Bad mood
Bad mood
Posted 00:52am (Mla time) Feb 18, 2005
Inquirer News Service
Editor's Note: Published on page A14 of the February 18, 2005 issue of the Philippine Daily Inquirer
THE TWO-NOTCH ratings downgrade by Moody's Investor Service caught some of our august senators in a foul and fantastical mood. Ignore Moody's, Minority Leader Aquilino Pimentel Jr. urged on the Senate floor on Wednesday afternoon, hours after the downgrade was announced. "We should act as if Moody's does not exist," administration maverick Sen. Joker Arroyo told reporters.
Unfortunately, Moody's and other credit-rating agencies do exist, and for good reason. Both borrowers and lenders need an independent third party to assess credit-worthiness, and thus determine risk. In sum, what a rating captures is a snapshot of market perceptions, about how much of a credit risk a particular company or country is. Now unless both Pimentel and Arroyo want the Philippines to opt out of global markets altogether, their advice to the country's economic managers to proceed as if nothing happened is worse than inconsistent; it is perilous.
This is not to say that the two-notch downgrade necessarily reflected reality. Finance Secretary Cesar Purisima immediately called the new ratings undeserved. "What is important to point out is that I believe Moody's downgrade is so severe. I believe it did not factor in the changes we've had in the past few months," he said, referring to fiscal reforms that are ongoing.
Revealing the danger inherent in the let's-ignore-them school of thought is also not to say that ratings agencies are infallible. Most famously, the agencies did not see the 1997 Asian economic crisis coming. By and large, however, their ratings do tell us what the markets think.
So we've been downgraded. Let's deal with it. Not by burrowing our heads in the sands of resentment, not by taking refuge behind the ramparts of patriotism, but (and to change metaphors yet again) by finally putting our fiscal house in order.
That is key. We must not forget that the downgrade was expected. Earlier in the week, Bangko Sentral Governor Rafael Buenaventura ventured to say he was expecting a one-notch cut. His statement served to legitimize the official government line, emboldened no doubt by Standard & Poor's one-notch downgrade earlier in the year, that Moody's was about to do the charitable thing.
But general surprise at the deeper downgrade should not blind us to the essential fact: a cut was expected. The reasons are all too familiar: the government spends much more than it earns; our debts have put a strain on our capacity to pay; we are not doing enough to solve the problem as fast as we can.
That is, in fact, what the official Moody's announcement said. "Moody's Investors Service has downgraded the Philippines' long-term foreign-and local-currency ceilings and ratings owing to concerns that the large build-up in government and external debt introduces heightened vulnerability to shocks despite recent efforts by the government and legislature to enact fiscal reforms." And: "[P]ublic-sector borrowing requirements will remain large even with more progress in fiscal reform, leaving the Philippines vulnerable to economic, financial, and political shocks, as well as to sudden changes in market sentiment."
Do Pimentel and Arroyo dispute any of this?
These are statements of fact. We may have a different reading of what they mean, but it would be sheer folly to pretend that Moody's does not exist, and that therefore its interpretation of the facts is irrelevant. (For one thing, lower ratings have a real if somewhat delayed impact: they will make our debts even more expensive.)
The Moody's announcement hints at the necessary reforms that need to be undertaken. These are not necessarily what the government should be implementing. For instance, the "rapid implementation" of so-called "front-loading" measures (meaning doing all the drastic reforms in the first years of the President's new term) may not be politically feasible or even economically desirable. It is up to both the executive and the legislature to design the reforms, and then to put them in place.
In other words, our focus should be on the reforms we need, not with the existence or non-existence of third parties who have the effrontery to grade our government's performance or lack of it.
Posted 00:52am (Mla time) Feb 18, 2005
Inquirer News Service
Editor's Note: Published on page A14 of the February 18, 2005 issue of the Philippine Daily Inquirer
THE TWO-NOTCH ratings downgrade by Moody's Investor Service caught some of our august senators in a foul and fantastical mood. Ignore Moody's, Minority Leader Aquilino Pimentel Jr. urged on the Senate floor on Wednesday afternoon, hours after the downgrade was announced. "We should act as if Moody's does not exist," administration maverick Sen. Joker Arroyo told reporters.
Unfortunately, Moody's and other credit-rating agencies do exist, and for good reason. Both borrowers and lenders need an independent third party to assess credit-worthiness, and thus determine risk. In sum, what a rating captures is a snapshot of market perceptions, about how much of a credit risk a particular company or country is. Now unless both Pimentel and Arroyo want the Philippines to opt out of global markets altogether, their advice to the country's economic managers to proceed as if nothing happened is worse than inconsistent; it is perilous.
This is not to say that the two-notch downgrade necessarily reflected reality. Finance Secretary Cesar Purisima immediately called the new ratings undeserved. "What is important to point out is that I believe Moody's downgrade is so severe. I believe it did not factor in the changes we've had in the past few months," he said, referring to fiscal reforms that are ongoing.
Revealing the danger inherent in the let's-ignore-them school of thought is also not to say that ratings agencies are infallible. Most famously, the agencies did not see the 1997 Asian economic crisis coming. By and large, however, their ratings do tell us what the markets think.
So we've been downgraded. Let's deal with it. Not by burrowing our heads in the sands of resentment, not by taking refuge behind the ramparts of patriotism, but (and to change metaphors yet again) by finally putting our fiscal house in order.
That is key. We must not forget that the downgrade was expected. Earlier in the week, Bangko Sentral Governor Rafael Buenaventura ventured to say he was expecting a one-notch cut. His statement served to legitimize the official government line, emboldened no doubt by Standard & Poor's one-notch downgrade earlier in the year, that Moody's was about to do the charitable thing.
But general surprise at the deeper downgrade should not blind us to the essential fact: a cut was expected. The reasons are all too familiar: the government spends much more than it earns; our debts have put a strain on our capacity to pay; we are not doing enough to solve the problem as fast as we can.
That is, in fact, what the official Moody's announcement said. "Moody's Investors Service has downgraded the Philippines' long-term foreign-and local-currency ceilings and ratings owing to concerns that the large build-up in government and external debt introduces heightened vulnerability to shocks despite recent efforts by the government and legislature to enact fiscal reforms." And: "[P]ublic-sector borrowing requirements will remain large even with more progress in fiscal reform, leaving the Philippines vulnerable to economic, financial, and political shocks, as well as to sudden changes in market sentiment."
Do Pimentel and Arroyo dispute any of this?
These are statements of fact. We may have a different reading of what they mean, but it would be sheer folly to pretend that Moody's does not exist, and that therefore its interpretation of the facts is irrelevant. (For one thing, lower ratings have a real if somewhat delayed impact: they will make our debts even more expensive.)
The Moody's announcement hints at the necessary reforms that need to be undertaken. These are not necessarily what the government should be implementing. For instance, the "rapid implementation" of so-called "front-loading" measures (meaning doing all the drastic reforms in the first years of the President's new term) may not be politically feasible or even economically desirable. It is up to both the executive and the legislature to design the reforms, and then to put them in place.
In other words, our focus should be on the reforms we need, not with the existence or non-existence of third parties who have the effrontery to grade our government's performance or lack of it.
posted by Dante at 12:52 AM
0 Comments:
Post a Comment
<< Home