Friday, April 5, 2013

Father Fritz, Fitch, Finance, Fiscal, Future

In my college days in the Philippines, I was recruited to join Raul Manglapus’ Christian Social Movement. I was one of the lucky ones who participated in live-in seminars learning the contending ideologies as applied to the socio-economic and political problems besetting the Philippines at the time.

I was lucky because I got exposed to intellectual giants that included not only Manglapus but also former head of the Jesuit Order Fr. Horacio de la Costa, famous writer F. Sionel Jose, Federation of Free Farmers Founding President Jerry Montemayor, Banker Edgardo “Hadji” Kalaw, Former PCCI President Victor Lim, Industrialist Joe Concepcion, Jr., Former Federation of Free Workers Founding President Johnny Tan, Former HUKBALAHAP Supremo Luis Taruc, Justice Jose Feria, Economist Salvador Araneta, Jesuit Fr. Jose Blanco, Social Reformer Teresa Feria Nieva, Intelligence Officer Bonifacio Gillego, Jesuit Fr. Fritz Araneta, and a list of many other social-minded Filipinos.

Witnessing the influence of Fascistic policies under Marcos and the military establishment as well as the growth of the communist movement, we were focused on offering an ideological alternative to the two extremes. It had its roots in the Papal Encyclicals Populorum Progressio and Rerum Novarum. It advocated community participation of the ownership and fruits of the enterprise. It believed in a society based on human dignity, built on justice and dedicated to progress.

Dr. Salvador Araneta called it “Bayanicracy”. Some called it “Communitarianism”. Others called it Democratic Capitalism. The youth group of the movement, which I eventually led, called it “Christian Socialism”. This explains why we called ourselves the Young Christian Socialists of the Philippines (YCSP). Ninoy Aquino, while in prison, actually described himself as a Christian Socialist.

Basically, the goals were Political Equality, Economic Parity, and Social Equity. It was dubbed Socialist because it was willing to make use of governmental powers to protect the defenseless, assist the poor, the laborers, the farmers, the homeless, and the oppressed but still recognizing the rights of others be they landowners, capitalists or ordinary citizens. The key words are public interest or public welfare.


Jesuit Father Francisco Araneta was one of those who enlightened us on the concept of Christian Socialism. Belonging to the rich Araneta family, he gave up his inheritance to benefit others. I enjoyed my conversations with him as I remember him explaining his proposal relating to Land Reform.

The government has inherent powers, namely Taxation, Eminent Domain, and Police Powers. These powers are used to attain public welfare or public interest.  Land Reform was instituted using Eminent Domain (Expropriation) and Police Powers. So are homes or lands expropriated to build roads or highways.

The problem with the implementation of Land Reform and road building at the time was the lack of funding to pay the just compensation due the landowners. Fr. Fritz added Taxation to the dynamics. He proposed a self-assessment valuation by the landowners.

They either assess their lands high or low. If they assess it high, they have to pay the corresponding taxes, which will be used in the Land Reform Program. If they assess it low, the compensation would be based on the assessment when expropriated. It was a very interesting concept.


For the first time in Philippine history the country was given an Investment Grade Rating.  It always had a “junk” rating. Experts say, “that investors that before had been unable to infuse money into the Philippines may now do so.”

Former Economic Secretary Cielito Habito put it simply, “an entity’s credit rating is a judgment on its ability to pay its debts. An investment-grade rating says, in effect, that it’s safe and worthwhile to make financial investment in the Philippines by lending a loan, buying a government or corporate bond, or buying a share of stock in a Philippine company.”

Understanding Credit Ratings

By way of explanation on its limitation and usage, Fitch Ratings states,

Fitch Ratings' credit ratings provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations. Investors use credit ratings as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they invested.“

"Investment grade" categories indicate relatively low to moderate credit risk. This is why we now expect increases in Foreign Direct Investments.

Among the noted factors for the upgrade are:

  1. Strong sovereign external balance sheet – persistent current account surplus underpinned by remittance inflows;
  2. Philippine economy has been resilient – expanding 6.6% in 2012 amid global economic backdrop. Fitch expects GDP growth of 5.5% in 2013;
  3. Improvements in fiscal management;
  4. Strong policy-making framework – BSP inflation management; and
  5. Governance reform has been a centerpiece of the Aquino Administration’s policy efforts.
The unassailable major difference noted is Good Governance and Transparency Practices strongly espoused under the “Daang Matuwid” policy of the Aquino government.

Of course, while this is good news for the Philippines, Fitch itself mentioned areas that need improvement: 1. Average income of $2,600 still not on par with the BBB graded sovereigns whose median income is $10,300; 2. The fiscal revenue take of 18.3% of GDP in 2012 is low compared to the median of 32.3% for the others; 3. FDI of $1.1B is low compared to Vietnam’s $5.3B annually; and 4. Export Earnings of $44B is even lower than Vietnam’s $55B average over the period 2004-2011. (Habito)

There are structural reforms that need to be instituted. It would take some time for the benefits of this ratings upgrade to be felt not just by the upper economic class but the poorer class as well. The ultimate goal should still be eventual full employment.

But it is a good start. Good Governance and Transparency Practices under PNoy’s “Daang Matuwid” policy should be continued and maintained

As expected, there are still Naysayers or some who even sincerely believe that we are headed in the wrong direction. One foreign and economic analyst even declared that the Philippine stock market had actually crashed as caused by certain factors that he described. The Huffington Post published his analysis.

Yet, after the announcement of the Philippines Investment Ratings upgrade, I looked at the stock market index.  It was telling a different story. This is what I read, “Stocks in the Philippines had a positive performance during the last month. Philippines Stock Market (PSEi), rallied 197 points or 2.97 percent during the last 30 days. Historically, from 1986 until 2013, Philippines Stock Market (PSEi) averaged 2099 Index points reaching an all time high of 6847 Index points in March of 2013 and a record low of 130 Index points in February of 1986.”

The chart actually explains it better. Please look. Does it look like it crashed to you?

Philippine Stock Exchange Composite Index (PSEi) (History)
(January 1, 2011-March 31, 2013)

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