Asia, Philippines said to be safe havens amid U.S. debt concerns

Coco Alcuaz, ANC

Posted at Jul 30 2011 09:03 AM | Updated as of Jul 30 2011 09:51 PM

MANILA, Philippines-Philippine and other Asian assets may rise if investors shift funds from the U.S. amid debt concerns in the world’s biggest economy, a local bank treasurer said.

"There’s going to be safety that’s going to be seen in Asian debt and the Philippines is going to be part of it," East West Bank Treasurer Manuel Goseco said in an ABS-CBN News Channel interview. "So I don’t think there’s going to be any negative repercussions that’s going to happen here in Asia." 

The U.S. Congress needs to raise the country’s $14.3 trillion debt limit to allow the government to continue to borrow money on August 2. If not, the government may have to stop some payments, including debt payments, resulting in a default. Some legislators are pushing for a bill that would make the government prioritize debt payments (as well as Social Security payments and soldiers’ pay) in order to delay or avoid default.
 
Goseco said global investors will think "the money has been printed, we own the money, we have to deploy it somewhere, we have to earn somewhere. Asian debt -- especially the Philippines, with probably a budget surplus coming out next week -- honestly it is probably a safe haven now".
 
The Republican-controlled House on Friday passed a bill that would raise the debt ceiling by $900 billion while cutting spending by $915 billion. That’s estimated to tide the U.S. over until early next year, when the bill says President Barack Obama can seek an additional $1.6 trillion of borrowing authority provided he cuts another $1.8 trillion of spending first. That may mean another showdown early next year.
 
The Democratic-controlled Senate proposes $2.4 trillion of added borrowing authority and $2.7 trillion of spending cuts. This is estimated to last through next year’s elections. The Democrats say they’d reject the Republican’s two-step proposal because it increases the risk that debt rating companies will downgrade the U.S.’s AAA rating.
 
In the last two months, Moody’s Investor Services and Fitch Ratings have raised the Philippines’ debt rating. Standard & Poor’s, which did so in November, yesterday affirmed its opinion. Debt ratings are opinions of a borrower’s ability to pay, which affects whether the borrower has to pay more or less interest.
 
"Rather amazingly our own debt, Philippine debt, has rallied even further and our credit spread against the U.S. has compressed, showing strong confidence in our economy and strong confidence in our ability to repay our own debt, to the point that some of our spreads are almost at the level of France," Goseco said.
 
Meanwhile, U.S. Treasuries rose yesterday on speculation the August 2 deadline will force Republicans and Democrats to reach a compromise.
 
"Markets have been ignoring this whole situation and looking beyond the current impasse in Washington," Goseco said. "They’re just looking at the impact of this whole volatility, which is going to be a slower economy for the rest of the year."
 
"Both sides know the US has to continue paying, it’s a given. It’s just that they’re trying to figure out how to get there and both sides unfortunately are pulling in opposite directions," he said. "The U.S. treasury is still the most widely used form of collateral in the world."