In race for investment grade, Philippines speeds past Indonesia

The Philippines and Indonesia, declared as the darlings of investors worldwide, are now on uneven footing, with Manila overtaking Jakarta in securing Standard and Poor's (S&P) nod for an investment grade.

On Thursday, S&P raised its sovereign credit rating on the Philippines to 'BBB-/A-3' from 'BB+/B'. The rating firm assigned a stable outlook, which means the new credit score will hold for at least the next six months to a year.

S&P also raised the country's long-term Asean regional scale rating to 'axA-' from 'axBBB+', the transfer and convertibility assessment to 'BBB' from 'BBB-', and affirmed its Asean regional scale short-term rating of 'axA-2'.

In contrast, S&P revised its outlook on Indonesia to stable from positive and affirmed its 'BB+' long-term and 'B' short-term sovereign credit ratings and 'axBBB+/axA-2' ASEAN regional scale rating.

A 'BB+' is a notch below investment grade, which starts a 'BBB-'.

Both countries have been on the radar screen of investors looking for better yields than what they can get from crisis-ridden Europe and still-struggling US. The two Southeast Asian nations enjoy an economic list from domestic consumption.

Indonesia, however, is still saddled with heavy fuel subsidies, which has dented its finances. Bloomberg said Indonesian President Susilo Bambang Yudhoyono has delayed cutting fuel subsidies to allocate more funds to infrastructure spending.

The Philippines, in contrast, has weaned itself from subsidies with the liberalization of the power industry as early as the 1990s.

"For the Philippines, this is yet another confirmation that [President Benigno] Aquino’s reforms have borne fruit, which would help in attracting not just short-term flows, but long term direct investments," Bloomberg quoted Credit Suisse Group AG economist Santitarn Sathirathai as saying.

"The rating momentum for Indonesia is moving in the wrong direction,” the economist added.

Japnese financial group Nomura said it believes the divergence between the two countries will continue because of the lack of reforms in Indonesia ahead of the 2014 elections.

'In contrast, after the 13 May mid-term elections, the Philippines will likely have a more supportive legislative body to sustain fiscal reforms," Nomura said.-Interaksyon (May 04, 2013)