Rating upgrade won't automatically lead to FDI flows, businessmen caution

By: InterAksyon.com

MANILA - The business community on Wednesday welcomed the Philippines' upgrade from Fitch Ratings, but reminded the government that foreign direct investments (FDI) -- the kind that creates jobs -- won't be forthcoming if constraints to doing business in the country remain.

Early this afternoon, Fitch Ratings announced that it raised the country's credit score to investment grade, the first of three major international debt watchers to bestow their seal of good fiscal housekeeping on the Philippines.

"There will be more FDIs from institutional investors who are restricted from investing in countries below investment grade. The rating is a recognition of the stable fiscal policies and programs of the government," Employers Confederation of the Philippines (ECOP) president Edgardo G. Lacson told InterAksyon.com.

European Chamber of Commerce of the Philippines (ECCP) executive vice president Henry J. Schumacher is less sanguine.

"It's great and I congratulate the government for having achieved it. But not having investment grade was not the reason for extremely low foreign direct investments. Those reasons need to be addressed to achieve productive investments leading to job generation and inclusive growth," he said, referring to infrastructure bottlenecks and red tape in government.

The Aquino administration's infrastructure showcase -- the Public-Private Partnership (PPP) Program -- has failed to accelerate, bogged down by slow preparatory work on the part of government as well as investor concerns on bidding rules.

The Light Rail Transit Line 1 (LRT1) Cavite Expansion Project is a case in point, as the timetable has been moved back thrice, with the Department of Transportation and Communications (DOTC) blaming the delay on queries from potential bidders.

The Mactan Cebu International Airport passenger terminal project also has been slow to start, as government had to change bidding rules to accommodate wider investor interest.

"[T]he upgrade significantly improves the climate for financial investments, but for brick and mortar FDI, market size and competitive production costs are more critical factors than financial ratings," said American Chamber of Commerce of the Philippines (AmCham) senior adviser John D. Forbes.

Benjamin Diokno, economics professor at the University of the Philippines, said the investment grade rating is "good news."

"The upgrade has long been anticipated. In fact, it has already been reflected in the bond market," he said, referring to the record low rates of Treasury bills and bonds.

He agreed that the upgrade won't lead to a surge in FDIs for the Philippines. "FDI inflows depend on a different set of variables such as cost of doing business, state of public infrastructure including existence of sufficient, affordable and reliable power supply, policy consistency and credibility."

"Moreover, some restrictive provisions in the Constitution may continue to deter foreign investors from making long-term commitments to the Philippines," Diokno said.

With reports from Ben Arnold O. De Vera and Darwin G. Amojelar

http://www.interaksyon.com/business/58117/rating-upgrade-wont-automatically-lead-to-fdi-flows-businessmen-caution