Philippine senators upbeat amid rating cut

Increased infrastructure spending and a stronger domestic economy will buoy up the Philippines amid the crisis pummeling its biggest global trading partner, Senate leaders said on Sunday.

Their assurance came in the wake of fears that Standard and Poor’s (S&P) downgrade of the US credit rating from AAA to AA+ could cause dramatic alterations in the proposed Philippine national budget of P1.816 trillion for 2012, if not a major economic hiccup.

Not so, said Sen. Franklin Drilon, chair of the chamber’s finance committee, if the Philippines could create more jobs by spending more on public construction.

Sen. Sergio Osmeña III, chair of the committee on financial institutions and currencies, said a 5-percent swing in the peso-dollar rate following the downgrade “is affordable and not a cause for anxiety.”

Sen. Ralph Recto, chair of the ways and means committee, suggested a shift from the United States to China in the country’s trading focus.

The Senate begins its budget deliberations this Monday morning.

The Development Budget Coordinating Committee (DBCC) will give an overview of next year’s budget along with a presentation of macroeconomic targets.

Peso-dollar rate

Osmeña said he would ask the DBCC to submit iterations of the impact of both a stronger and a weaker peso on debt payments that are automatically appropriated in annual budgets.

Iterations, Osmeña explained in a series of text messages, “are repetitive computations with changing assumptions (such as) how much would we have to pay for our foreign obligations in peso terms if the peso-dollar exchange rate were P41, P41.50, P42, P42.50, etc.”

He said iterations were very important in financial projection because they give the best-case and worst-case scenarios.

“I will make an educated guess that the budget assumptions (to be submitted this morning) will assume around P45:$1 rate for 2012,” he said.

Osmeña gave assurance that the lower US credit rating “will not (make a) big impact, maybe 5 percent max up or down from the base of P43: $1” in the case of debt payments.

“A 5-percent loss in the value for the peso would mean we have to pay P575 billion instead of P550 billion for the equivalent in dollars,” he said.

However, Osmeña added that it was also possible that the peso “appreciates 5 percent, so we will need only P525 billion. It could go either way but the swing is affordable and is not a cause for anxiety.”

Export slowdown

Drilon said exporters should brace for a business slowdown in the United States following the S&P downgrade.

“Our exports will be affected. We (enjoyed) an export growth of 3.3 percent in the first quarter 2011, but that is already slower than the 18.8-percent growth in the same period last year. Expect the next six months (to) be worse because of the effects of the (US recession) on trade,” Drilon said in a telephone interview.

More specifically, the Philippines will find it extremely difficult to meet the 6- to 7-percent targeted (gross domestic product) growth, he said.

“So the government must spend, more particularly on our infrastructure in the next six months so that we can generate economic activity,” he explained.

Drilon said more reliance on the Philippine domestic market was necessary “until confidence in the US economy is restored. If US consumers do not buy, Philippine exporters will be affected.”

Remittances

The senator also hopes that remittances from US-based overseas Filipino workers (OFWs) “stay at same level because this could be our saving factor.”

Drilon said OFW remittances stayed at a steady level at the height of the 2008-2009 recession in the United States, thus protecting the Philippine economy.

“Right now, remittances are at much higher levels than last year. So if exports (will be adversely) affected, it is important to maintain remittances at the same level,” he said.

Recto suggested that the Philippines try focusing more on China given its red-hot economic growth.

“Global growth will come from China and therefore we must improve our economic relationships (with her),” he said.

Drilon’s office said the share of debt service in the 2012 budget had been reduced to 19.6 percent or P356.1 billion from 22.6 percent or P372.1 billion this year.

Defense budget

General public services and defense received shares of 18.3 percent, or P332.1 billion, and 6.2 percent, or P113.1 billion, respectively.

Social services continued to receive the biggest share of the budget at 31.7 percent, or P575.8 billion, while economic services had a 24.2-percent share, or P438.9 billion.

The secretaries of budget and finance, as well as the heads of the National Economic and Development Authority and the Bangko Sentral ng Pilipinas, have been invited to the hearing.