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Apr 03, 2013

What's your take on our first Investment Grade Rating? Are you the Jubilant Celebrator? the Party Pooper? or the Clueless?


We just received our first ever Investment Grade rating from Fitch! What's your take on it? Are you the Jubilant Celebrator? the Party Pooper or the Clueless?

Question: Like all parents I want to raise my children to be financially intelligent. I think it’s an exciting time to be in our country now. I heard the news that we just received a rating upgrade to Investment Grade. How do I explain this to my kids? – Hopeful Father via text

 

On March 27, 2013, the last working day before our longest holiday in the Philippine calendar we received the news: For the first time in history we have been given an Investment Grade by international rating firm Fitch!

 

What is your take on that? Over the long weekend, we saw different reactions from different people. Let’s start by answering our reader’s question, “How do I explain it to my kids?” Visuals are very helpful in doing the job and I think this article does the job very well - Infographic: What a credit upgrade means for Filipinos.

 

Tell your kids that the Investment Grade rating is a sign of approval from the global community. It signifies that it is safe to do business in our country. For international lenders it is a sign that we have the ability to pay our debts. This means that more money, and at lower costs, will be available which can be used to improve our services like better roads, education, health services, etc. Moreover, because of this confidence, more businesses will be put up which will provide more jobs and improve lives. This is really good for them and the entire country.

 

If you relate it to their school experience, tell them that we used to be in the league of the trouble sections or under probation. Now we’re more or less semi-honors class as we got a BBB- and our teachers can be a bit more relaxed in handling our class. We can be allowed more extra curricular activities because our academic grades are pretty safe. However, they also have higher expectations from us. If your kids are in the top of their class and are so used to As and would belittle our BBB- tell them, “Honey, countries like Portugal, Italy, Greece and Spain have lower ratings/prospects so please be happy.”

 

Another thing that is worth mentioning is that getting this upgrade is a product of years of work. In the same way as a student works hard to get out of probationary status, we had to work hard to minimize corruption, manage our finances well, improve our earnings and realize real economic growth. GDP grew by 7.63%, 3.72% and 6.59% in 2010, 2011 and 2012, respectively. It should also be noted that we had high growth rates in some years of the past administration and some of the necessary economic reforms were installed during the regime of PNoy’s Economics professor, as mentioned by Fitch, so let’s not forget that.  

 

What’s your personal reaction?

OK so let’s now ask ourselves the question, “What’s my take on this investment grade rating?”

 

The Jubilant Celebrators

As correctly pointed out by Coco Alcuaz, when he interviewed Marvin (The Honey) in Business Nightly, the finance people are the ones celebrating because they’re the ones directly reaping the rewards of the upgrade. And yes, it’s the financial sector that always reacts first – in fact, ahead of time, whether it be good news or bad news. So when the news came that Fitch gave us the much-awaited upgrade most Finance people were jubilant! The Honey, who manages the fund of the country’s largest bank, even treated his people to an impromptu pizza party at the office. The numbers at the Philippine Stock Exchange also had a wild party with its index rising by over 180 points! It was Happy Easter before Maundy Thursday and Good Friday!

 

So why are they so happy? If the upgrade was already in the bag and everyone has already taken that into consideration which has propelled our stock market to record highs (PSEi rose by 18% in the first quarter alone), and stock prices are deemed high, then isn’t it done? Shouldn’t we be selling on news?

 

The jubilant celebrators say no, it’s far from over. Even as foreign funds have already invested in anticipation of the upgrade, there are still a lot of funds that, because of their mandate, could not touch us until we have that investment grade stamp. Moreover, they recall that our stocks were priced higher during the Ramos era and interest rates were at high levels at that time. Do you know that the 91-Treasury bill rate just went down again to 0.040%, the 182-day and 363-day T-bills are at 0.216% and 0.307% My gosh! These figures make me realize I’m getting old. I remember my savings account with a passbook with Little Twin Stars cover used to give me 4.0% p.a. interest!

 

I also remember my interview in 1985 when I was applying for a job at Far East Bank, I was asked to comment on the “Jobo Bills.” I was a clueless fresh grad and I don’t remember how I weaseled my way out of that predicament because I got the job. Anyway, Jobo bills were high-yielding instruments (up to 42% p.a. for one month to one year maturity) issued by then Central Bank Governor Jobo Fernandez in 1984 to stop the Philippine peso from its free fall and curb inflation which soared to 60%! After decades of Marcos dictatorship which climaxed in the clumsy assassination of Ninoy Aquino on August 21, 1983, we were in a deep hole that nobody wanted to deal with us anymore. We were in default. Letters of Credit were cancelled and how were we supposed to fund our imports? It was a terrible time to do business. And somehow, people who didn’t experience these times, or may have forgotten where we came from are unable to realize that the upgrade is really a big deal. (Trivia: In late 2000 during the Erap impeachment era, then Finance Secretary Pardo and BSP governor Buenaventura considered issuing instruments similar to Jobo bills because we were also experiencing continuing depreciation of the peso against the dollar, see Oct 2000 News on possible Pardo or Paeng Bills)

 

So who says that global perception is not important?

 

The Party Poopers

During the weekend I read some articles that gave reactions opposite that of the Jubilant Celebrators. They said that even if the upgrade will expand credit access the question is whether it will be an inclusive growth. Some worry that we’re only attracting flighty hot funds citing the “market hiccups” experienced during the first quarter instead of welcoming them as corrections. Some even worry that the upgrade will be followed by a crash as what happened to another Asian country after getting its upgrade. (Of course, corrections are in order after the “OA” reaction to the announcement.) Still, others are quick to point out the shortcomings of the administration suggesting that the upgrade might just be “reputational” and won’t be felt by the larger part of the population.

 

Although some of the points raised in these articles may be valid, it’s like telling your child who just won in a competition, “Come here, I want to talk to you. Do you know that in the next contest you may not win anymore? Are you sure you prepared well for this contest because I saw you a bit nervous a while ago. Do you know that you may attract the wrong attention by winning this contest?” And that is being the ultimate party pooper! No parent does that. You allow your child to enjoy and savor the victory. By doing so you allow yourself to be happy as well.

 

Later on when the euphoria has died down, you talk about how he can improve further or at the very least, keep his standing. And as we’re always told in parenting books and seminars, we do not focus on the negative but the positive. Because what we focus on grows.

 

In an interview with Finance Secretary Cesar Purisima he mentioned that principle. He said we should not focus on our high power cost, we focus on our strength which is our labor.  

 

The Clueless

Now here’s the third kind of reaction, the most dangerous kind – clueless. Some by virtue of not understanding, some because they don’t care, still some because of hopelessness. They refuse to get involved because they feel that things will not change anyway. They say, “Maipapakain ko ba yong upgrade sa pamilya ko!” or “Pare-pareho lang silang magnanakaw!”

 

In a show where laborers were asked whether there has been an improvement in their employment one answered, “Mas marami ngang trabaho ngayon pero ganon din, dapat itaas yong sueldo!” and he went on to lament on the negative. Now that’s the big problem with those who are hopeless. Maybe they’re tired and they just want to feel good about themselves so they pass on the blame to someone else. Maybe they feel they’ve tried their best but are still in the same boat, whether the Philippines is the Sick Man of Asia or the new Asian Darling in a Sweet Spot.

 

This is a human defense mechanism. We distance ourselves from the cause of the failure to feel better about ourselves. But the thing is, as long as we do not own the problem, we will never get out of it. And this is true in all kinds of challenges.

 

Let’s own the challenge

One of our parenting techniques at home is to remind our sons, “Bawal ang palos!” (as in palusot). We tell them that for every challenge they encounter they may choose to be the “owner” (in charge) or the “victim” (helpless) and we’ve seen how they’ve grown to own their problems and do something about them right away. One of my pet peeves is to hear politicians talk about “the administration” as if they’re not a part of it.

 

If we want something solved, let’s own the problem. Maybe this is the key to really moving forward to become a top-notch country. “Let’s own the Philippines.” We are stakeholders of this country and no matter how we try to separate ourselves from it, our passports will still indicate Pilipinas, and the way we are treated depends on how well the world perceives us as a nation.

 

When we own something, we rejoice with every victory, sympathize with every failure, and work together to hurdle the challenges. Alex Lacson, in his bestselling book, outlined ways how each Filipino can contribute to our country by doing 12 Little Things.

 

It’s tax payment time and one of the 12 little things there is to pay your taxes. It’s painful to pay taxes especially if you don’t trust the people who will use the money. So maybe the Daang Matuwid is a come-on for people to pay their correct taxes. Besides, the tax chief is really bent on running after tax evaders.

 

After tax payment season is election season and another thing we can do to really be a stakeholder in this country is to exercise our right to vote and hopefully, to do so intelligently. Let’s not complain about our elected officials when we don’t even bother to vote. And like paying taxes, choosing whom to vote for is also a painful process. I’m not kidding, I’m still having a hard time choosing. Reminder to the voting public who have a penchant for electing the popular candidates: Let’s just be entertained by their song and dance numbers, maybe even their personal dramas; but in the end, let’s vote wisely, based on capabilities and track record.

 

So what’s your take?

We all have a role in society, so whether you’re the jubilant celebrator, the party pooper or the clueless, I hope you somehow find it in your heart to contribute something to this positive momentum that our country is now enjoying. We all stand to benefit from it.

 

************

One thing you can do to help our country become prosperous is to make all your family members prosperous. Learn how to talk about money as a family and raise your children to have high FQ. Come to FQ: A WORKSHOP ON FAMILY FINANCE on April 27, 2013, 1:00 – 5:30pm at the Seameo Innotech, Commonwealth Ave. (near UP Ayala Technohub). It will be a fun afternoon of sharing, games, and other activities to learn about money, core values, goals, investing and getting to know your family members more! Call or text 0917-5395770 or email maryrose_fausto@yahoo.com to reserve.

(Rose Fres Fausto is the author of the book Raising Pinoy Boys. Click this link to download free book sample To read her other articles go to www.RaisingPinoyBoys.com archive. Send your questions via email to maryrose_fausto@yahoo.com or text to 0927-5159011.)

This article is also published in www.PhilStar.com. 

Photo Credit: Images from rappler.com, midliferoadtrip.tv, 4.bpblogspot.com and redbubble.com put together by the author to deliver the message

 


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Total of 2 comments

rose@raisingpinoyboys.com

Thanks Edward! Thanks to positive people like you we can remain optimistic. And regarding you feeling like a kid, is it because you realized that I'm also old? Hahaha!

Apr 03, 2013 / 08:41 am
Guest

Hi Rose, great article. Now i know i am still a kid. Thanks for summarizing the upgrade. Good luck & more power to your workshop! Edward

Apr 03, 2013 / 07:44 am
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