STANDARD: PHL S&P DOWNGRADE ALSO POSSIBLE
MANILA, AUGUST 9, 2011 (MANILA STANDARD) Standard & Poor's shocked the global financial community over the weekend when it cut the prized credit rating of the US by one notch from triple A to AA+. The international credit rating agency summed up the downgrade: the US debt problem and its budget deficit are not going away that easily, and American politicians are not taking enough steps to resolve the issues.
The US, because of its triple AAA credit rating, had virtually become a haven for foreign investors and fund managers. Foreign central banks had invested their money in US Treasury bills not because of higher yields but due to the superb rating that was tantamount to a risk-free investment. An AAA credit rating suggests Washington's extremely strong capacity to meet its financial obligations.
Emerging markets like the Philippines, by contrast, have credit ratings of Ba1 or BB. Those mean that these countries have adequate capacity to pay their obligations, but their ability can weaken if the economic conditions in the global financial environment change drastically.
The US, meanwhile, will continue to attract investors and businessmen despite the rating downgrade because it is still the world's strongest economy. Many European countries like Norway and Switzerland enjoy triple AAA credit ratings, but foreign investors and fund managers will still prefer to make their bet on the US because of its dynamic economy. Besides, the US remains credit-worthy despite the downgrade.
The downgrade could happen to the Philippines despite the current bullish sentiment of rating agencies. Manila is far from solving its huge budget deficit problem, with the administration of President Aquino preferring to reduce spending instead of increasing revenues to narrow the budget gap. Economic growth, as a result, is slowing down from its robust pace in 2011.
President Aquino could have increased revenue collections without new taxes if the government had spent as programmed. Economic expansion widens the revenue base aside from creating more jobs. A more vibrant economy would have increased the tax collections and, more meaningfully, trimmed the budget deficit. But that has not happened.
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Chief News Editor: Sol Jose Vanzi
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