MANILA, 25 June — The country’s economic managers were piqued last week when international credit rating agency Standard & Poor’s (S&P) issued a negative rating on its long-term outlook for the Philippine economy. The agency issued the rating saying the country’s public finances has been a source of concern among investors who believe that interest rates would not go down if government continues with its deficit spending.

Keeping a BB-plus long-term foreign currency sovereign credit rating for the Philippines, S&P said “The country’s creditworthiness could decline if the government fails to stabilize and reverse its increasing debt burden.” The BB-plus rating is below investment grade, which means the government will have to bear wider interest spreads as a result of the rating agency’s negative perception.

Expressing his disappointment, Finance Secretary Jose Isidro Camacho said that S&P did not give the government enough credit for its efforts to address the country’s economic problems. “I feel it does not appreciate our successes in the past months. For example, the power reform bill. That we were able to pass it into law should be an achievement.” Camacho said S&P should have considered the new administration’s fiscal management efforts, particularly its resolve to correct the situation by imposing discipline both on spending and revenue collection. “The rating agency did not give the government time to implement the revenue program to bring down the debt service burden,” he said.

While collection of the Bureau of Internal Revenue is projected to fall short of its 2001 target because of the present economic slowdown, that could be offset by other income, such as from the Bureau of Customs, Camacho said. He added that S& P also failed to give the government its due credit for being able to post 10 billion pesos savings in the first half of the year.

“A slower growth notwithstanding, we maintain fiscal targets because we think we will be able to generate enough revenues. The burden on us is to prove and demonstrate the little successes as we go along,” Camacho said.

Malacanang also expressed disappointment at S&P’s negative outlook on the country’s creditworthiness. Presidential spokesman Rigoberto Tiglao said finance officials have been closely coordinating with ratings agencies, explaining to them the government’s concrete plans to improve revenues.

Governor Rafael Buenaventura of the Bangko Sentral ng Pilipinas (BSP) joined other government officials in their protest against the S&P rating. “It’s somewhat disappointing because the focus was on the weak banking sector due to widening non-performing loans, and banks are preoccupied with setting provisions,” he said.

An official of the National Economic and Development Authority (NEDA) said he would not call S&P a ratings agency but a perception agency because it chooses to ignore hard facts. “Either they are blind or they are playing blind,” said NEDA Deputy Director General Gilbert Llanto.

He questioned how S&P could ignore such hard facts as the passage of the power reform law, the ongoing reforms at the Bureau of Internal Revenue, the national government’s fiscal discipline program, changes in government procurement procedure, and other efforts by the national government to improve the fiscal situation.

Observers said government officials are justified in showing their disappointment because the S&P rating could do much damage to the country, particularly in its economic recovery efforts. Ratings such as the one issued by S&P are used as reference by investors and lenders in making investment decisions in the Philippines. The ratings also give an indication of investors’ interest in buying Philippine debt papers.

A controversial rating, therefore, plays a critical factor particularly at this time when the Philippine government is facing a huge national budget deficit, which it expects to finance through a mix of local and foreign borrowings.

“S&P’s negative rating might affect the country’s cost of borrowings. This is a big disservice to the Filipino people, especially if the capital markets give credit to these perceptions,” Llanto said.