GOCC law boosts Philippines’ chances to get ratings upgrade

The enactment into law of the bill seeking to reform government-owned and -controlled corporations (GOCCs) is seen boosting the country’s chances of getting an investment-grade credit rating.

Bangko Sentral Governor Amando Tetangco Jr. said the GOCC Governance Act of 2011, which was expected to help improve the government’s fiscal position through reduced losses by underperforming state firms, would also help improve investor confidence in the country’s ability to meet its liabilities.

“The law will aid in the conduct of monetary policy as implementation of the law would reduce, if not totally eliminate, rent-seeking behavior,” Tetangco said in a statement.

On a similar note, Finance Secretary Cesar Purisima said the law would further strengthen the Aquino administration’s push for good governance.

Purisima said the law would work well with the administration’s anti-corruption, anti-tax evasion and anti-smuggling campaign.

The GOCC Governance Act of 2011, or Republic Act 10149, mandates the creation of the Governance Commission for Government-Owned and Controlled Corporation, which will evaluate the performance of state-owned firms.

The evaluation will cover various aspects, such as qualifications and compensation of staff, and efficiency of operations.

The commission has the power to pursue reorganization, privatization, merger, streamlining or even abolition of underperforming GOCCs.

Senator Franklin Drilon is the bill’s principal author.

Data from the government showed that subsidies granted to state-owned firms amounted to P17.4 billion in the first eight months of this year, rising by 87 percent year on year.

During the period, biggest recipients of government subsidies included National Food Authority and National Livelihood Development Corp.

The subsidies to supposedly self-sustaining GOCCs is causing a drag on the government’s fiscal condition. With the GOCC Governance Act of 2011, the government is expected to limit its exposure to underperforming state-owned firms.

The country has been aiming at an investment-grade credit rating for years. Recently, the Philippines got two credit rating upgrades. First was by Moody’s Investors Service, followed by Fitch Ratings.