Along with Fitch and S&P, Philippines gets 3rd investment grade from Japan's JCRA

Japan's official debt watcher has upgraded the country to investment grade, a statement said on Tuesday (May 7, 2013).

Japan Credit Rating Agency Ltd. revised its credit rating for the Philippines to BBB- from BB+, up one notch. The rating has a stable outlook.

The upgrade followed similar actions from major credit raters, Fitch Ratings and Standard & Poor's Ratings Services (S&P). Fitch raised the country's sovereign rating last March, while S&P did it last week.

In its statement, JCRA noted of the country's "robust economic growth" achieved against the backdrop of "sound fiscal management."

In particular, the Philippines is projected to grow "around six percent in the years to come" buoyed mainly by large remittances from overseas Filipino workers (OFW), which are driving domestic demand.

"Its current account remains in surplus backed by OFW remittances and business process outsourcing revenues," the agency said.

This, in effect, will further strengthen the country's external position through accumulation of foreign reserves that will "enhance our resilience to external shocks."

The balance of payments- which summarizes all inflows and outflows in a particular economy- hit a surplus of $1.535 billion as of the first quarter, central bank data show.

It is expected to widen to $3 billion by year-end, driven by remittances projected to grow by an average of five percent this year.

As of February, cash remittances are already up seven percent to $3.363 billion, figures showed.

"The country's financial system remained sound," JCRA said.

"Philippine banks remained well capitalized with their average capital adequacy ratio kept high at 19 percent as of end-September 2012 as against the 10-percent regulatory standard set by the Bangko Sentral ng Pilipinas (BSP)," it added.

In addition, the government's balance sheet has remained in check, with the budget deficit at just 2.3 percent of economic output last year, lower than the 2.6-percent target.

Debts have also been managed well, JCRA said, pointing to successful efforts of lengthening debt payment terms and focus on borrowing in pesos to reduce foreign exchange exposure.

"The increase in the excise tax in tobacco and alcohol in 2013 may help expand revenues in the years ahead," it explained.

Moving forward, the Aquino administration should set its sights in improving the country's infrastructure by further "strengthening its tax base" to fund investment projects.

The BSP, for its part, should encourage further "deepening and diversification" of the financial markets to better utilize capital flows, JCRA explained.

"As the uncertainty persists over the prospects of the global economy, especially the European economy, JCRA will closely monitor its future developments and their possible impact to the Philippine economy," the agency said.

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Philippines vs Indonesia: Which is 'better' in Economic and Investment Aspects?

Which is winning the battle between the two rising economic stars?

It's been a close battle between Asia's two rising economic stars -- Philippines and Indonesia.

At first, Indonesia was edging ahead with its two investment grade status from Fitch Ratings in December 2011 and Moody's in January 2012.

But slowly and surely, the Philippines has crept up from behind, achieving its first investment grade rating from Fitch Ratings on March 27, and now its second from Standard and Poor's on May 2.

Philippines and Indonesia both have two investment grades from different credit rating agencies. Graphic by Matthew Hebrona/Rappler

Both countries, which are considered Asia's new tigers have been demonstrating strong economic growth against a sluggish global economy, almost catching up with Asia's other economic powerhouses, China and India.

So the tallies are even, but which one is really winning?

GDP growth

In terms of GDP growth, the Philippines has emerged a winner with a 2012 GDP faster rate of 6.6%.

Indonesia, on the other hand, saw its economy slow down after the government failed to reduce subsidies, which drained the government's finances, hurting the rupiah, resulting in lower foreign investor confidence. Indonesia grew at 6.23%.

On Monday May 6, Indonesia reported a first quarter 2013 growth of 6.02%, the slowest pace in more than two years. The Philippines is due to announce their first quarter results on May 30.

In the 3rd quarter of 2012, the Philippines recorded a growth of 7.1%, replacing Indonesia as the second-fastest in Asia next to China's 7.7% and the fastest in Southeast Asia. Indonesia, which dropped down to 3rd position, registered a growth of 6.2%.

The year 2012 saw a turning of tables for the Philippines. In 2011, the Philippines expansion of 3.9% was well below Indonesia's growth rate of 6.5% in 2011.

Aquino vs Bambang Yudhoyono

The promises of Presidents Susilo Bambang Yudhoyono in Indonesia and Benigno Aquino III in the Philippines to fight corruption, lower budget deficits, and bring in investment has won them both upgrades from Fitch Ratings and Moody's Investors Service in the past year.

Philippine President Aquino, who is halfway through a 6-year term, has been successful in increasing state spending and managing the budget deficit, while seeking more than $17 billion of infrastructure investments to spur growths.

The country's budget deficit has been brought down to 2% of gross domestic product (GDP) by 2012 from 3.9% when he took office in 2010. Aquino has also increased tax collections, passed the controversial sin tax law amendments, and ousted former Chief Justice Renato Corona in 2012 for illegally concealing his wealth.

Indonesian President Bambang Yudhoyono, who is in his final year in office, failed in 2012 to cut fuel subsidies, which have drained the government finances. This means the government has to find more funds to allocate to infrastructure spending.

According to the World Bank, the President Yudhoyono has said that his government is weighing the pros and cons of raising fuel prices or choosing another method that would more effectively target the subsidies at poorer consumers in a nation where almost one in 5 people lives on less than $1.25 a day.

Foreign investments

In this arena, Indonesia has the lead. The country has been attracting the second biggest chunk of foreign direct investments - $19.2 billion in 2012 - flowing into Southeast Asia, next to Singapore's $54 billion.

The Philippines on the other hand has remained a laggard, capturing only $1.5 billion in 2012.

Corruption Perceptions

The Philippines has the lead and is now seen as less corrupt than Indonesia. The Transparency International's Corruption Perceptions Index has boosted the Philippines' ranking to 105th place in 2012 from 139th in 2009, a year before Aquino became president.

Indonesia on the other hand was ranked 118th last year, slipping from 111th three years earlier.

As both rising stars diverge in their economic growth, it remains to be seen who will emerge the clear winner.

Investment destinations

To fund managers, however, both investment destinations remain attractive, and some don't even have to choose between the two.

Amid the economic woes, belt-tightening measures, gloomy outlook and credit rating downgrades in the west, most investment funds on the lookout for solid growth are eastward-bound.

A global fund manager told Rappler that the competition for investors' attention is not between Indonesia and the Philippines, but against other emerging economies in other regions, like Eastern Europe and South America. - with research from Ramon Calzado and Lean Santos

Rappler.com

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