economy remains on the path towards sustained growth

For his part, BSP Deputy Governor Diwa Guinigundo said the Philippines has long deserved the credit rating upgrade and that the financial markets have discounted the eventuality.

“The upgrade is well deserved. In the last ten years, we have grown quite impressively even through the crisis, inflation has been muted, the BOP has been in surplus, the GIR has climbed many folds, the banks have been strong and stable, fiscal consolidation has been entrenched,” Guinigundo added.

Upgrade recognizes reforms

Budget Secretary Florencio Abad, for his part, said the upgrade recognizes the reforms initiated by the government.

“This inspires and energizes us to go deeper in pursuing reform and in ensuring focused and efficient use of public funds,” Abad said.

The upgrade by Moody’s upgrade is the second “in less than a year of the Aquino administration,” Purisima noted.

In November last year, Standard &Poor’s also gave the Philippines a one-notch upgrade to “BB stable.

“This is a reminder to investors that our message is clear - the Philippines is an investment destination with exceptionally promising growth opportunities,” Purisima said.

“We are now one step closer to our goal of attaining investment grade rating, which is crucial in further lowering our borrowing costs and attracting more FDIs (foreign direct investments),” Purisima added.

Economists agreed that the upgrade was well expected given fiscal improvements seen since the Aquino administration took office. But they noted a lot more needs to be done for the Philippines to reach investment grade.

Moody’s upgrade brings its rating in line with those of Fitch and Standard & Poor’s.

“To reach investment grade, the Philippines... still has to improve bureaucracy, corruption and other economic issues like tax ratio to make their state revenue sustainable. They need to improve infrastructure and tame inflation,” said Juniman of Bank International Indonesia.

“The upgrade was well anticipated and comes on the heels of the fiscal improvements we’ve seen,” noted Euben Paracuelles of Nomura, Singapore. “The next crucial step, apart from maintaining the intensity of tax administration measures, is to pass tax policy changes to boost revenues. This is more challenging but our view is that we are relatively optimistic the government will be able to maintain its focus.”

 

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Biased PHL Prosecutor Wendell Barreras-Sulit Suspended - Discharged

Malacañang has suspended Special Prosecutor Wendell Barreras-Sulit for 90 days pending her investigation for administrative liability in approving the plea deal of former military comptroller Carlos Garcia.

Executive Secretary Paquito Ochoa Jr. issued the order last Tuesday to prevent Sulit from tampering with records and harassing potential witnesses in the investigation

The order takes effect upon its receipt by Sulit.

It said her prevention was needed “considering the seriousness of the charges, the existence of prima facie case against respondent that she is probably guilty thereof which warrants her removal from the service…”

The Palace said it has jurisdiction over Sulit and her deputies since they are all presidential appointees and are not impeachable officials like the ombudsman.

In a statement, Malacañang said Sulit violated existing rules and jurisprudence when she entered into the plea bargaining deal with Garcia.

Sulit and her deputies were alleged to have deliberately impaired the case for the prosecution by ignoring and abandoning evidence favorable to the interest of the government and presenting evidence adverse to its cause.

Sulit was also accused of failing to discharge her duty of prosecuting erring public officials with utmost responsibility, integrity and professional competence.

Malacañang said Sulit caused undue injury to the government by giving unwarranted benefits to Garcia through “manifest partiality, evident bad faith and gross inexcusable negligence.”

Sulit was given 10 days within which to submit her answer to the formal administrative charge before the Office of the Deputy Executive Secretary for Legal Affairs.

Sulit approved the plea bargaining agreement allowing Garcia to return only P135 million of the P300 million he allegedly plundered.

The deal enabled Garcia to plead guilty to lesser charges.

The Sandiganbayan second division, headed by retiring presiding Justice Edilberto Sandoval, recently approved the deal after Garcia complied with all the conditions required in the plea bargain agreement.

The administrative case against Sulit was an offshoot of an investigation conducted by the House of Representatives committee on justice into the deal.

The House panel recommended that Sulit be dismissed from service for culpable violation of the Constitution and betrayal of public trust.

Order vs Sulit implemented

Acting Ombudsman Orlando Casimiro implemented yesterday the 90-day suspension order against Sulit.

Sulit, whose rank is equivalent to deputy ombudsman, refused to issue a statement to the media or grant interviews.

However the preventive suspension order is not a punishment and that if cleared she will be reinstated with her back salaries paid.

Malacañang’s latest action against the Office of the Ombudsman has left only three ranking officials in the anti-graft agency.

They are Casimiro, Deputy Ombudsman for Visayas Pelagio Apostol, and Deputy Ombudsman for Mindanao Humphrey Monteroso.

Casimiro, the overall deputy ombudsman, became acting ombudsman after Merceditas Gutierrez resigned last month and acting Deputy Ombudsman for Luzon Mark Jalandoni resigned last April.

Casimiro also became acting deputy ombudsman for military and other law enforcement offices after Malacañang dismissed Emilio Gonzalez III for alleged neglect of duty.

The Office of the Ombudsman has yet to announce if Casimiro will take over the functions of Sulit.

Long overdue – Blue Ribbon

The suspension of Sulit is long overdue, according to Senate Blue Ribbon committee chairman Teofisto Guingona III and other senators allied with the administration.

Guingona said Malacañang’s order is in consonance with the recommendation of the Blue Ribbon committee.

“It means (my report) is being recognized by the executive and complied with,” he said.

Senators Francis Escudero and Francis Pangilinan also lauded the Palace decision.

“I agree with and support that move,” Escudero said. “It should have been done a long time ago.”

However, Pangilinan said suspension is not enough, and Sulit must be dismissed from the service.

“We support the disciplinary measures imposed on the special prosecutor,” he said. “Malacañang should work swiftly as well to have her dismissed from service.”

Pangilinan said Sulit and the Sandiganbayan justices involved in the approval of the deal should also be made to account for their actions.

“It is a terrible sight for the cause of justice to see the special prosecutor acting like lead counsels for the defense,” he said.

Guingona said the Blue Ribbon committee believes that the plea bargaining agreement with Garcia is void.

“As the plea bargaining agreement is void, all the consequent acts of the plea bargaining agreement should be vacated and nullified - which include subsequent arraignment and bail,” he said.

“The Office of the Special Prosecutor initially claimed that the evidence is weak, but later on, they assert that evidence is strong,” he said.

Guingona said based on the Sandiganbayan’s internal rules, a plea bargaining agreement should require restitution.

“It is worthy to note that in the plea bargaining agreement of the Office of the Ombudsman with Charlie ‘Atong’ Ang, there was full restitution,” he said.

“In the case of Maj. Gen. Carlos Garcia, he was allowed to pocket P165 million in pabaon (send-off gift).”

Guingona said the offended party was not consulted as required by the Rules of Court.

The immediate and direct offended party is the Armed Forces of the Philippines, he added.

The ultimate offended party is the Filipino people, Guingona said.

Guingona said the Sandiganbayan’s decision to uphold the propriety of the plea bargaining agreement does not change the Blue Ribbon committee’s findings.

“There is still room for the justices to correct themselves to ensure that they are not instrumental to the coddling of officials who betray the public’s trust,” he said.

House of Representatives committee  welcomes decision

Members of the House of Representatives committee on justice welcomed yesterday Malacañang’s decision suspending Sulit.

“We thank the Palace for acting on the complaint by the members of the justice committee,” Deputy Speaker Erin Tañada said.

“It is time to hold Prosecutor Sulit accountable for entering into a plea bargain agreement with General Garcia. The hearings of the committee on justice show that the special prosecutors did not do their homework and exposed how lazy their office is in trying to look for additional evidence to pin down the people they are prosecuting. This is the reason why the former ombudsman had a low conviction rate and a high rate of plea bargains,” he said.

Iloilo Rep. Niel Tupas Jr., committee chairman, said Sulit’s preventive suspension is necessary to prevent her from tampering with documents related to the Garcia case.

“We hope that the Office of the President decides on the main case of removing Prosecutor Sulit for gross negligence and betrayal of public trust soonest so as to give way to a new leadership at the Office of the Special Prosecutor,” he said.

Bayan Muna Rep. Neri Colmenares said the cleanup of the Office of the Ombudsman must be “thorough and swift.”

“The new ombudsman cannot work with a special prosecutor like Sulit,” he said.

Military OK for Sulit Suspension

The military also welcomed yesterday the suspension of Sulit.

Armed Forces spokesman Commodore Miguel Rodriguez said it proves that the administration is bent in addressing corruption.

“I think they are serious in combating corruption,” he said. “We are making good the (promise of) daang matuwid (straight path). This is an indication that the administration means business.”

Rodriguez said the AFP is closely watching the developments of the Garcia plunder case

“We welcome this as a positive development but we are still monitoring the case,” he said.

Rodriguez said the military is stepping up measures to improve its systems.

“We are continuously implementing changes necessary to make our armed forces more efficient and effective

 

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USA now willing to Support the Philippines' Spratly issue but suspicious

A United Nations convention is clear on what constitutes sovereign territory, and the United States is prepared to do whatever is asked of it by the Philippines in connection with the South China Sea / West Philippine Sea dispute, US Ambassador Harry Thomas Jr. said Monday (June 13, 2011) in Makati. Thomas Statement is absolutely opposite of the statement of Rebecca Thomson; US spokesperson saying “The US will not support the Philippine Spratly Issue as they are out of the Issue. Even USA is not united of their stands for the Spratlys issue.

 “We will do whatever we’re asked,” Thomas told The STAR during a visit to the newspaper office, when asked if the US would be willing to participate in the settlement of the territorial dispute.

But he quickly added, “What we want to say is right now we believe consistently that is not something for us to do. We have not been asked to do that. And we can’t deal with hypotheticals.”

Later, when pressed about US participation in negotiations, he said, “We have not been invited.”

Thomas spoke as China warned external powers to stay out of the overlapping territorial claims in the Spratly Islands.

Reuters reported Monday (June 13, 2011) from Beijing that the warning was contained in a commentary in the main military newspaper Liberation Army Daily, which is controlled by China’s Communist Party, and where articles are vetted to reflect official thinking.

President Aquino welcomed Thomas’ statement as he noted the military power of China and its huge population.

“We don’t want any hostility to break out,” Aquino said at Malacañang, even as he reaffirmed that islands in the West Philippine Sea are within undisputed Philippine territory under an international convention.

“Perhaps the presence of our treaty partner, which is the United States of America, ensures that all of us will have freedom of navigation, will conform to international law,” Aquino added.

Earlier Monday (June 13, 2011), Thomas said the US would stand with the Philippines in all issues.

“I want to assure you – on all subjects, we in the United States are with the Philippines. The Philippines and the United States are strategic treaty allies. We are partners,” Thomas said at the launching of the US-supported National Renewable Energy Program in Makati City.

“We will continue to consult and work with each other on all issues, including the South China Sea and Spratly Islands,” Thomas said.

The Philippines has protested Chinese military activities in the West Philippine Sea, which is within the country’s territory as defined under the 1982 United Nations Convention on the Law of the Sea (UNCLOS).

The UNCLOS, Thomas said, is “pretty clear on what is Philippine territory.”

Thomas mentioned that US President Barack Obama has said Washington supports the 2002 Code of Conduct in the South China Sea under UNCLOS.

Among other things, the Code of Conduct calls for all claimants to sit together and settle the dispute, he said.

President Aquino is so thankful

President Aquino welcomed Thomas’ declaration.

“We are grateful to the (US), especially when they reiterated that we are strategic partners, we have a treaty between us,” Aquino said when asked for his reaction to Thomas’ statement in a press briefing later at Malacañang.

The President stressed the importance of adhering to international laws, specifically UNCLOS.

“What that law says is that you have exclusive economic authority or exclusive economic zone extending 200 (nautical) miles from your continental shelf,” Aquino said.

“Reed (Recto) Bank, which is the subject of incidents lately, is located 80 (nautical) miles off Palawan, the closest of our contention in the Spratlys, the closest China (has) is 576 (nautical) miles if I remember correctly - 576 is obviously greater than 200,” he added.

“Why should there be a dispute if we are conforming to international law?” Aquino asked.

“Of course, they are a superpower, more than 10 times our population, we don’t want any hostility to break out. Perhaps the presence of our treaty partner which is the United States of America ensures that all of us will have freedom of navigation, will conform to international law,” the President said.

Deputy presidential spokesperson Abigail Valte said in a press briefing that the statement of the US ambassador “reaffirms even more our commitment to finding diplomatic and a peaceful resolution on the issues that we have in the West Philippine Sea.”

Valte said the statement was welcome because “everybody knows that we always have good relationship with the United States and so with other countries as well, even if we have issues with them.”

But Valte said there was no need to elaborate on the kind of assistance that the US is prepared to offer in the event of armed hostilities with China.

“We are in the process of trying to find a peaceful resolution to the conflict that we are in the middle of. So we do not want to make any statement that would be contrary to that position,” she said.

“I think with or without that clear statement, we have always been firm on our position on the issue. I don’t think anybody can doubt our resolve to have a resolution, a peaceful and diplomatic resolution on the issue,” Valte said.

“Our resolve cannot be questioned and that we will do so, we will pursue such resolution through diplomatic moves,” Valte said.

Valte said there should be no talk of military assistance yet because all claimant-countries were talking and seeking a peaceful resolution to the issue.

Chinese Ambassador Liu Jianchao said on Saturday that “military means” was not an option for China.

Authorities have recorded six to seven incursions into Philippine-claimed areas by Chinese vessels and aircraft.

Drilon appeal for Peace in Spratlys

Sen. Franklin Drilon, an administration ally, called for an end to incendiary statements on the West Philippine Sea issue.

“All sides should exercise calm and avoid issuing statements because this is a very sensitive issue. We must defend our sovereignty but we must also be very careful in issuing statements,” Drilon said.

Drilon emphasized that only the Department of Foreign Affairs should be allowed to issue statements because the issue involves diplomacy and foreign relations.

Drilon also said the country’s relations with China cannot be easily set aside. He was apparently referring to a call by Albay Gov. Joey Salceda for a boycott of Chinese products.

He also stressed that the issue should be discussed multilaterally, or taken up before the International Court of Justice.

The Philippines and other countries in the Association of Southeast Asian Nations (ASEAN), he added, may take a united stand against China’s alleged bullying.

“This cannot be resolved on a bilateral or one-on-one basis. China is too big so the discussions should be multilateral, meaning the claimants in ASEAN should form a body to face China,” Drilon said.

Senate committee on foreign relations chair Loren Legarda also pushed for diplomacy in resolving the issue.

“It is to the region’s and the international community’s collective interest that the parties remain committed to exploring ways for building trust and confidence on the basis of equality and mutual respect,” Legarda said.

Cagayan Rep. Juan Ponce Enrile Jr., for his part, called for sobriety.

“Let the concerned agencies do the talking instead of (Palace) spokespersons who may not have a full grasp of West Philippine Sea, diplomacy, conflict management, and negotiations,” he said.

“When it comes to foreign policy, we should speak with one voice. We cannot compromise our foreign relations from interpretations made by spokespersons who muddle the handling of a potential conflict,” he said.

Enrile decried the apparently contradictory statements made by presidential spokesman Edwin Lacierda and Valte, his deputy, on the Spratlys issue.

He said that while Lacierda was quoted as saying that the country is “committed to a multilateral approach to the resolution of claims in the Spratlys,” Valte invoked the RP-US Mutual Defense Treaty (MDT).

Enrile said the agencies that should speak for the country on the issue are the DFA and the Department of National Defense.

Enrile’s father, Senate President Juan Ponce Enrile, Sen. Joker Arroyo and other senators have expressed doubts on whether the MDT can compel the US to help the Philippines in case of an armed confrontation with China.

Enrile said the best way to resolve the conflict would be through negotiations under the framework of the UNCLOS.

Boycott All Chinese Product

Rep. Enrile also chided Salceda for calling for a boycott of Chinese-made goods. Salceda belongs to the ruling Liberal Party.

“Why on earth are we calling for a boycott of Chinese goods? China is bigger than the Philippines in terms of consumer market, so how can we, as a neighbor, even contemplate about it?” he asked.

“As responsible elected officials, we should refrain from instigating a trade war with the third biggest buyer of Philippine exports. The saber rattling is uncalled for. Let’s put a stop to that,” Rep. Enrile said.

“We should instead focus on setting up our national coast defense system to protect our baselines and buy and patronize Filipino products so that we help our economy,” he said.

Sen. Ralph Recto also slammed Salceda for his boycott call.

“The right response is to increase our trade and investments with China and perhaps, maybe with the right growth formula, we can get even economically years from now,” he added.

He said that it would be a “big economic victory” for the Philippines if it closes its $900-million trade deficit with China.

The country imported $7 billion worth of goods from China in 2010 as against its exports of a little over $6 billion.

Recto likewise noted that as part of the emerging economies and touted by respected global bodies as among the Top 25 countries with strong economies by 2025, the Philippines should “act accordingly” and should not be “boycott happy.”

“We should not only engage China diplomatically but also through business,” Recto stressed.

“The Spratlys question should be settled peacefully. You can’t be saber rattling with China. It’s our biggest trading neighbor,” Recto said.

“An action like that (boycott call) has repercussions. They can tell all you Filipino people in China, go home. They can call for a boycott of all Filipino products. I don’t know who will lose in this one. So we should take it easy,” Sen. Enrile said.

Recto said the Armed Forces of the Philippines should beef up its arsenal and capability “not for arms race but to protect our coral reefs and fishermen.”

Recto said the AFP should start buying modern equipment and fleet.

“We should start buying some of these equipment and I don’t care if we buy them from China,” he said.

 

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