Much too standard, much too poor

Categories: Business Updates

Date Posted: 26 Aug 2014

INTERNATIONAL credit-rating agency Standard & Poor’s Financial Services (S&P) gave the Philippines a one-notch rating upgrade in May 2013, elevating the country to the “investment grade” club.

Two other credit-rating agencies, Fitch Ratings Inc. and Moody’s Investors Service, also assigned positive outlooks for the Philippines.

“We raised the ratings because we now believe [that] the ongoing reforms to address shortcomings in structural, administrative, institutional and governance areas will endure beyond the current administration,” S&P revealed in a statement. The previous rating for the Philippines was “BBB-.”

S&P added: “In turn, we believe the resulting gains in government revenue generation, spending efficiency and the improvements in public debt profile and investment environment will, at least, be preserved in the medium term under the next administration.”

This administration, as in every other, touted this upgrade as undeniable proof that everything about the country is A-OK.

But what does being lifted to “investment grade” status actually mean? As far as S&P is concerned, it says, “Credit ratings are forward-looking opinions about credit risk. S&P credit ratings express the agency’s opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time.”

In short, investment-grade status answers the question of whether the country can meet our debt payments on time. “Creditworthiness” means, with a reasonable amount of debt, the government can pay its obligations.

S&P averred that the status, based on its opinion, is “not an exact science.” In fact, it goes on to explain its opinions as “not guarantees of credit quality.”

Since there are future events and developments cannot be foreseen, “Standard & Poor’s ratings opinions are not intended as guarantees of credit quality or as exact measures of the probability that a particular issuer or particular debt issue will default. Instead, ratings express relative opinions about the creditworthiness of an issuer or credit quality of an individual debt issue, from strongest to weakest, within a universe of credit risk.”

What is troubling is that these upgrades may not be solidly based on actual risks that are transpiring at the ground level, which we all live in every day. Inflation, crisis in transportation, the downward spiral of the Philippine peso, corruption in high places and unfair taxes leveled on the working population are but minute considerations for S&P, if at all.

“Investment grade” is no assurance or proof of economic development. At best, our nation is assured that we can again take out a loan. The State can gloat all it wants, but if we were to compare the country with its Asian neighbors, the Philippines is still much too standard, and much too poor.
Written by: The BusinessMirror Editorial


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