Aquino Wins First Investment Grade for Resurgent PhilippinesKarl Lester M. Yap
The Philippines achieved investment grade for the first time as Fitch Ratings raised its assessment, rewarding President Benigno Aquino for leading a growth resurgence after lagging its peers for decades. Stocks climbed.
The rating on the nation’s long-term foreign currency-denominated debt was raised one level to BBB- from BB+, Fitch said in a statement today. The outlook on the rating is stable. The upgrade puts the Philippines on par with Indonesia.
“What was once known as the perennial laggard of Asia is taking off,” Aquino said in a statement. “The task now is to ensure that expected inflows will be used to maximum effect towards a sustainable, progressively empowering economy.”
An exit from so-called junk status bolsters Aquino’s drive to transform the nation into one of the region’s fastest-growing economies 15 years after the Asian financial crisis of 1997-98. The president is boosting spending to a record while narrowing the budget deficit, and has also made progress against graft.
“It is well deserved,” said Matt Hildebrandt a Singapore-based economist at JPMorgan Chase & Co. “A lot of this has been due to the reforms the Aquino administration has taken. Other rating agencies may follow in the second half of the year.”
The upgrade may boost capital inflows and complicate the job of the central bank as it tries to rein in an appreciating peso and curb asset bubbles. The Philippine Stock Exchange Index surged to a record, while government bonds rose and the peso climbed the most since September after the Fitch report.
Bangko Sentral ng Pilipinas has placed limits on lenders’ currency forward positions, banned overseas funds from special deposit accounts and expanded monitoring of banks’ real-estate exposure. It has cut the rate on SDAs twice this year while holding its benchmark rate at a record-low 3.5 percent, and may prohibit foreign investors from its reverse repurchase facility, Monetary Board member Felipe Medalla said this month.
A credit upgrade would attract more inflows, and BSP is looking at more measures to counter them, Governor Amando Tetangco said Jan. 30. Foreign portfolio inflows climbed to $2.1 billion in February, about 40 percent higher from a year earlier. The funds surged to $18.5 billion in 2012, a 10-year high.
The upgrade is a “landmark achievement,” Tetangco said today in a mobile-phone message. It is “a recognition of gains from structural, financial and governance reforms.”
The Philippine economy, which was more than twice the size of Malaysia and 10 times bigger than Singapore’s in 1960, expanded 6.8 percent in the fourth quarter. Aquino is seeking more than $17 billion of infrastructure investments to spur growth to as much as 7 percent this year.
The president has taken on the Catholic Church with a bill to provide free contraceptives to the poor, arrested his predecessor on graft charges, and ousted the country’s top judge for illegally concealing his wealth. Transparency International raised the country’s ranking on its annual corruption index last year to 105, higher than Indonesia at 118.
Standard & Poor’s upgraded the Philippines to one step below investment grade in July, with Moody’s Investors Service following in October. S&P raised the credit outlook to positive in December, citing improved governance and public finances.
Moody’s is studying the sustainability of positive momentum in the Philippines, Christian de Guzman, a senior sovereign analyst at Moody’s in Singapore, said today.
“The Philippines’ sovereign external balance sheet is considered strong relative to A range peers, let alone BB and BBB category medians,” Fitch said today, citing the net external creditor position.
Ratings changes aren’t always followed by investors. French bonds and U.S. Treasuries both made gains after the countries were stripped of their AAA credit ratings, in a signal that downgrades may have little bearing on borrowing costs.
Almost half the time, government bond yields fall when an action suggests they should climb, or they increase even as a change signals a decline, according to 38 years of data compiled by Bloomberg.
Philippine sovereign notes returned 11 percent in 2012, the highest in Asia after India, according to indexes of Asian dollar-denominated government bonds compiled by HSBC Holdings Plc. Alliance Global Group Inc. is building more hotels and Google Inc. opened an office in the capital Manila in January.
Investment pledges in the Philippines climbed to a record $15.2 billion last year. An initial peace agreement with Muslim guerrillas on the mineral-rich Mindanao island in October is forecast to bring about $1 billion more in commitments.
“Funds are already pouring into the Philippines and an investment grade is a further endorsement,” said Eugene Leow, a Singapore-based economist at DBS Group Holdings Ltd. “It allows a wider pool of investors to buy Philippine assets and there might be a slight bump up in inflows. The central bank has been sounding off on inflows and they could implement measures to deter speculative inflows.”