BSP Governor Amando M. Tetangco, Jr. and Finance Secretary Cesar V. Purisima met high ranking officials of the credit rating agencies (CRA) at the sidelines of the IMF-WB meetings in Washington DC last month.
The government officials updated the CRA officials on the latest developments in the Philippine credit story. It was clear from the discussions that the Philippines is well-positioned for any global slowdown. The CRAs acknowledged that the country has considerable policy flexibility to deal with global economic and financial uncertainties.
The CRAs noted the continued robust external liquidity position of the country with the gross international reserves at $76B as of end August comfortably exceeding gross external debt of $61B as of end March; external debt ratios that are better than many of the country’s peers; and the skillful handling by the monetary authorities of the surges in foreign capital in the country. The stable banking sector was also recognized as an important factor in helping to fuel economic growth.
The notable fiscal progress was also acknowledged by the CRAs. They appreciated that the performance of the revenue collection agencies in the first eight months of the year allows the country to achieve the expenditure objectives for 2011.
Finance Secretary Purisima underscored that the approach of the Aquino Administration is good governance. He cited the various initiatives of the government such as the anticorruption measures at the Department of Budget and Management and the efforts of the BIR and Customs to go against tax evaders and smugglers.
One clear new credit positive that the CRAs acknowledged is the passage of Republic Act 10149, or the GOCC Governance Act of 2011. CRAs praised the landmark legislation as it institutionalizes good governance practices in the country. This law mandates the creation of the Governance Commission for Government-owned and Controlled Corporations (GCG) that will examine the performance and organizational structures of GOCCs, as well as the qualifications, performance and compensation of their officials and staff. Among others, the GCG will also have the power to pursue the reorganization, merger, streamlining, privatization or even the abolition of agencies. It will also have the power to establish a fair and equitable compensation and position classification system to set the compensation, per diems, allowances and bonuses of the board members. Senator Franklin M. Drilon was the principal author of this groundbreaking law.
BSP Governor Tetangco for his part cited the benefits of the GOCC Governance Act. He stated that the law will certainly aid in the conduct of monetary policy as the implementation of the law would reduce, if not totally eliminate, leakages from rent-seeking behavior. This will then make the multiplier effect of the government’s projects more perceptible. Gov. Tetangco added that this will also improve investor confidence in the country’s business environment.
Gov. Tetangco pointed out that the Philippines is now able to fire up on two engines of growth to drive the economy. First, appropriately accommodative monetary policy continues to bolster the economy to a more sustainable growth trajectory. Second, the National Government can now increase its spending. The leeway provided to the NG by the fiscal consolidation to date reduces the burden on monetary policy with respect to keeping the current growth path.
CRAs agreed that another review should be done on the Philippines late this year to early 2012.