Incumbent Philippine President Benigno Simeon “BS” Aquino is beaming with pride now that the country has scored an “investment-grade” credit rating from Global rating agency, Fitch Ratings under his watch. You might be asking yourself, “What the heck does it all mean?” Well, it means a lot of things that some folks will never understand. This is because the credit rating upgrade will only amount to something when investors actually invest in the country and when those investments turns into profit.
Hired to rate
In a nutshell, the country now has a good credit standing — supposedly. The rating upgrade is said to be a “move expected to boost investment and lift the country’s long-term growth potential.” How? Here’s a simple analogy: let’s assume that Pedro is tired of commuting. He now wants to take out a car loan from a bank. As its standard procedure, the bank will look at Pedro’s credit history and his ability to pay his debt. If his credit standing is good, his chances of getting approved for the loan is high and he might even have access to a lower interest rate. A low interest rate could allow him to manage his finances better. That is also assuming that he doesn’t decide to take out any more loans in addition to his car loan, which could spin his finances out of control.
The question is, should Pedro ask for a loan in the first place? Why can’t Pedro just work hard and pay for his car in cash? Just because he now has access to a credit line, it doesn’t mean that he should go out and take out a loan.
The same could be asked of the Philippine government. Should the government take out more loans now that the country has a good credit rating? After all, one of the things cited by the rating agency, Fitch as the reason for giving the Philippines an upgrade from BB+ to BBB- is that “the government ably managed the country’s foreign debts, which has fallen to 47% of total government borrowings, from 53% at end-2008.”
While Filipinos are still debating over who initiated the reforms that led to the credit upgrade, they seem to forget that there is a risk that if the country falls into excessive debt again, it is possible that the borrowed funds can get mismanaged yet again or could get funneled into a private account in the Cayman Islands by some government douchebag. If or when that happens, a lower credit rating will be the least of the Filipino people’s worries.
When borrowed funds meant for infrastructure projects disappear, Filipinos will have nothing to show for falling into the debt trap – there will be no new infrastructure, no money for better education and health care, nor any money to help with social services. Not to mention the obvious outcome: there will be no return on investment. In other words, borrowing money that can only get lost in the “bureaucratic maze” is not something Filipinos should be looking forward to.
Taking all the credit
As usual, President BS Aquino was quick to take all the credit for the credit upgrade. Never mind that it was crystal clear that the credit agency emphasized that it was former President Gloria Arroyo who introduced reforms that effectively improved the fiscal management of the country, something that BS Aquino is reaping rewards for at present. GMA’s VAT reform law in 2005 was said to “have made general government debt dynamics more resilient to shocks.”
However, BS Aquino stated that the upgrade was “an institutional affirmation of our sound good governance agenda”. Yes, as stated by Fitch, government borrowings were down by 47%. Let’s not forget that the reason for this was because BS Aquino put all projects on hold in the beginning of his term. In fact, he didn’t want to spend on public infrastructure projects that time, which was a move that resulted in the economy only growing by 3.2 percent in the third quarter of 2011. As mentioned before, the significant drop in growth in 2011 compared to the 7.3% growth in 2010 compelled some of the President’s critics and members of the Makati Business Club (MBC) to strongly advise him then not to put on hold public infrastructure projects and, instead, “to pump prime the economy” with government funds.
President BS Aquino it seems didn’t realize that putting a hold on infrastructure projects that were initiated by the previous government would backfire on his own administration. Some people even saw through his so-called “austerity measures” as vindictive and just a ruse to make people believe that he is unlike his predecessor Gloria Arroyo whom the President claims to have “depleted” the national budget through its alleged overspending.
What I am trying to say is this; BS Aquino’s move to put projects on hold or do nothing in his first year in office and equate that to “austerity measures” gave the impression of “sound fiscal prudence and good governance”. The fact is, it really doesn’t matter who is sitting in Malacanang right now since the remittances from the overseas foreign workers (OFWs) and consumerism fueled by it is what’s keeping the economy afloat. Both BS Aquino and GMA cannot even take credit for the economic policy of sending laborers abroad. Our dependence on remittances started in 1974, during the Marcos years. Unfortunately, the Philippine government has become addicted to the easy availability of funds from remittances.
BS Aquino doesn’t seem to realise that the influx of foreign investors will be limited by the 60/40 provision in the constitution. Not all foreign investors are satisfied having a local partner. A lot of businessmen prefer to have 100 percent control on their businesses. Removing the restrictions is one thing, but the question is: Has the situation around doing business in the Philippines improved? We might be inviting guests over without first cleaning the house. Last I heard, foreigners are still getting themselves kidnapped for ransom.
What will be BS Aquino’s next move after patting himself on the back? Since he now has access to credit, will be borrow funds to push his Daang Matuwid? Would he spend it on infrastructure, better education, health care and social services? Even if he did, these investments have low guarantee on returns. Just like cars, they depreciate in value. While improving the country’s infrastructure would be great, they can deteriorate in time when they are not maintained properly. And while investing in human capital through education, health care and social services is excellent, it can only go so far until the funds dry out. Implementation in giving Filipinos access to better education, health care and social services can also be tricky. Laws would need to be introduced to address it. Sadly, the ballooning population can easily write off any improvements achieved in those things.
For better return on investment, BS Aquino should also invest in manufacturing, agriculture and mining. They provide jobs and can teach Filipinos new skills. It’s about time Filipinos make a name for themselves in something aside from exporting labor. If Filipinos use borrowed funds for ventures that will result in long-term economic programs, they can be self-sufficient and won’t have to rely too much on foreign investors for jobs or income.
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