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While last year’s political noise did not create a dent to the country’s growth, the threshold has reached its optimum capacity to hold on the growing political turmoil in the Philippines. Thus, the Credit Raters turned cautious and worried about the continuous political noise due to the recent action taken by Malacañang to persecute another of President Rodrigo Duterte’s critic Senator Antonio “Sonny” Trillanes IV.
While the issue may be a complicated one because of its legal nature and both camps can play their respective legal strategies, the move spooks investors as well.
The recent changes at the Supreme Court may not be well accepted, but this particular development are unlikely to alter its assessment on the country unless they dampen business sentiment.
Moody’s Senior Credit Officer Christian de Guzman said that the political risk will still be a factor in their overall credit assessment for the Philippines, this is his reaction to Malacañang’s revocation of opposition Trillanes’ amnesty.
He added, “To reiterate, political risk is unlikely to alter the sovereign risk profile as long as there are no spillovers to business or consumer sentiment, and there is no decrease in the government’s ability to advance its socioeconomic reform agenda.”
“The latest events, such as those related to Sen. Trillanes, do not pose a significant change to that view,” he clarified
Meanwhile Fitch Solutions Macro Research said in a separate statement that there is a “growing chance for Duterte-aligned policy makers to gain control of the Senate in the midterm elections” due to the government’s moves versus Senators Trillanes and Leila de Lima.
Last year, the government charged and jailed De Lima over her alleged involvement in the New Bilibid Prison illegal drugs trade when she was still the Justice Secretary of the previous Aquino administration. Although she argued she was only persecuted for being critical of President Duterte’s violent war against drugs.
Fitch Solutions also said that the recent ouster of ex-Supreme Court Chief Justice Ma. Lourdes Sereno “also cast doubts about the independence of the judiciary.”
Former Supreme Court Chief Justice, is also a known critic of the President was ousted in June for failing to fully declare the required statement of assets, liabilities and net worth when she applied for the post.
In the report made by Fitch Solutions, it says “President Rodrigo Duterte’s consolidation of power would likely be positive for policy making and would also bode well for his attempt at changing the Constitution, both to introduce federalism and shift the presidential system to a presidential-parliamentary model. However, we see a risk that checks and balances in the country could slip further.”
President Duterte made several campaign promises about the changes in the government’s structure which seeks to boost regional development by granting them more autonomy. Moody’s and the President’s economic managers have earlier flagged the possibility of a bloated fiscal deficit if fiscal provisions are not clearly laid out.
In its annual credit analysis of Moody’s for the Philippines, it rated political risk as “low +,” even as it noted political noise due to issues regarding illegal drugs trade, national security, foreign policy and the alleged suppression of criticism versus the government.
The credit rater said the developments have not really led to a significant reduction in the President’s approval ratings. But there is really a need for the government to push its socioeconomic reform agenda.
In the same report, however, it said that although the country’s institutional strength is rated “moderate +” due to its effectiveness on monetary and fiscal capacity amid elevated political noise, “contentions regarding the recent ouster of the Supreme Court Justice by her peers foreshadow a further deterioration in the rule of law.”
But Fitch Ratings also noted that last year’s political noise failed to dent the country’s growth prospects, while S&P Global Ratings said early into Duterte’s term that a rating upgrade is unlikely over alleged human rights violations, but eventually upgraded its outlook in April to “positive” from “stable.”