|
SINGAPORE—The Philippines is more at risk than Indonesia
as record food and energy prices threaten budget targets
and cause currencies to decline, according to Thomas
Byrne, senior vice president at Moody’s Investors
Service.
Both the
peso and the rupiah fell in March as investors from
Deutsche Asset Management to Fortis Investments trimmed
bond holdings in Southeast Asia on concern inflation
will erode returns. President Arroyo has said she may
abandon plans to balance the budget, while
Indonesia
widened its 2008 deficit target on the rising cost of
subsidizing prices.
“There’s
more risk associated with the Philippines’ fiscal
position than with Indonesia,” Byrne said in an
interview late Monday. “The problem with subsidies is
that they become both fiscally and politically difficult
to manage, and we’ve seen these cases both in Indonesia
and the Philippines.”
The
agency rates
Indonesia’s
foreign-currency denominated debt at Ba3, or three
levels below investment grade, with a stable outlook.
The Philippines is graded one level lower than Indonesia
at B1 with a positive view. Moody’s last upgraded
Indonesia
in October 2007 and downgraded the Philippines in
February 2005.
Foreign
debt comprises about 41 percent of total debt in both
the Philippines and Indonesia, according to the
Philippine Bureau of Treasury and
Indonesia’s
Debt Management Office. The Philippines’ outstanding
foreign-denominated securities stood at P897.7 billion
($21 billion) at the end of 2007, while Indonesia had $9
billion in US-dollar bonds as of February.
Moody’s
has no plans to lower the two Asian nations’ credit
ratings as long as deficits are contained in coming
years, Byrne said in Singapore. Both governments have
ample foreign-exchange reserves to pay their debt, he
said. Byrne said the Philippines’ fiscal position has
been weaker than
Indonesia’s
and it has relied more on foreign financing.
Indonesia,
which more than doubled fuel prices in 2005, has
refrained from raising tariffs since then as it prepares
for elections next year. Crude oil traded near a record
high in New York, adding to concern costs will soar in
Indonesia,
the sole net importer of the commodity among the
Organization of Petroleum-Exporting Countries’ 12
producing members.
“The
fiscal subsidy is 5 percent of GDP, which is a big
number,” said Byrne. “In these new democracies, in an
election cycle, no government will preach fiscal
austerity.”
Inflation in
Indonesia
reached an 18-month high of 8.2 percent in March, above
Bank Indonesia’s 6.5-percent target. Philippine
inflation was at a 20-month high of 6.4 percent,
exceeding the Bangko Sentral ng Pilipinas’ 5-percent
target.
Indonesia’s
plan to borrow more from the local market will reduce
its foreign-exchange losses, Byrne said. The Indonesia
government will sell a net 117.8 trillion rupiah ($12.8
billion) of bonds this year, higher than the original
forecast of 116.6 trillion rupiah. Net bond sales
exclude repurchases.
“If the
government is reducing its foreign borrowing, then that
risk is being minimized,” Byrne said. “In a worst case
scenario where you have loss of confidence in the
economy, you probably get a much weaker exchange rate
and that would feed into higher servicing costs for the
government.” |
