S&P downgrades RP rating to ‘negative’

The embattled Estrada administration received another major setback yesterday as the global ratings agency Standard and Poor’s (S&P) downgraded the country’s long-term ratings outlook to negative from stable amid a bribery scandal implicating President Estrada.

"The revised outlook reflects growing concerns about the government’s ability to undertake effective economic management during a period of political uncertainty," S&P said in a statement.

The firm, however, affirmed its BB+ long-term and B short-term foreign currency sovereign credit ratings on the country.

It also affirmed its BBB+ long-term and A-2 short-term local currency sovereign credit ratings.

"Recent political developments following new allegations of corruption against the President have further lowered investor confidence, weakening the momentum behind economic reform and GDP growth and placing growing strain on the currency," according to S&P.

It warned the prospect of economic policy drift in the near term could erode the country’s weak public finances and lead to further delays in implementing key reform measures.

Confidence has been rocked by political uncertainty brought about by an impeachment bid against the President.

S&P said although the open and democratic political system should provide institutional stability as the current political crisis unfolds, "the country’s credit standing would decline if fiscal erosion wre to continue."

It noted that total public sector debt exceeds 80 percent of GDP, and nearly half of that is external.

"This raises the country’s fiscal vulnerability to a potential further depreciation of the currency, which has fallen by around five percent during the past two weeks," S & P said.

S & P said the recent increase in interest rates to support the peso will raise the government’s domestic debt service burden. It added that "recent weak economic management overshadows the decade-long improvement in the country’s economic foundations that resulted from reform and liberalization."

It argued that "this reform sustained GDP growth in recent years and helped to keep foreign exchange reserves at nearly twice the level of short-term debt."

Finance Secretary Jose T. Pardo and Bangko Sentral ng Pilipinas (BSP) Governor Rafael B. Buenaventura both tried to play down S & P’s critical assesment.

Buenaventura said that "S & P’s assessment is too harsh and exaggerated."

Pardo, on the othe hand, said "it gives us more resolve to do better."