Shooting down the economy
Delusions, however, die hard. Palace officials still keep talking about getting improved credit ratings after shooting off that errant missile of a declaration of a state of national emergency. That the peso and local stocks yesterday shrugged off the events of the last four days should be no comfort to the leadership. It’s like Palace officials crowing about the foiling of Friday’s coup attempt that never was. A hole in the dike might have been successfully plugged, but the dammed pressure is building up into an irresistible force.
Credit risk is a matter above all of confidence. The Arroyo government has lost the support of all sectors that matter in this deeply fractured society. Gloria Arroyo’s presidency is being propped up in place only by the police, the military and the politicians identified with Lakas CMD and Kampi.
No government which has exchanged the people’s support with the bought allegiance of self-serving interest can stay long in power.
Let’s go back to the country’s credit rating. In ordinary times, credit analysts mainly rely on the projected fiscal conditions of a borrower-country. After all, credit assessment is, at its most basic, but the looking into a borrower’s ability to pay.
The projected Arroyo fiscal numbers indeed look good. With new tax measures, a balanced budget could come as early as 2008 and at worst in 2010. The borrowing overhang remains worrisome, but nothing that could not be solved by prudent fiscal management.
So far, we’re dealing with straightforward projected revenue and expense streams. Now we go to the rather slippery dimension of political risk. Do lenders have the assurance the borrowing administration will continue in power to answer for its obligations?
Likely successors with the same neo-liberal economic orientation could reasonably be expected make good on sovereign commitments.
But what if the administration is itself systematically closing off avenues for a peaceful transition to a government committed to the same fundamental values of a market economy and of democracy and constitutionalism.
The Arroyo administration has correctly identified the extreme Left and the extreme Right as the historical enemies of the Republic. But at the rate the Arroyo administration appears bent on decimating the middle forces, the people might just succumb to the siren song of the extremists.
The holders of Philippine IOUs could end up with beautifully engraved pieces of certificates of indebtedness issued by the Republic of the Philippines good only as wallpaper.