News Analysis: Fitch Ratings affirms Philippines credit standing as Aquino's public approval rating slumps

The affirmation by Fitch Ratings of the credit standing of the Philippines has buoyed hopes for the continued economic growth of the country this year despite a simmering political crisis brought about by the botched police operation in the Southern Philippines last Jan. 25.

On Wednesday, Fitch Ratings affirmed the country's BBB-long term foreign currency issuer default rating (IDR) and BBB-local currency IDR with outlook for both as "stable."

"The Philippines' five-year real GDP growth was estimated to be 6.3 percent at the end of 2014, which is far above the 'BBB' median of 3.0 percent," Fitch said.

Fitch said its decision to affirm the credit ratings of the Philippines reflects the country's "strong macroeconomic performance."

Philippine economic managers were quick to welcome the affirmation by the American rating agency.

Governor Amando Tetangco Jr. of the Bangko Sentral ng Pilipinas (BSP), the country's central bank, said Fitch's decision noted the continued improvement of the Philippines'fundamentals.

"The Philippine economy has reached a level of resiliency that is more comfortable than that of its peers as a result of accumulation of sufficient foreign exchange buffer, sturdy financial system, and price stability. All of these are anchored on prudent monetary policy and effective supervision of banks and other financial institutions," Tetangco said in a statement released Wednesday.

Unlike Tetangco, however, Finance Secretary Cesar Purisima said the country remain to be underrated by the Fitch Ratings but expects the country's investment grade would be improved soon.

Purisima said the country's credit rating with Fitch is one notch below the rating assigned by the two other major international credit rating agencies--Moody's Investors Service and Standard & Poor's.

In December last year, Moody's Investors Service upgraded the Philippines' investment grade status by one notch to Baa2 from Baa3 with a "stable" outlook.

Earlier, the Philippines received a one-notch credit upgrade to BBB "with a stable outlook' from Standard & Poor's Ratings Services, the highest this southeast Asian nation has received so far from any credit ratings firm.

Fitch's announcement of ratings affirmation came on the wake of a nationwide survey that showed a big drop in the public approval rating of Philippine President Benigno S. Aquino III from 59 percent in November last year to just 38 percent this month.

The survey was conducted by the Pulse Asia, a local survey firm, from March 1 to 7, five weeks after the bloody encounter in the town of Mamasapano in Maguindanao province in Mindanao that resulted in the death of 44 members of the elite Special Action Force (SAF) of the Philippine National Police (PNP).

Ronald Holmes, president of Pulse Asia, said that the President 's rating was affected by the Mamasapano clash. During the operation, the police were able to kill Malaysian terrorist Zulkifli bin Hir, alias Marwan, but his Filipino deputy, Basit Usman, escaped.

Both the probes conducted by the PNP Board of Inquiry and the Philippine Senate held Aquino responsible for the bungled operation, codenamed Oplan Exodus, because he entrusted it to Police General Alan Purisima, his former bodyguard and bosom friend, who has been suspended for graft charges.

It is still too early to say as to what extent the fallout from the Mamasapano incident could have on the overall economic prospects of the Philippines for the rest of the year. But there is now an uncertainty if both houses of Congress would pass the proposed law that would create the Bangsamoro, a semi-sovereign sub-state that would be governed exclusively by Filipino Muslims.

Before the Mamasapano incident the government's growth target for this year and in 2016 would range between 7 to 8 percent of the gross domestic product (GDP).

Last year, the domestic economy grew by 6.1 percent growth, lower than the 6.5-7.5 percent target due to the slowdown in the first three quarters of the year.

Meanwhile, inflows of foreign portfolio investments, more popularly called hot money, to the Philippines have doubled in February despite the Mamasapano tragedy.

In a report, the BSP said it registered net inflows of 1.2 billion U.S. dollars worth of foreign portfolio investments in February, which were double the 591 million U.S. dollars registered the month before. The increase was due to a slightly bigger amount of inflows at 2.55 billion U.S. dollars as against lower outflows that amounted to 1.36 billion U.S. dollars.

Unlike foreign direct investments (FDI), which help create jobs, portfolio funds are invested in shares of stocks of listed companies, government debt instruments and peso deposits, and can be easily pulled out at the slightest bad news, thus earning the moniker "hot money." Endi