Philippines Beats Indonesia in Gaining S&P Investment Grade

By Karl Yap

Philippine stocks rose to a record after it beat Indonesia to win an investment grade from Standard & Poor’s, as President Benigno Aquino outshines Susilo Bambang Yudhoyono in improving government finances and spurring growth.

The rating on the Philippines’ long-term foreign-currency- denominated debt was raised one level to BBB- from BB+, with a stable outlook, S&P said in a statement yesterday. In contrast, the assessor revised its outlook on Indonesia’s BB+ rating to stable from positive.

May 3 (Bloomberg) — Philippine Finance Secretary Cesar Purisima talks about the nation’s investment grade rating by Standard & Poor’s, and the outlook for the domestic economy. The Philippines beat Indonesia to win an investment grade from S&P’s, as President Benigno Aquino outshines Susilo Bambang Yudhoyono in improving government finances and spurring growth. Purisima speaks with Susan Li on Bloomberg Television’s “First Up.” (Source: Bloomberg)

President Benigno Aquino has increased state spending and narrowed the budget deficit while stepping up its fight against corruption. Photographer: Julian Abram Wainwright/Bloomberg

“We’re continuing to address constraints to growth,” Philippine Finance Secretary Cesar Purisima said in a Bloomberg Television interview with Susan Li today. “We’re fast tracking our infrastructure projects. We’re looking at areas we can open up to foreign investors.”

Aquino’s drive to transform the nation into one of the region’s fastest-growing economies is gaining strength, with the government forecasting record investment pledges this year as companies including Murata Manufacturing Co. expand. In Indonesia, President Yudhoyono has delayed cutting fuel subsidies that have drained government finances even as he tries to allocate more funds to infrastructure spending.

“For the Philippines, this is yet another confirmation that Aquino’s reforms have borne fruit, which would help in attracting not just short-term flows, but long-term direct investments,” said Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG. “The rating momentum for Indonesia is moving in the wrong direction.”

Capital Inflows

The Philippine Stock Exchange Index (PCOMP) rose as much as 1.9 percent today to a record. Indonesia’s benchmark Jakarta Composite Index (JCI) slid a second day.

The peso climbed to a four-week high, rising 0.3 percent to 40.93 per dollar, according to Tullett Prebon Plc. In the past 12 months, it is the biggest gainer after the Thai baht among 11 Asian currencies tracked by Bloomberg.

“The upgrade on the Philippines reflects a strengthening external profile, moderating inflation, and the government’s declining reliance on foreign currency debt,” S&P said. “In our assessment, the stalling of the reform momentum in Indonesia and a weaker external profile have diminished the potential for an upgrade over the next 12 months,” it said separately.

Higher ratings may boost capital inflows into the Philippines and prompt the central bank to add to measures to curb asset-bubble risks. Bangko Sentral ng Pilipinas last month cut the rate it pays on special deposit accounts for a third time this year, while keeping the rate it pays lenders for overnight deposits at a record-low 3.5 percent.

Continued Strength

“The Philippine central bank has done a good job in managing inflows,” S&P credit analyst Agost Benard said in a teleconference today. Still, the peso will likely have to appreciate as inflows continue to rise, he said.

Moody’s Investors Service, which rates the Philippines one step below investment grade, is keeping a close eye on developments on the ground, Singapore-based sovereign analyst Christian de Guzman said in an interview today.

“Much of the momentum has continued in terms of growth, as well as the health of external payments position, as evidenced by the continued strength of remittance inflows and stability of foreign exchange reserves,” he said. “However, revenue performance is starting to slow and begs the question if efforts to increase tax efficiency have already been maximized.”

Philippine revenue collection fell a second month in March, a report showed yesterday, even after the implementation of a “sin tax” on alcohol and tobacco products. Indonesia’s rating of Baa3 above the Philippines is still justified, de Guzman said, citing a longer track record of growth and fiscal management.

Infrastructure Investment

Aquino has increased state spending and narrowed the budget deficit while seeking more than $17 billion of infrastructure investments to spur growth to as much as 7 percent this year. 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.

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, versus Indonesia’s 118.

Fitch Ratings was the first to upgrade the Philippines to investment grade in March. Moody’s Investors Service rates the nation one step below.

Fuel Prices

Ratings changes aren’t always followed by investors. French bonds and U.S. Treasuries both made gains after the nations were stripped of their AAA credit ratings, in a sign 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.

Yudhoyono said this week he will only increase fuel prices after Parliament approves compensation programs for the poor, a move that could delay efforts to contain a budget deficit that may be more than twice as much as estimated without subsidy cuts.

Fuel Prices

Failure to reduce subsidies last year drained government finances and led to a record current-account shortfall, hurting the rupiah as foreign investors lost confidence. Indonesia’s economy probably expanded near the slowest pace in more than two years last quarter as a decline in commodity prices hurt exports.

Indonesia may implement incremental measures such as a moderate increase in fuel prices, S&P’s Benard said, while stopping short of bold measures given the stage of the electoral cycle the country is in, he said.

S&P said yesterday it may raise the country’s rating if the fuel reforms are finalized, the state budget is improved, or if structural reforms boost economic growth. The assessment may be lowered if renewed fiscal or external pressures are not met with “timely and adequate policy responses,” it said.

“Policy and exchange-rate management need to be more focused on sending the right signals to the market so as not to induce portfolio outflows,” Benard said.

An epidemic outbreak

By Francis Kong

There’s an epidemic breaking out in the country. No need to be alarmed – it’s not really a health threat. This outbreak deals with reality issues.

A few years ago, while waiting for my turn to speak in a college-sponsored career-orientation conference, the speaker before me told the wide-eyed graduating students these words: “Listen guys, I graduated from this school. Never accept a job offer lower than P75,000, because if you do, then you’re insulting those who have graduated from this school.”

The auditorium full of graduating students broke out with shouts and applause. The speaker was an instant hit. He became their hero.

I must’ve dampened their spirits when it was my turn to speak, because I told them, “That challenge is a fantasy that only someone from Neverland and who’s as immature as Peter Pan could promise. As a business owner, I would fire anyone in my company who would hire an inexperienced fresh grad and pay him or her that amount of money – even if the applicant graduated from Harvard or Stanford! You go to school and pay tuition to learn. Why not work for free, learn, get some experience, and then start charging high? Duh?!”

That was more than 10 years ago. Those graduates are now in the marketplace. I don’t know if they realize today that what they heard then was a fantasy, not reality.

We were having dinner at an awards ceremony recently. The CEO and the marketing manager of this huge and respected food company told me that they’ve actually heard a university dean tell his students that, if they graduated from his school, they should expect to become vice presidents in their places of employment within five years. What’s the matter with these bozos making stupid promises and encouraging unrealistic expectations among the young? They may think they’re motivating them, but what they’re doing is setting them up for future failure! Where are the classic, age-old lectures on hard work, persistence, patience and sacrifice that are the true ingredients of success?

We have an epidemic in our midst – the emergence of young workers in business organizations today who are impatient, jumping from one company to another, and who are outspoken and articulate but low on substance, mouthing clichés without understanding them and driving HR practitioners crazy.

I’ve had at least seven HR heads from our top business corporations telling me that attrition is high among the young entrants to the workplace. These young people’s work ethics suck, and their work values suck even more. Push them a little, and they whine and whimper. Stretch them a little, and they moan and groan. Correct and reprimand them a little, and they quit right there and then. Mentor them a little, and they think they know more than their mentors.

Fifteen years from now, these young people would probably cover a 10-mile wide industry range and possess a two-inch deep pool of useful expertise and skills. It’s scary to imagine what kind of life they’ll have then.

Is this the fruit of a generation of parents who have been told, cajoled and persuaded by Western literature not to discipline their kids, but to just “encourage” and “reason” with them so they won’t be traumatized?

Is this the product of half-witted speakers who set false expectations and promise the young that they can succeed within the shortest possible time with the least possible work and sacrifice, and who teach them that, when they don’t get promoted to become vice presidents within five years, they should blame the company and not themselves?

I have a couple of suggestions. Provide values training for the young people. Make them understand the difference between fantasy and reality. Make them realize that they need to read more intelligent books. (Books on vampire, love stories aren’t part of the recommended readings.) Train them in the area of developing personal excellence, and teach them the right values for living.

The youth is the hope of the future, but I wouldn’t trust my future to a bunch of young people who don’t even know how to live in the present. Let’s teach these kids discipline and work values, and let’s teach them now. Tomorrow may be too late. There’s an epidemic remember?

Source: philstar.com