The Philippines has come a long way, baby. Equity market investors may be disappointed with the paltry 5.1% return (year-to-date) on developed markets and the slimmer 4.4% on emerging ones, but not those who bought Philippine equities.

Over the same period, the Manila Composite Index has risen by 22.7%. And that's still not counting the extra gains (for offshore investors) from the peso's 4.8% appreciation this year.

Despite weak US growth, a slowdown in China and troubles in Europe, the Philippines' real GDP growth quickened to just over 6.0% in the year to the first quarter from 4.5% in the previous three-month period.

This is because of its strong domestic consumption (which accounts for more than 70% of the economy) and less reliance on exports (14% of GDP), rising foreign direct investment - particularly, the outsourcing market - and growing remittances (and investments) from overseas-based Filipino workers.

Credit goes to President Benigno Aquino III - elected just over two years ago - and his efforts to rid the country of graft and corruption. These lifted government revenues - it contained leakage into politicians' pockets - that are, in turn, used to finance infrastructure projects, health, education and social welfare.

Increased government revenues also makes it feasible for the Aquino administration to make good on its target of reducing the budget deficit from 3.9% (when it assumed office in June 2010) to 2.6% this year and 2.0% in 2013 - and these, without subjecting the Filipinos to Europe-style austerity measures.

Thus, while Greece are at the chopping end of credit downgrades, the Philippines is getting upgraded. Only last week, Standard & Poor's raised Manila's credit rating to BB+, one step below investment grade - matching Fitch Ratings' upgrade delivered in June last year. Moody's, which still has the Philippines two notches below investment grade, is sure to follow.

Events in Europe have made us all aware of what happens when credit ratings are downgraded - higher borrowing costs, demands for more austerity, reduced growth, social unrest, etc.

The reverse is happening in the Philippines. The Philippine Tourism Authority must be on to something with its new ad for it's really looking like, "It's more fun in the Philippines."

The full article, written by Filipino-Australian economist Ben Ong, was first published in Financial Standard.


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