Fitch upgrade the Credit Rating of the Philippines first time in 8 years since 2003

Since year 2003; the Fitch credit rating agency lagged their grade upgrade to the Philippines. For the first time in eight years, global rating agency Fitch Ratings has raised the grade of Philippines long-term debt, lauding the Aquino administration for "broadly disciplined fiscal management" of the budget deficit, revenue collection and monetary policy.

Fitch stamped a “BB+" on Philippine long-term foreign currency debt and “BBB-“on long-term peso debts. It also maintained at “B" the short-term foreign currency issuer default rating.

"The upgrade reflects progress on fiscal consolidation against a track record of macro stability, broadly favorable economic prospects and strengthening external finances," said Andrew Colquhoun, head of Fitch's Asia-Pacific Sovereigns team.

The BSP said the rating hike is record-setting. "The Fitch upgrade by one notch is very significant in that Fitch rating has been unchanged in the last eight years notwithstanding the remarkable strides in the economy during the same period," Bangko Sentral ng Pilipinas deputy governor Diwa Guinigundo said in a text message.

Fitch noted the improvement of the budget deficit level to 3 percent of GDP in 2011, down from 3.7 percent in 2010. Also cited was the 18 percent revenue growth in the first four months of 2011, against a nominal GDP growth of 9.3 percent.

The credit rating agency also praised the BSP for sustaining its "track record of delivering effective monetary policy management" as inflation stayed below 5 percent because of its recent policy decisions.

The Bangko Sentral ng Pilipinas (BSP) policy board has opted to keep interest rates at present levels, but reduced inflation pressures by raising the reserve requirement of banks by one percentage point.

“In deciding to maintain policy rates, the Monetary Board noted that the latest baseline forecasts show a lower path and that inflation expectations have shown signs of leveling off," the BSP said.

The BSP decided to use another policy tool at its disposal to head off a possible increase in liquidity levels. It raised to 9 percent from 8 percent the regular reserve requirement on bank deposits and deposit substitutes. The level of liquidity reserves for banks stays at 11 percent.

“The Monetary Board believes that expectations of continued strong capital inflows driven by positive market sentiment over the favorable prospects for the Philippine economy could fuel domestic liquidity growth and contribute to inflation risks," the BSP explained.

Banks and non-banks with quasi-banking functions must comply with the new reserve requirement starting Friday, June 24. Reserve requirements are the chunk of funds in the form of bank deposits and deposit substitute liabilities that banks may not lend because these must be kept on hand or in deposits with the BSP.

The required reserves consist of regular or statutory reserves and liquidity reserves.

The BSP said the adjustment in the reserve requirement is part of the “normalization of liquidity-enhancing measures adopted during the global financial crisis." BSP officials hinted of eventually raising the reserve requirement to levels way back in January 2010.

 

 

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The US will grant lease and Acquire Modern Armaments to the Philippines to become powerful

The United States said Thursday it was ready to provide hardware to modernize the military of the Philippines, which vowed to "stand up to aggressive action" amid rising tension at sea with China.

Philippines’ Foreign Secretary Albert del Rosario, on a visit to Washington, said the Philippines hoped to lease equipment to upgrade its aged fleet and called for the allies to revamp their relationship in light of the friction with China.

"We are determined and committed to supporting the defense of the Philippines," Secretary of State Hillary Clinton told a joint news conference when asked about the hardware wish-list from the Philippines.

Clinton said the two nations were working "to determine what the additional assets that the Philippines needs are and how we can best provide those." She said del Rosario would meet Defense Secretary Robert Gates and other Pentagon officials.

Tensions in the strategic and resource-rich West Philippine Sea or South China Sea have escalated in recent weeks; with the Philippines and Vietnam alarmed at what they say are increasingly aggressive actions by Beijing in the Philippine waters and Vietnam waters.

Several Southeast Asian nations have been seeking closer relationships with the United States, which since last year has called loudly for freedom of navigation in the South China Sea and West Philippines’ Sea.

"We are concerned that recent incidents in the South China Sea could undermine peace and stability," Clinton told reporters, urging "all sides to exercise self-restraint."

Del Rosario, with Clinton at his side, said that the Philippines was a small country but is "prepared to do what is necessary to stand up to any aggressive action in our backyard."

The Philippines has announced the deployment in disputed waters of its navy flagship, the Rajah Humabon. One of the world's oldest warships, the Rajah Humabon was a former US Navy frigate that served during World War II.

The Philippines has historically bought second-hand hardware, but del Rosario said that President Benigno Aquino has allocated 11 billion pesos (252 million dollars) to upgrade the navy.

Shortly ahead of his talks with Clinton, del Rosario said that the Philippines was asking the United States for "an operational lease so that we can look at fairly new equipment and be able to get our hands on that quickly."

"We need to have the resources to be able to stand and defend ourselves and, I think, to the extent that we can do that, we become a stronger ally for you," del Rosario said at the Center for Strategic and International Studies.

The United States signed a defense treaty with the Philippines in 1951(MDT), five years after the archipelago's independence from US colonial rule. Del Rosario said he believed the treaty -- which calls for mutual defense in the event of an attack in "the Pacific area" -- covers the South China Sea.

The United States has been providing military aid to the Philippines primarily to fight Islamic militants in the wake the September 11, 2001 attacks.

Del Rosario said that Al-Qaeda-linked Abu Sayyaf has largely been defeated; estimating that only around 200 guerrillas remained.

"The Philippines' relative success in counter-insurgency coupled with pressures in the regional environment compels a reorientation of focus and resources," he said.

"A reset in our relations has therefore become an imperative to allow the alliance to continue to meet domestic goals while contributing to global stability," he said.

China has said that it will not resort to the use of force in the South China Sea but has also warned the United States to stay out of territorial spats.

I believe some countries now are playing with fire. And I hope the US won't be burned by this fire," China's vice foreign minister Cui Tiankai said.

 

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