Moody's says Aquino victory favors Philippine credit ratings


Posted at May 12 2010 06:30 PM | Updated as of May 13 2010 09:03 PM

MANILA, Philippines - International credit watcher Moody's Investors Service said that the clear victory of Benigno "Noynoy" Aquino III in the Philippine presidential elections sets a favorable tone for the country's credit fundamentals.

"A clear-cut triumph would remove the undercurrents of political illegitimacy that had accompanied the incumbent administration of Gloria Arroyo and had hamstrung its policy agenda," Christian de Guzman, a Singapore-based Moody's assistant vice president and analyst, said in a statement on Wednesday.

"Indeed, the success of the first fully automated polls in Asia on Monday is at this time of greater relevance than the result itself, implying a strong mandate to govern for the victor," added de Guzman.

De Guzman said that the outcome of the race for the vice presidency -- still unclear at this stage -- may ultimately not have as much an effect on the Philippine's credit fundamentals as the caliber of the next cabinet and economic policy team, especially the candidate for finance secretary.

Moody's said the Aquino administration which ran on an election platform of "transformational leadership," should quickly remove any ambiguity, and make clear its economic and fiscal policies to improve the country's credit fundamentals.

Moody's said the new adminsitration still has to deal with the country's huge debts. It was also concerned about the cost of  borrowing, which it said remains vulnerable to interest rate, exchange rate, and confidence shocks.

Moody's currently has a stable outlook on the Philippines' sovereign rating.

It said on March 29 that the prospects for the economy remain good, but there were several challenges, such as a dearth of investment spending relative to its rating and regional peers.

Last year's upgrade of the sovereign rating was prompted by the country's strong external payments position and stability in the banking sector.

Moody's said these factors are expected to continue to provide support to the Philippines' rating this year and in 2011.

"Our concerns continue to center on whether the new administration can arrest the trend slippage evident in revenue performance, and which has been exacerbated by the downturn in macroeconomic conditions during the global crisis, the stalled state of reform, and the passage of revenue-eroding measures."

De Guzman said that while Moody's budget deficit projection of around 3.9% of GDP this year is not  necessarily a negative development, "signs that the new administration has the will and the means to get back on a path of gradual fiscal consolidation would be a positive credit development."

The last rating action on Philippines was taken on 23 July 2009, when Moody's raised the Philippines' rating to Ba3 from B1 with a stable outlook.