Upgrade

Globally respected credit rating agency Standard and Poor’s recently raised the country’s sovereign debt ratings to BBB+. That is a big thing.

This is the highest rating the country has ever achieved. It is just one notch below A-level grades. Coming from a ratings agency recognized for its prudence, this is a tribute to the exemplary fiscal discipline exercised by our government.

The upgrade means lending to the country involves lesser risk. Lesser risk translates into lower borrowing costs, making the management of our outstanding debt even easier. That, in turn, lowers the load of debt servicing. We have, indeed, come a long way from the debt crisis that wreaked havoc on our economy during the eighties.

Over the past few years, the country’s economic managers have brought down the debt service as a percentage of GDP to one of the lowest in the region. That facilitates our efforts to seek project funding for the ambitious infrastructure modernization program this administration has embarked on.

The credit upgrade benefits everybody.

No private company, no matter how well it is run, can receive a credit rating higher than the sovereign rating. The upgrade in our sovereign ratings means that all private investments benefit from lower financing costs. In turn, this should encourage more investments and enable a shift from consumption- to investments-led growth. The shift will make our economy more inclusive and bring us closer to the goal of dramatically reducing poverty incidence.

The ratings upgrade, no doubt, takes cognizance of the administration’s efforts to comprehensively reform our tax system. This is the first time an administration has undertaken the politically challenging task of reforming the revenue system without being compelled to do so by a pressing economic crisis.

The TRAIN Law, the first tranche of the comprehensive tax reform package is a remarkable achievement. It returned P111 billion to the pockets of our wage earners, the equivalent of a 14th month pay. At the same time, it paved the way for the over-performance of our revenue agencies that turned in 108 percent of targets last year.

The succeeding tranches of the tax reform program should find their way through the legislative process after the elections, a season where the populist posturing of candidates gets in the way of a correct public appreciation of the necessity for revenue reform.

The amazing thing about this upgrade is that it happens as government has ramped up its spending plans to fund the infra program. The larger financing required to fund this program would require increased borrowing. That borrowing will now incur lower costs and produce a better investment boom.

Also important, the recent upgrade belies all the unfounded claims peddled by opportunist politicians that the country is walking into a “debt trap.” Those claims are absolute trash intended to smear the audacious economic strategy this government has successfully put in place.

Godson

In response to the credit rating, Finance Secretary Carlos Dominguez boldly set the goals higher. He wants to see the country achieving A-grade ratings over the next few years.

That is certainly achievable, considering the country’s robust growth prospects and the commitment to fiscal discipline so far demonstrated. It will require tougher administrative reforms in our main revenue agencies to rid them of the deep-rooted syndicates of corruption.

Customs commissioner Rey Leonardo Guerrero is doing his damn best to rid his agency of corrupt syndicates and bring in new blood better capable of fully automating procedures in that vulnerable agency. But the word from the underground is that the “tara” system is alive and well, particularly at the vital Manila International Container Port (MICP).

The “tara” (points) system, in its current reincarnation operates on a 5-50-250 scoring system. Under this system, every container passing through the facility coughs up P5,000 for the syndicates. “Special containers” (presumably those that might run into valuation problems if closely scrutinized) need to cough up P50,000 to clear. A “service fee” of 250,000 is collected from brokers to lift alerts for certain cargoes.

The collections from this system are pooled and then distributed prorated to members of the syndicate and their political patrons every week.

In addition, some members of the syndicate are engaged in performing some sort of “consultancy” work for favored importers, instructing them on how to reclassify their cargoes to pay lower duties. For instance, a container may be reclassified from “single-item commodity” to “general merchandise”. This brings down duties by about half. Presumably, the Customs personnel receive some sort of fee for the service.

Because of leakages like this one, Customs collections fell significantly in the first quarter of the year from the exemplary levels posted last year. This will have adverse repercussions on gross revenue levels.

The leader of the syndicate operating at the MICP goes about his business bragging that he is a godson of the President. This should be of little consequence. In his long tenure as mayor of Davao City, President Duterte must have stood as sponsor for thousands of baptisms. There is little else to support the claims to political influence of this Customs operator even as his activities unfairly implicate some of the President’s relatives.

At any rate, this particular operation illustrates why, to President Duterte’s exasperation, networks of corruption continue to persist despite the relentlessness of the effort to shut down leakages in the main revenue agencies. If the failure to meet collection targets at the Customs Bureau becomes chronic, it will be due to syndicates such as the one active at the MICP.