Credit rating agencies are important references for international creditors and investors. Independent of the banks and the corporations, their role is to make risk assessments of private corporations and governments alike. These assessments guide the lending decisions of banks and the investment decisions of corporations.
Our sovereign credit rating is largely an assessment of the quality with which we manage our fiscal affairs. When our budget deficit runs too large, then domestic interest and inflation rates will tend to become unsustainable. Our currency will come under pressure to devalue. The probability of defaulting on our debt payments increases.
When our credit rating is lowered, interest charges on our borrowing rise. That reflects the increased risk of lending to the country.
In the normal course of things, our finance managers should celebrate an upgrade and mourn a downgrade. An upgrade is not only a means to bring down interest rate payments, it is also a tribute to the quality of management of the public sector.
Strangely, there was a hint of celebration about our downgrading by Fitch last week.
It was a downgrade that marred a torrent of good news.
The economy turned in a performance higher than targeted. Our budget deficit was managed too well, resulting in a shortfall that is lower than programmed. Our currency has been relatively stable. The dreaded El Nino phenomenon has turned out to be milder than expected this year.
That torrent of good news resulted in renewed signs of life in our stock market. President Arroyo’s visits to the US, South Korea and Japan produced investment commitments and trade concessions from powerhouse economies that are significant to us.
And then the downgrade was announced – with that curious hint of celebration among official ranks.
The celebration, it seems, draws from the fact that Fitch was virtually apologetic about an act they had to perform as a matter of professional course. The economy was running reasonably well. The downgrade was, to a large extent, due to political factors.
The Macapagal-Arroyo administration has managed the economy rather well. There are, of course, a number of structural factors that will require a much longer time to resolve: the quality of our infrastructures, those things in the 1987 Constitution that are inhospitable to investment and the myriad policy, institutional and procedural reforms that have difficulty advancing because of the nature of our politics.
But there is the fact that we stand on the eve of an election year. That fact, by itself, creates a host of uncertainties and concerns necessitating the prudent measure of a slight downgrade.
On the eve of an election year, pressure will begin to build up for increased public spending. If the pressure is not countered by strict, professional fiscal management, it could lead to an unsustainable deficit picture.
At this stage, too, there is uncertainty about who would succeed President Arroyo.
Since she accessed the Presidency under unusual circumstances, she has provided assuring and steady leadership. Despite the political tensions spilling over from the intense polarization over the failed Estrada presidency, she restored predictability to our policies and stability to the troubled political landscape. A professional economist, she understood the nature of our nation’s problems and was able to address the concerns of those who want to help our economy grow.
Then, besieged by bitter and destructive political play by those who seek to advance their own ambitions or restore the failed presidency she displaced, an exasperated Gloria Macapagal-Arroyo shook the nation by declaring disinterest in seeking the post in May 2004.
The announcement had an upside in the short term. It blindsided the opportunistic opposition and brought some calm to the political landscape, allowing her government respite from the scandalmongers and dispensers of irresponsible intrigue. That respite created enough opportunity for government to work. It was a rare opportunity, considering the destructive nature of our political life.
It had a serious downside, too, that is only now being fully appreciated.
Her December 30 announcement foreclosed a rare opportunity for the nation – the opportunity to be continuously governed through democratic selection for a full decade. That sort of continuity and predictability, coupled with adept economic management and a modernizing leadership attitude, is exactly what we need at this time to nurse our national economy back to health after three decades of turmoil and failure.
In the aftermath of that announcement, the political horizon seems to be populated exclusively by, well, political pretenders. None of them possess the tremendously reassuring quality of a second Macapagal-Arroyo presidency. Some of them portend yet another era of erratic rule, bitter political divisions and uncertain policy-making.
The notoriously early runners – Raul Roco and Panfilo Lacson – are trying too hard and gaining too little adherence. Neither of the two demonstrates capacity to generate a groundswell, cause a snowball and produce a consensus that will ensure policy predictability and political stability.
The prospect of Fernando Poe Jr. running is a bad dream. The threat of Joseph Estrada once more seeking the post from which he was ousted is a complete nightmare.
Our politics has this unique propensity for becoming a tripwire to our country’s progress.
Gloria’s December 30 announcement opened a Pandora’s Box. The goblins unleashed by that announcement include the prospect that, from next year, the country will be ruled by political dwarfs or by political clowns. That the election next year will be so bitterly contested it will produce yet another six years of turmoil. That the field will be so widely contested, the elections will create a severe minority president squabbling with everybody else to the end of our days.
It does not help that we have an intemperate electorate: one swayed by the moods of the moment, one carried away by sheer name-recall or insincerely crafted images and one that, once before, invested the most powerful post in the land to an ethereal character induced by the fiction of films.
For all these reasons, we deserve the downgrade – and Senator Pimentel need not exert too much effort venting his political frustrations by denouncing the messenger.