December 4, 2021

Philippines Gets Investment-Grade Credit Rating

HONG KONG — The Philippines was once the sick man of Asia: badly managed, corrupt and poor.

Years of efforts by the government of President Benigno S. Aquino III paid off Wednesday, when the country received, for the first time, an investment-grade credit rating from one of the world’s major ratings agencies.

The move, from Fitch Ratings, represented an important vote of confidence for the Southeast Asian island nation, which has been growing at a rapid clip for the past few years but whose per capita income is barely one-quarter that of the United States. The economy remains heavily reliant on money sent home from Filipinos working overseas, called remittances.

“This means much more than lower interest rates on our debt and more investors buying our securities,” Mr. Aquino said in a statement. “This is an institutional affirmation of our good governance agenda: Sound fiscal management and integrity-based leadership has led to a resurgent economy in the face of uncertainties in the global arena. It serves to encourage even greater interest and investments in our country.”

Fitch Ratings cited “improvements in fiscal management” begun under Mr. Aquino’s predecessor, Gloria Macapagal Arroyo, as one of the reasons for its decision to lift the Philippines’ rating from junk status, increasing it one notch, to BBB- from BB+. The rating applies to the country’s long-term debt denominated in foreign currency.

The upgrade, Fitch said, reflected a persistent current account surplus, underpinned by remittance inflows, while a “strong policy-making framework” — notably effective inflation management by the central bank — has supported the overall economy in recent years.

Investors cheered the news of the upgrade, sending the main stock market index up 2.74 percent.

The upgrade had been widely expected for some time, helping turn the Philippines into something of an investment darling last year. The Philippine stock market soared more than 30 percent in 2012, one of the best performances in the world, and has risen an additional 17.8 percent so far this year — the third best in Asia after Japan and Vietnam. The Philippine peso has climbed 7 percent against the dollar since the start of 2012.

Foreign direct investment, likewise, rose 8 percent last year to $2 billion, from $1.9 billion in 2011, as investor confidence in the country has solidified since Mr. Aquino took office nearly three years ago.

“This is an upgrade that’s overdue,” said Norio Usui, country economist for the Philippines at the Asian Development Bank, which is based in Manila. “Financial markets have already fully incorporated it. Bold governance reforms under the current administration have changed consumers’ and investors’ sentiment. Prudent macroeconomic management has laid the foundation for the strong growth. This rating will give investors the confidence they need to give the Philippines a much closer look.”

The country’s promising demographics also seem to point toward bright economic prospects. While many Asian nations, including Japan, South Korea and China, are aging rapidly, the Philippine population of 94 million is one of the youngest in the region. About one-third of Filipinos are 14 or younger, according to World Bank data. That compares with 19 percent in China and 13 percent in Japan.

“Should the government implement policy to educate and provide jobs for the burgeoning population, the Philippines could capitalize on its demographic advantages to raise economic output,” economists at HSBC wrote in a research report.

HSBC forecasts that the Philippine economy will expand 5.9 percent this year, slightly less than the 6.6 percent recorded in 2012 but well ahead of the 3.9 percent in 2011. Fitch Ratings on Wednesday estimated growth between 5 percent and 5.5 percent in coming years.

At the same time, the country faces considerable challenges. Infrastructure in much of the country remains poor and corruption widespread, despite progress under Mr. Aquino’s administration. Growth has generated pockets of urban prosperity surrounded by vast areas of grinding poverty and few jobs.

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Italian Debt Adds to Fears in Euro Zone

Finance ministers in the euro zone had previously scheduled two days of talks to begin on Monday afternoon in Brussels, with an emphasis on how to resolve Greece’s troubles. Over the weekend, a meeting of more senior officials was set for Monday morning.

A spokesman for Herman Van Rompuy, president of the European Council, denied that senior officials would discuss the state of Italy’s finances, which many investors consider increasingly precarious. But another official, who requested anonymity because he was not authorized to speak publicly, said Italy would probably be on the agenda.

For Italy, the cost of financing its debt rose at the end of the week, though nowhere near the levels faced by Greece. The spread between the yield on the Italian 10-year bond and the German equivalent widened on Friday to 2.36 percentage points, the most since the introduction of the euro.

Italy’s cost of borrowing for 10 years is now about 5.27 percent. Meanwhile, its blue-chip stock market index, the FTSE MIB, fell 3.5 percent.

Investors were unnerved in part by evidence of a growing divide between the Italian prime minister, Silvio Berlusconi, and the finance minister, Giulio Tremonti, who has been praised for his handling of the economy during the financial crisis and for maintaining control of the budget deficit.

The euro zone has been shaken by the fiscal troubles of Greece, Portugal and Ireland, though their economies are relatively small. The Italian economy is more than twice the size of the combined economies of those three countries. If investors were to drive Italy’s borrowing costs to unsustainable levels, it could imperil the entire European monetary union.

Even without Italy, European officials have a big task in the coming days. They have reached an impasse of sorts on whether to include the private sector in a second Greek bailout, which is considered essential to controlling the crisis that has so far been limited to the smaller economies on the Continent.

Some officials now believe that any bailout plan involving a substantial but voluntary contribution from private investors in Greek debt would be declared a selective default by the bond rating agencies Moody’s, Standard Poor’s and Fitch. The officials’ objectives of achieving a private sector contribution that is voluntary and substantial — but which is not judged a selective default — may not be possible.

If voluntary steps would cause such an event, these officials say, then more radical options may as well be considered, including requiring banks and other private investors to take part.

Speaking on Sunday at a conference in Aix-en-Provence, France, the president of the European Central Bank, Jean-Claude Trichet, said Europe was at the “epicenter” of a debt crisis that had to be of concern to the entire developed world. He urged euro zone officials to do the “maximum” in terms of governance reforms, Bloomberg News reported. He has also been adamant about keeping debt reduction by private investors out of any bailout plan.

The special session of top European officials is to start about 8:30 a.m. Monday, when a scheduled meeting between Mr. Van Rompuy and the president of the European Commission, José Manuel Barroso, will be expanded to include Mr. Trichet; the European commissioner for economic and monetary affairs, Olli Rehn; and Jean-Claude Juncker, the finance minister for Luxembourg, who presides over meetings of the so-called Eurogroup of finance ministers from the 17 countries that use the euro as their official currency.

Vittorio Grilli, the director general of the Italian treasury, is also scheduled to attend. But Dirk De Backer, a spokesman for Mr. Van Rompuy, said Mr. Grilli would be there in his capacity as head of the euro zone’s Economic and Financial Committee and not to discuss his country’s economy.

Liz Alderman contributed reporting from Paris.

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