Case in point is the country’s repeated failure to make the grade in the recent country assessment submitted by consultant Wilshire Associates to its client, the California Public Employees’ Retirement System or CalPERS. The Philippines scored 1.87 in the 2004 report card, from 1.46 last year. The grading system is a simple 1.00 to 3.00, the latter being the highest.
Since 2002, the country had scored below the CalPERS hurdle rate of 2.00 but had managed to stay on its probationary "cure" list. This year, the country may truly be locked out of the listing, and Paeng’s boys were all psyched up when they presented their arguments recently as to why the Philippines should be given "special case" treatment.
Should we have failed to convince them, CalPERS will pull out its funds – estimated at $30 million – from local stocks after 30 days or so. The $30 million is still a paltry sum compared to the pension fund’s total asset value of $164 billion, but nonetheless substantial for a starved market like ours.
"The Philippines, which had been on the list, was extended the one-year cure period last year because its score had dropped below 2.00. In the 2004 report, the Philippines’ score rose significantly above Wilshire’s past threshold of 1.50 but not enough to meet the 2.00 threshold," said the Wilshire report to CalPERS.
Aside from the Philippines, the 26 other economies classified as emerging are Argentina, Brazil, Chile, China, Columbia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, South Korea, Mexico, Malaysia, Morocco, Pakistan, Peru, Poland, Russia, South Africa, Sri Lanka, Taiwan, Thailand, Turkey, and Venezuela.
The country factors – political stability, transparency, and productive labor practices – account for half of the weighting of the total score, while market factors – market liquidity and volatility, market regulation/legal system/investor protection, capital market openness and settlement proficiency/transaction costs – pull in the other half.
In February 2003, Wilshire downgraded the country’s judicial system’s rating from 2.00 to 1.00, similarly giving the lowest grade of 1.00 for political stability, market liquidity and volatility, market regulation and investor protection, and capital market openness.
Given the latest performance of the courts – the well-known fact of clogged court dockets and what many consider as indiscriminate issuance of TROs – are we surprised about this rating of the judicial system?
Also, those observing the Philippines from the outside will not quibble about the rating for political stability, market regulation and investor protection. In fact, a higher rating would have raised eyebrows.
If the reforms were considered, officials said the country’s score in 2003 would have improved to 2.22, and if the grading system was evenly distributed, the rating could go up to as much as 2.63. Had Wilshire corrected the inaccuracies last year, add our exasperated government bureaucrats, the Philippines would have scored at least 2.05 this year.
Even laggard Argentina, which failed to make it to the Cal PERS list this year together with Turkey and Peru, is attracting hordes of professional investors who are quick to spot opportunities in markets where stock levels are diving way below values.
So why are we begging so hard to be included in a list that apparently is not even regarded as the authority in the global investment business? Is it because if CalPERS was to pull out, it could drag along several million dollars of funds from a stock market that could hardly survive as it is?
Or, is it because if CalPERS pulls out, it will be another black eye to the Arroyo administration, bad timing coming at the heels of a credit rating downgrade, and in the middle of the election campaign.
We really don’t need another foreign body to tell us that we do have a tenuous political situation, that our financial markets are too small to qualify as liquid yet big enough to be volatile, and that our market regulation is a mockery of transparency and investor protection.
Even if we are included in the CalPERS list, these realities cannot be denied.
Local commercial and industrial activities have been in the doldrums for quite a while. New investments have come in, but only in trickles compared with our neighboring countries. Prices of basic commodities are about to hit the ceiling with the continuing rise of oil product prices and the imminent Meralco electricity rate hike. Amidst all of these, a neophyte in government service was appointed as Secretary of Trade and Industry.
Join us break barriers and gain insights into the views of Secretary Cesar V. Purisima of the Department of Trade and Industries (DTI) on current issues affecting the various sectors of Philippine business.
Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.