Philippines Gets First Investment-Grade Credit Rating from FITCH

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.

"While we may finally be treading the right path towards inclusive and sustainable development," Loren Legarda, a Philippine senator, said in reaction to the upgrade, "the challenge remains for us to ensure that there will be overall improvement in the lives of majority of Filipinos."

Renato M. Reyes Jr., secretary general of the left-leaning social organization Bayan, said the upgrade was "meaningless" as far as the poor were concerned. "It will not necessarily generate jobs and lead to sustainable growth," he said. "It looks good only on paper and will only benefit big business. Expect Aquino to milk this for the 2013 elections."

Recent developments in the southern Philippines, moreover, have highlighted the differences between the prosperous and peaceful north and the impoverished and unstable south. In February, gunmen from the southern Philippines caused a major security crisis in Malaysia when they took over an isolated village in the state of Sabah. Mr. Aquino has faced significant domestic criticism of his handling of the crisis.

Richard Foyston, the chairman of Navis Capital, which is based in Kuala Lumpur and has about $3 billion in shares and private equity investments in Southeast Asia, cautioned that the Philippines' economy remained highly dependent on household spending and on remittances from Filipinos working abroad.

Household spending makes up a big proportion of the Philippines' economy because spending on infrastructure and industry has for years lagged behind the country's peers in Southeast Asia. Remittances, meanwhile, rose 6.3 percent to $21.4 billion last year, the equivalent of 8 percent of gross domestic product.

"That fills a gap, but it is a sign of an imbalance," Mr. Foyston said, referring to the remittances. "The capability and talent and willingness to work and invest, all those things that are good for an economy, have not been put to work at home in the Philippines."

In May, elections will be held in the two houses of the Philippine legislature. Mr. Aquino, who is not up for re-election, has campaigned aggressively for his legislative allies, who are crucial for continuing his reform agenda.

Floyd Whaley reported from Manila. Neil Gough contributed reporting.

The New York Times

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Manila’s Payatas dump site residents benefits the clean energy from Methane

AFP © Philippines turns trash into clean energy windfall

Philippines turn trash into clean energy windfall

Manila - Payatas residents experienced a first kilowatt power generated from the methane gas and now more likely benefiting the power from the garbage. Mrs.  Teresita Mabignay does her ironing using free electricity on the slope of a garbage dump, an unlikely beneficiary of efforts to turn the Philippines' growing rubbish problems into a clean-energy windfall.

Mabignay lives at the base of one of Manila's largest landfills, which was the first in the country to have its methane gas converted into power as part of a United Nations' programme aimed at tackling climate change.

Decomposing rubbish produces methane, which is one of the greenhouse gases that scientists blame for global warming, and turning it into electricity saves it from rising up into the atmosphere while reducing the need to burn fossil fuels.

The methane is captured with pipes that are dug into the landfill, similar to wells that extract gas from under the ground or ocean. Methane is then sucked down to a power station at the bottom of the dumpsite and pumped into generators to make electricity.

For the past few years Mabignay and other housewives from the slum community at the bottom of the Payatas landfill have been given free access to the power at a hall built at the dumpsite.

"It really helps because it cuts down on our electricity bills... sometimes we use the savings to buy food," said Mabignay, 50, whose husband earns the equivalent of about $200 a month working as a security guard at the dumpsite.

The company behind the project, Pangea Green Energy Philippines, could afford to be generous with its electricity as it was earning hundreds of thousands dollars to capture and convert the gas.

Under the UN programme, industrialized countries can meet their Kyoto Protocol commitments to cut greenhouse gas output by funding projects that reduce emissions in developing nations such as the Philippines.

Companies in developing countries earn credits for reducing emissions, each equivalent to one ton of carbon dioxide. The credits are then sold to companies, institutions or governments in industrialised countries to offset their emissions.

Pangea president Jennifer Fernan Campos said the Payatas energy project was set up to take advantage of the UN scheme, with the first kilowatts generated in 2008.

"We are also very gratified to be helping the environment and the community. In our own little way we are mitigating greenhouse gas emissions," she said.

Thousands of renewable energy projects in developing countries have been registered under the UN's Clean Development Mechanism since it began in 2005, including wind farms, solar stations and hydropower dams.

There have also been many waste-to-energy projects, with four others in the Philippines starting up after the pioneering Pangea operation, according to industry website www.cdmpipeline.org.

However the market price for each ton of greenhouse gas that companies save started dropping sharply in 2010, partly because of the economic meltdown in Europe which was the biggest source of revenues.

"Our rate is a floating one so when the market collapsed, we suffered," Fernan Campos said, explaining they made the mistake of not locking in a higher price when they had the chance.

Industry experts have warned the carbon trading scheme is in danger because of the collapse in prices, and many clean-energy projects face an uncertain future.

However Fernan Campos said the Payatas project had become commercially viable without the UN-channeled money.

She said Pangea this month expanded capacity from 200 kilowatts to one megawatt, and began selling directly onto Manila's electricity grid.

Previously the electricity generated at Payatas had just been used to power operations at the landfill and for the nearby slum communities via the ironing project and neighborhood street lights.

The amount of greenhouse gases that are now being saved at Payatas is the equivalent to taking 18,000 cars off Manila's roads, according to Fernan Campos.

She said the project had a host of other environmental benefits, including less direct air pollution for people living close by. The extracted methane gas could also no longer contaminate the water system.

Nevertheless, Greenpeace and some other environment groups oppose waste-to-energy projects, arguing their green credentials are often exaggerated and that they create a financial incentive for more rubbish to be dumped.

"The only way to address the issue of methane generation from waste is to stop the rubbish going to the landfill in the first place," Greenpeace Philippines programme manager Beau Baconguis said.

"Having such projects in place encourages the generation of waste, rather than eliminating it, because you need waste to run the facility."

Baconguis said there was no vision from the Philippine government to reduce waste, and that Manila's roughly 12 million residents were producing between 6,000 and 8,000 tonnes of rubbish every day.

However Fernan Campos insisted Pangea was not lobbying for, or encouraging, more waste to be dumped at Payatas.

She said the local government had implemented recycling and other waste-reduction policies in recent years that had seen the amount of rubbish going into the landfill drop from 1,800 to 1,200 tons a day.

"We are just clearing whatever is there, and helping the environment at the same time," she said.

Yahoo News

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