STANDARD & Poor’s will most likely not award us the coveted credit-rating of “investment grade” soon. We have to wait two more years.

A country’s credit rating is decreed by the credit rating agencies Standard & Poor’s, Moody’s and the Fitch Group. S&P and Moody’s are in the United States. Fitch has two head offices, one in New York and another in London, but it is actually controlled by a French group. These three are the raters most highly rated by banks and investment counselors.

S&P on Thursday, in a report from its Singapore office, commended our country’s steady progress but it does not see an investment upgrade for us soon.

S&P’s credit analyst Agost Bernard said that both Indonesia and the Philippines have weaknesses to overcome before they can be given the “investment-grade” rating.

Our rating is “BB+” which is one notch below investment grade or “BBB.”

All the rating agencies also give the Philippines the “stable outlook” prognosis. This counts for a lot. A stable BB+ to some investment counselors is good enough for them to tell their investor clients to “BUY” and “INVEST!”

“The Philippines has narrowed its fiscal deficits, lessened its reliance on foreign savings, and rationalized the public sector. A more conducive political setting has replaced the turbulent and obstructionist environment that prevailed for well over a decade,” the S&P report said.

S&P awarded its BB+ rating to the Philippines last July. With that the cost of our debts went down because our creditors became more willing to lend to us at cheaper interest rates. This was a big reason for the global banking community to see the Philippines as a good credit risk. It also helped strengthen the peso and made our government more capable of paying off our maturing international debts.

We are attracting European money
Europe is in a recession. There are riots in Spain and Greece, and threats of similar disorder breaking out in other countries. These riots are happening because the governments in Spain and Greece are being forced by hard times to impose cuts in—or even abolish—doles and subsidies they give the poor and jobless. The citizens long used to the socialistic welfare-state economy of their Western European countries (even those ruled by the conservative parties) feel betrayed by their governments.

But the governments cannot continue raising taxes on the rich and the productive businesses to be able to fund the needs of the dependents. Those with money to invest look for countries where their investments can make profits.

The Philippines and Indonesia are two of the world’s most attractive places for European capital to migrate to.

Standard & Poor’s decision to delay lifting us to BBB grade is a wet blanket of sorts to the Aquino administration’s euphoric mood about our country’s economy.

But S&P must do right by its customers. So it must pressure us to cure our economy’s weaknesses before it gives us the seal of perfect health.

Among the ailments of the Philippines that S&P’s report mentioned are our “weak fiscal profile and high interest burden” of government debt. S&P said those weaknesses are the results of our country’s “narrow revenue base and the large portion of expensive commercial debt.”

S&P noted the low per capita income levels in both the Philippines and Indonesia. This means our revenue base is too narrow for “government to draw on.” This also means “significant human and physical capital shortcomings, and hence less fiscal and political flexibility to modify policy to avoid default in the event of adverse economic developments,” the report said

Finance Secretary Cesar Purisima has however complained that credit rating agencies are often behind the reality. At the Foreign Correspondents Association dinner on Wednesday, he said: “The market disagrees with credit rating agencies. The Philippines is the most underrated country based on bond-implied rating.” Commercial banks have in fact been treating the Philippines as a country two notches above investment grade, he said.

Philippine economy’s strengths
But the S&P report also cited the continuing “strengthening of external liquidity indicators, long a rating strength for the Philippines.” It also mentioned “remittances from a well-diversified overseas labor force, a fast-expanding business process outsourcing industry, and a vibrant goods trade.” As a result of these the Philippines has a large foreign currency reserve and surpluses that have given our country a resiliency during periods of global downturn.

But there is something the Aquino administration can do that will reduce the usual two-year period between BB+ and BBB.

Stop the corruption in customs, which, for instance, allows oil and other major products to come in tax free, thereby screwing up the true economic and fiscal measurements of our supply and consumption and depriving the government of revenues.