Manila rejects comparison with Argentina on economy

The Philippines on Sunday rejected comparisons with Argentina's economy, saying much of Manila's debt burden is in long-term obligations while tax revenues should grow with new tax measures. These "help ensure that the Philippines will be able to honour its international obligations and should not be compared with Argentina," Finance Secretary Cesar Purisima said in a statement. Manila bristled at the reported statements of a Moody's Investors Service analyst, who it said classified the two economies under one basket. Moody's cut the Philippines' sovereign ratings by two steps in February to four rungs below investment-grade, citing a damaging build-up of public debt.
Congress has since passed long-delayed amendments to value-added tax (VAT).
The finance department insisted that comparing the economies of the Philippines and Argentina was "much like comparing apples with oranges."
Philippine economic growth had been on an uptrend since 2001, unlike Argentina, which suffered a three-year recession before it defaulted on its obligations, it said.
"Proper debt management puts the average maturity profile of the country's medium to long-term external debt at 17.1 years," it said, with average annual maturities at between five and six billion dollars.
This "allows it to buy time for the government from diverting resources to repay maturing principal debt while it resolutely addresses the economy's structural weaknesses."
Balance of payments inflows are steady with growing remittances from an overseas Filipino work force, while Manila's larger external sector gives it greater flexibility to service foreign debt. Manila's 2004 exports were equivalent to 45.8 percent of gross domestic product.
The new VAT law lifted exemptions and also raised the corporate income tax by three percentage points to 35 percent, with projected combined annual proceeds of 56 to 61 billion pesos (1.03-1.12 billion dollars).
It also authorised President Gloria Arroyo to raise VAT by two percentage points to 12 percent next year, which would expand annual collections to 97-105 billion pesos.
Arroyo had warned last year that the government needed 80 billion pesos per annum from new revenue measures to help avoid a debt default.