|
Cry Baby
II
By Michael Alan Hamlin
January 13, 2003
A belated attempt at spin control
by Finance secretary Jose Isidro Camacho - following downgrades
by international credit rating agencies - exemplifies most of what's
wrong with the administration's communication program: There is
none. Camacho complained publicly late last week that a front page
article in Wednesday's edition of The Wall Street Journal "cost
us anywhere from 20 to 25 basis points" on last week's latest
bond float.
"That's why we are very sore
with The Asian Wall Street Journal and the timing. It led to an
increase in the spread because of the uncertainties that it created,"
Camacho is reported to have said. The AWSJ was merely reporting,
however, government's response to "comments by Moody's Investors
Service Inc. and the International Monetary Fund, which drew attention
to errors in the balance of payments" due to underreported
imports of electronic parts. Subsequently, Bangko Sentral deputy
governor Amando Tetangco told reporters that "there will be
an upward adjustment in imports," a move AWSJ reporter Karen
Richardson said in the article "could eventually weigh on the
prices of its (the Philippines) sovereign bonds and trigger credit-ratings
downgrades."
The chronology is important for a
couple of reasons. First, Moody's and the IMF had drawn attention
to a fundamentally important error in the Philippines' reported
balance of payments, to which government reacted, and the AWSJ reported.
In other words, the ratings agencies already knew about the problem,
and therefore the AWSJ report could not have created the uncertainty
of which Camacho complains.
Second, despite knowledge of the
error, the Philippines failed to correct it until it was brought
to officials' attention. That much we know from Camacho himself,
who in a letter to the AWSJ published last Friday said, "We
decided last year to change the method of measurement to better
capture all imports bound for duty-free export zones." If that's
the case, why weren't the numbers adjusted?
The obvious implication is that they
weren't adjusted precisely because doing so would have had a negative
effect on credit ratings for Philippine bonds and deposits, as in
fact, has now happened. That's because, as UBS Warburg analysts
Christa Janjic and Scott Wilson told Richardson when the discrepancy
was revealed, "The absence of a current-account surplus raises
the country's vulnerability to external shocks, and makes fiscal
consolidation even more critical."
The fact that the belated adjustment
came after another drop in government's revenue collection performance
in October, resulting in an increase in the budget deficit to P187.6
billion, didn't help. Moody followed Standard and Poor Rating Services
and Fitch Ratings in revising its credit outlook on the Philippines'
local currency bonds to negative from stable. And according to reports,
principal concerns were indeed poor revenue collection and the deficit.
In addition to those concerns we now have another: Just how reliable
are the Philippines' financials?
Despite the downgrades and the reasons
for them, Camacho insists that "this administration has worked
diligently to instill fiscal discipline and professional management
into the Philippine economy." What makes this statement so
bizarre is that this same administration has just revised the full
year deficit target to a whopping 5.6 percent of gross domestic
product, or about P201 billion.
Moody's did maintain a stable rating
on the country's foreign currency borrowings on the strength of
increasing export revenues. Interestingly, Camacho tries to take
credit for exporters' strong performance, over 70 percent of which
is electronics. "Our success can be measured in a strong export
recovery of 8.8 percent growth in 2002," he wrote in his letter
to AWSJ. Of course, strong exports have nothing to do with the country's
management of the economy. Rather, they have to do with the fact
that growth in the Philippines' principal export market, the U.S.,
continues at about three percent, sustaining demand for the country's
goods. In fact, exports might be higher if government could reduce
red tape on component imports and liberalize its ports to increase
efficiency. Only then can it take some credit.
But the communications point I want
to make is this: Reacting to bad news is a bad thing. If the administration
had itself early on announced that higher imports would be offset
by higher exports as a result of the change in the way the balance
of payments is measured, rating agencies would likely have reacted
much differently. First, the administration would have received
high marks for the transparency Camacho claims but wasn't present
until Moody's and the IMF forced the issue. Second, there would
be some basis for confidence in the numbers themselves.
As I've pointed out before, the first
rule of effective communications is foresight and proactive information
dissemination. The idea is to keep crises from happening so that
they don't have to be contained. Once they do happen, blaming media
for the mistakes probably isn't a very good way to contain them.
It is a good way to assure that someone will be watching even more
closely the next time one comes along.
(Michael Alan Hamlin is the managing
director of consultancy TeamAsia and the author of three books on
Asian economies and companies. His latest book is Marketing Asian
Places, of which he is a co-author (Wiley, 2001). Write him at mahamlin@teamasia.com.).
Copyright © 2003 Michael Alan
Hamlin. All Rights Reserved.
|
