ACKNOWLEDEMENT

This dissertation would not have been possible without the guidance and the help of several individuals who in one way or another contributed and extended their valuable assistance in the preparation and completion of this study. First and foremost, my utmost gratitude to Professor Marcial Bermudo for letting us have the chance to discover what really had happened in the 2011 US credit downgrade and its effect on the Philippine economy. Professor Patrick De Leon who had been really kind to answer my questions regarding the US economic downgrade. Ms. Pia Almira Miranda whose sincerity and encouragement I will never forget. As well as for the insights she had shared. Ms. Pamela Cahayon, for her patience and steadfast encouragement. To all those have been my inspiration as I hurdle all the obstacles in the completion this research work. Last but not the least, my family especially my mother and father who constantly give me strength to continue and provided me with financial support and love to be able to finish this. To the one above all of us, the omnipresent God, for answering my prayers for giving me the strength to plod on despite my attitude of almost give up thank you so much Dear Lord.

INTRODUCTION
The Philippines and the United States have been entangled in lovehate relationship for a very long time. The Philippines and the United States have a long standing alliance. The Philippines was also a US colony from 1902-1946. The Philippines is also the oldest and one of the closest US allies in Asia. The Philippines and the United States still maintain close, friendly, diplomatic, political and military relations with 100,000+ US citizens and nationals living in the Philippines and more than 2 million Filipinos living in the United States. Both countries actively cooperate in the trade, investment and financial sectors. The US is also the largest investor in the Philippine economy with an estimated total worth of $63 billion. This proves how large the influence US has in the Philippines especially on its economy. On August 5, 2011 Standard & Poor’s (S&P) a credit rating agency decided to downgrade its credit rating for the U.S Federal Government from AAA to AA+. A credit rating is a complete credit or financial sheet that shows credit history of a person, organization or a country. In order to evaluate and determine if a person, corporation or country are up to the mark to extending cash lending service or any other financial service to him. Four days after the 112th united States Congress decided to increase the debt ceiling of the federal government through the Budget Control Act of 2011 in August 2,2011 the downgrade has occur causing a stir not just inside the U.S but in whole world especially in Asia where a developing

country like the Philippines might be affected. S&P had announced a negative outlook on the AAA rating in April 2011.

STATEMENT OF THE PROBLEM
This aims to explain the negative and positive effects of the US credit downgrade to the businesses and economy of a developing country such as the Philippines. The researcher would particularly want to know the impact of the credit downgrade to the interest rates, stock market, investments, peso, purchasing power, and the economy as a whole. Furthermore, the researcher want to know how great is the effect of the event whether the effect is positive or negative and lastly between those two which is greater, does the US credit downgrade beneficial or harmful to the Philippines.

STATEMENT OF THE OBJECTIVE
The primary objective of this thesis is to serve as a record and reference for the effects of a credit downgrade on a powerful country like the United States of America. In addition to this, this also aims to distinguish and explain how the US credit downgrade affected developing companies particularly the Philippines.

Italy. Government officials here both from the present and past administrations have expressed grave concern over the impact of the credit rating downgrade in the United States on the Philippine economy. The Philippines and US has been in good terms way back the 18th century thus established great influences in each other not just in political stands but as well as the economic parts. In fact. The question is how great the outcome is. Japan. Standard and Poor’s from AAA to AA+ which created a negative outlook for the strongest country in the world. Standard and Poor’s (S&P) downgraded the US credit rating from triple A . Ideally. There are seven countries in the world that used to enjoy this status and they are known as the G-7 which consists of Australia. The United States of America is one of the most powerful country in the world and with the financial crisis that it is suffering to developing countries like the especially the Philippines which is particularly involve with the US economy might be affected by the credit downgrade. England. a country aims to have AAA credit rating because it gives positive outlook not just for the local investors but also those who are outside the country. USA was given a credit downgrade by the credit agency.RATIONALE This is to see how the Philippines was influenced by the recent happenings in the US and how it can faced such circumstances. Singapore and the United States of America. Unfortunately. France. US are one of the major trading partners of the Philippines proving how close their economic relationship is with each other.

to double A-plus. . a move that economic analysts described as an unprecedented blow to the world’s largest economy and could trigger another world recession worse than the one in 2008-2009. Note that politics. It will only discuss about the outcomes in the economic part of the country and those that is related to it. The study also shared not that much information regarding the US credit down grade due to limitations in the length of time the research was done. Another is that there is lack of sources of information mainly due to the phenomena being a recent happening that you cannot find it discussed and explained in books. SCOPE AND LIMITATION The findings of this study will be limited to the effect of the US credit downgrade to the Philippine economy. morals and other countries might be seen in the paper but they will be only used to support claims and is very relevant to the Philippines.

CONCEPTUAL FRAMEWORK .

the positive outcomes of the 2011 US credit downgrade.Massive lay-off abroad resulted to unemployment for OFWs The cause of US credit down grade in August 2011 Reaction of the Philippines to the US credit downgrade Decrease in remittances Statement of the Problem: What are the impacts the Philippines had experienced in line with 2011 Effect in the Philippine Stock Exchange Exports declined in the Philippines Interest rates decrease in the Philippines The Philippines attracts foreign investments Doing business in the Philippines is good. This was followed by the discussion of the negative impacts that brought the country small problems. US dollar depreciates making Philippine peso to increase in value This diagram shows the outcomes that the Philippines experiences due to US credit downgrade. . The researcher started by stating the problem then discussed one by one in detail first.

What they do is assess how likely a . of the capacity of an issuer of debt security to service the debt and repay the principal as per the terms of Issue of debt The ratings g given are based on an objective judgement of a team of experts from the rating agency involved In the credit rating Credit rating is a process by which risk associated with a credit instrument s evaluated The risk evaluation is only one factor among various other factors such as price of security. individuals. Credit rating is evaluated on the basis of financial transactions carried in the past and assets and liabilities at present. and tax considerations. Credit rating allows a lender or a credit granter to evaluate the ability of the borrower top repay a loan. Moody's and S&P rate each country Credit rating is concerned with an act of assigning values (In terms of symbols) to fund raising Instrument by estimating worth. Moody’s and Standard & Poor’s. by an independent agency. which also counts In taking investment decisions It evaluates only a specific Instrument and indicates risks associated with Instruments only So. Credit ratings: how Fitch. solvency and honesty o f the borrowing person so as to repose trust In person's ability and to repay The credit range 1s an assessment. who are the ratings agencies? The big three agencies are Fitch.REVIEW OF RELATED LITERATURE A credit rating is a formal assessment of a corporation. autonomous governments. reputation. conglomerates or even a country. maturity period yield.

Losing your rating or being downgraded can have a fatal effect on your country's ability to borrow money on the markets. Ba1. Ba3. For example. All these categories under Moody’s system are considered investment grades.borrower is to be able to repay its debts and help those trading debt contracts in the secondary market. A3 are grades given to companies with low credit risks in the immediate future. Standard & Poor’s has since adopted the same system. All three agencies also give an intermediate between AA and B. in particular mortgage-backed securities. Ba2. A2. then B1. The C grades are assigned to institutions already in default. They were widely attacked for failing to warn of the risks posed by certain securities. followed by AA and A through to D. B3. a country with a fairly troubled financial history seeking to issue international bonds could be assigned a B+. but susceptible to long-term risks. Credit and Country Risk . Non-investment grades start from. The Aa1. The AAA grade represents the highest credit score. Ratings agencies have been criticised for having too much clout in jittery markets during the financial crisis. The Baa1. That means for those trading debt contracts such as treasury gilts after they've been issued. ratings agencies help assess a fair price to charge. Baa2 and Baa3 ratings are for institutions deemed relatively risky. Aa2 and Aa3 and A1. The Ratings Fitch introduced an AAA through to D credit rating system in 1924. B2. Moody’s uses a different system which starts with Aaa as the highest rating.

The Philippine banking sector--which makes up 80% of total financial system resources--had limited direct exposure to distressed financial institutions overseas. economic potential as measured by its GDP. exchange control. and adopt internationally-accepted banking sector capital adequacy standards. partly as a result of the efforts over the past few years to control the fiscal deficit.S. currency devaluation. shielded the insurance sector.-Philippine relations are based on shared history and commitment to democratic principles. nationalisation and expropriation of assets.Credit risk is defined as the risk of loss arising from any failure by a borrower or a counterparty to fulfil its financial obligations as and when they fall due. Country exposures are analysed and significant trends are reported to the Credit Committee. The . Philippine Economy The Philippine economy proved comparatively well-equipped to weather the recent global financial crisis. as well as the Group’s business strategy. including the prohibition of investments in structured products. Country risk is managed within an established framework that includes setting of limits for each country based on the country’s risk rating. Country risk is defined as the risk in cross-border lending resulting from events in the country. while conservative regulatory policies. These events include political and social unrests. moratoria. The Relationship of the Philippines and United States of America U. as well as on economic ties. bring down debt ratios.

natural resources management. while an estimated 300. and more than 300. improved health and education services. enterprise development. the U.historical and cultural links between the Philippines and the United States remain strong. water. infrastructure development. There are an estimated four million Americans of Philippine ancestry in the United States. the U.000 American citizens in the Philippines. The Philippines modelled its governmental institutions on those of the United States and continues to share a commitment to democracy and human rights.S. To achieve inclusive economic growth and alleviate poverty. business climate improvement. including activities to promote fiscal and trade policy reforms. At the most fundamental level of bilateral relations. Government--working closely with the Philippine Government. the private sector. Trade and Investment of US and the Philippines .S. In FY 2010. therefore.000 Americans visit the Philippines each year.5 million in grant funds to foster inclusive economic growth and alleviate poverty.000 reside in-country. Providing government services to U. and increased access to clean and affordable energy. and sanitation services. civil society. human links continue to form a strong bridge between the two countries. An estimated 600. and other donors--provided $176. constitutes an important aspect of the bilateral relationship. and counter transnational terrorism and insurgency in Mindanao. Government is supporting a broad range of socio-economic efforts. and other citizens.S. strengthen democratic institutions and governance.

The United States traditionally has been the Philippines' largest foreign investor. automobile parts. and cereals and cereal preparations. textiles and garments. According to Philippine Government data. Department of Commerce data). the Philippines was our 30th-largest export market and our 36th-largest supplier.S. Key exports to the United States are semiconductor devices and computer peripherals. electric machinery. about 11% of the Philippines' imports in 2010 came from the United States. Two-way U. and coconut oil. which provides preferential duty-free access to the U. In 2010. electronics and electrical machinery.S.S. the Philippines imports raw and semi-processed materials for the manufacture of semiconductors. transport equipment. the Philippines were the eighth-largest exporter under the GSP program with nearly $913 million in duty-free exports to the United States.6 billion in 2009 following declines in global trade flows--increased to $15. In 2010. market. The Philippines has ranked among the largest beneficiaries of the Generalized System of Preferences (GSP) program for developing countries.4 billion in 2010 (U. wheat and animal feeds. and about 15% of its exports were bound for America.The United States competes closely as one of the Philippines’ top two trading partners. In addition to other goods. with close to $6 billion in total foreign direct investment . merchandise trade with the Philippines--which declined from $17 billion in 2008 to $12.

The United States has a bilateral Trade and Investment Framework Agreement with the Philippines. watching news on TV and on-line. Do they have an inverse relationship or the Philippines is entirely dependent on America? The researcher decides to use the qualitative approach in order to verify observations and readings that are currently circulating in the world. The researcher would make use of her observations through the use of media and tracking the recent happening in the Philippines by reading newspaper. This research aims to depict the influence US has on the Philippines particularly in its economy.as of end-2009. is often utilized in order to yield information to explain problems which are not yet clearly and thoroughly . Descriptive research is a method used to obtain information relating to the current status of an issue or a phenomenon that exists. Exploratory research on the other hand. The key reason for doing a qualitative research is to investigate and become more experienced with a particular phenomenon of the researcher’s interest in order to produce a detailed outcome of the event which in this case is the impact of the US credit downgrade in the Philippines. RESEARCH DESIGN This study about the effect of the US credit downgrade in the Philippines is a qualitative research that attempts to accumulate existing information and data regarding the cause and effect of the 2011 credit downgrade. The research would utilize both descriptive and exploratory research method to conduct the study.

a move that economic analysts described as an unprecedented blow to the world’s largest economy and could trigger another world recession worse than the one in 2008-2009. Standard and Poor’s (S&P) downgraded the US credit rating from triple A to double A-plus. 2011 one of the world’s most reliable credit rating agencies decided to downgrade US credit rating from a prestigious triple A to a double A plus which is still a good rating. This study will use exploratory research since it aims to find out how in the present time. According to S&P. a developing country like the Philippines received the impacts of what is happening in the US. stability. PRESENTATION AND ANALYSIS On August 5. less effective. and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a . Over the weekend. S&P cut the AAA rating that it has given to the United States since l941 over concerns about the US government’s budget deficit and rising debt problem. The downgrade reflects our view that the effectiveness. The US credit downgrade still caused a stir since it is one of the most powerful countries in the world and having been shaken like that gave the country a negative outlook which cause great disturbance among the investors.” S&P explains. the downgrade was mainly a result of problematic policy-making in Washington: “The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable.explained. It finally happened. and less predictable than what we previously believed.

and reduced foreign direct investments (FDIs). In the Philippine settings many of their government officials here both from the present and past administrations have expressed grave concern over the impact of the credit rating downgrade in the United States on the Philippine economy.degree more than we envisioned when we assigned a negative outlook to the rating on April 18. which makes us pessimistic about the capacity of Congress and the Administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government's debt dynamics any time soon this what S&P said. In reaction to the said event. slower inflow of remittances from overseas Filipino workers. served as budget secretary during the administration of former President Joseph Estrada said that the impact of the downgrade on the local and global economy as “serious. we have changed our view of the difficulties in bridging the gulf between the political parties over fiscal policy. 2011. People had expressed their opinions regarding the crisis for instance is an economist Mr. a lot of Asian stock markets plunged on Monday morning following an unprecedented downgrade of the US government's . Since then. The Philippines is closely monitoring the US debt crisis after Washington lost its triple A rating but added it was too early to tell what the effect would be on Manila. currently an economics professor at the University of the Philippines. In addition to this. it would result in lower exports.” adding that in the Philippines. Benjamin Diokno.

The dollar was lower against the yen and the euro. The interest rate the United States pays on its short-term loans is determined by the market for Treasury bills. S&P’s decision rocked the United States — and the world — because the nation has generally been considered one of the safest investments around. Asian stocks nose-dived Monday as the first-ever downgrade of the U. The downgrade could .S. government to pay its debts over time. Since S&P is one of three major rating agencies that assess the riskiness of large institutions such as corporations and governments? The downgrade reflects a lack of confidence in the U. The impact of the credit downgrade by the Standard and poor’s to the US credit rating is similar to what would happen if your own credit score declined: The cost of borrowing money is likely to go up. The country might experience an inverse effect on interest as compared to what happened on the US. Riskier countries have to pay higher interest rates.AAA credit rating to AA-plus by Standard & Poor’s and growing worries over the euro zone debt crisis. trading below $84 a barrel on expectations that weaker global growth will crimp demand for crude. just as riskier consumers do. Oil prices extended recent sharp losses. reinforcing fears of a rapid slowdown in economic growth.S. One of the expected outcomes of the US credit downgrade to the Philippines is for its interest rates to go down. government’s credit rating jolted the global financial system. The Philippines being a developing country has a high chance of being the subject of investments.

costing the US an additional $100 billion in borrowing costs. US have been seen as a riskier country as compared to prior the US credit downgrade. Analysts are split on the issue with some believing that the increased risk in the US would cause foreign investors to look for other investments in other markets. Some. Philippines can decrease their interest rate offerings as to attract local and foreign investors. the US might resort to more borrowings that could sink the country further to a deeper debt quagmire. To cover for these. This is good for the Philippines since it will create an opportunity for the investors to take their interests in the said country. the Philippines is deemed to be a country that is not that risk-free n comparison to the US today will be attractive to the investors and this will make them a choice for putting up investments. less money could be allocated to social services and infrastructure which could lead to lower GDP growth. It was estimated that the downgrade could add up to 0. such as credit cards and mortgages.increase the yields on those bonds. believe that capital flight is . So if the government pay more surely the people will pay more. In addition. however. Although. forcing the government to spend more to borrow the same amount of money. are linked to the yield on Treasuries and therefore would also rise. Higher risk means it has to raise interest rates on the debt papers it issues in order to attract lenders.7 of a percentage point to the yields of Treasuries over time. with more money being spent for debt servicing. Many consumer loans.

possible but only in the short-term. so they will continue here because their operation is driven by domestic market demand. Still this chance is good for the Philippines. Employment is going to be addressed by new ventures in the country. But in return. Having more investors in the country will be leading to creation of jobs that will help Filipinos to uplift their standard of leaving. First. Their costing would show there is strong demand here. with foreign investors returning to the US since US Treasuries remain to be one of the safest and most liquid in the world despite the downgrade. The downgrade of US credit rating would not affect much the investments inflow into the country as they mostly cater to the domestic market although new investments and exports of electronics are expected to suffer a bit from the impact in the Philippines. most of the American investments in the country are mostly into food manufacturing like Purina. There are three factors for the First.“American investments cater to the domestic market. the American firms might rethink their investment plans thus lowering the chance of having new ventures in the country. which is driven by a strong consumer spending. Cargill and P & G and they cater to the domestic market not exports.” Panlilio said. The managing head of the Board of Investments said that there are three factors that will protect the Philippine investments from the US credit downgrade. .

for BPO operation is not cheap. for instance. China.” Panlilio said.Second.S. The Bangko Sentral ng Pilipinas (BSP) traces the continued rise of the local currency from the strong foreign inflows. since electronics composed 45 percent of total Philippine exports. The . At least 60 percent of the country’s electronics exports go to the US market. while non-electronics accounted for 55 percent for the May exports. it is unlikely that they can compete with what the Philippines can offer. Third. owns billions of dollars worth of Treasury holdings and any major action by China to reduce its investment would dump more dollars into the financial system leading to a weaker US dollar.S. Since the US dollars are tied to the US economy there will be depreciation in dollars that it in effect will increase the value of Philippine peso. “Labour cost in the U. Strengthening the value of Philippine peso will mean a greater purchasing power for it. is expected to be affected a bit it could find other markets to compensate for the slack in the U. market. It is clear here that the country’s number one dollar earner is the electronics industry. The downgrade could make foreign investors rethink their investment holdings in the United States. there are still many countries other than US that is still very active in investing in the Philippines because of cheap labour and raw materials the country is offering. Other investors might also start unloading their US portfolios as they look for alternative investments in foreign markets like the Philippines.

On the other hand. vis-à-vis negative developments overseas. There are clearly 3 major disadvantages that the Philippines experienced due to the unfortunate event in the US.” As of last July 8. otherwise known as hot money due to the speed it comes in and out of the country.54 billion. said “push and pull factors” of the domestic economy were what attract investors towards emerging economies like the Philippines.peso registered an eight-month high Thursday after closing at 42. One is the effect on Philippine exports and the other is there is a possibility of major lay-offs outside the Philippines that will result to a decline in remittances.” he said. BSP Governor Amando Tetangco Jr. an expansion of almost fourfold against year-ago’s US$ 638 million. citing that “the stock market continues to go up. Philippines will be negatively affected by it since our exports will be considered more expensive and as result will decrease our buyers from . But Americans wishing to import or buy foreign products would find that prices have become more expensive because of the depreciated value of the dollar versus the other foreign currency. posted a net inflow of US$ 2. It is true that a weakened dollar would be good for US exporters since they can be more price-competitive due to the exchange rate. Although the credit downgrade of US had opened a lot of opportunities for the Philippines still there are negative effects that the country will suffer to. foreign portfolio investments.62 against a US dollar. “They (dollar inflows) are still affecting the movement not only of the peso but also the other currencies in the region.

It was assured by the Department of Labour and Employment Secretary Rosalinda Baldoz that there would be no massive layoff of OFWs in the US despite the economic crisis there. Baldoz said it is too early to tell how the downgrade will play up on the employment of Filipinos in the US where the Philippines' deployment of new hires and rehires stood at only 3. Actually. The US credit downgrade has negative effect on the Philippines remittance from the Overseas Filipino Workers. and could make it difficult for . those businesses owned by Fiipinos abroad will suffer from it. Noting that central bank governor Amado Tetangco has downplayed the effects of the credit rating downgrade on the Philippine financial market.705 OFWs as of the end of 2010. This might lead to a major surplus that can affect even small businesses. The credit downgrade could tighten overnight lending standards. The Philippine government is closely monitoring the possible effect of the credit rating downgrade by Standard & Poor's of the United States on the deployment of overseas Filipino workers (OFWs). In addition to this. The exchange rate of money that comes from abroad will result to a smaller value. This will make the recipients of the remittances to spend less.other countries. members of the Filipino American Chamber of Commerce of Orange County said that the recent downgrade of America’s credit rating from AAA to AA+ will negatively impact their businesses.

Inside the country. Another is that the fear of losing one’s job will make the person afraid to spend his or her money. less effective. This affected not just America itself but as well as all the countries around the world including the Philippines. the business is good. In the Philippine settings. 2011. Capital flight is possible but only in the short-term. with foreign investors returning to the US since US Treasuries remain to be one of the safest and most liquid in the world despite the downgrade. Although a lot has been happening it was pointed out that the US is expected to begin to seriously address its economic issues and will eventually get over the downgrade. The Philippines is . the downgrade was mainly a result of problematic policy-making in Washington which made them see America’s governance and policymaking becoming less stable.businesses to borrow money to meet operating costs. and less predictable than what we previously believed is due to the political brinksmanship of recent months. many people especially the government officials had expressed their concern to the event. SUMMARY The United States of America had suffered from a credit downgrade by Standard and Poor’s which gave them a grade of AA+ from its very stable grade of AAA followed by other credit agencies like Moody’s that also gave them AA+ a negative outlook on August 5. According to S&P.

believe that capital flight is possible but only in the short-term. This will make the recipients of the remittances to spend less. those businesses owned by Filipinos abroad . Having more investors in the country will be leading to creation of jobs that will help Filipinos to uplift their standard of leaving. slower inflow of remittances from overseas Filipino workers.” adding that in the Philippines. An economist and professor from the University of the Philippines Mr. The downgrade could make foreign investors rethink their investment holdings in the United States. In addition to this. Since the US dollars are tied to the US economy there will be depreciation in dollars that it in effect will increase the value of Philippine peso. The US credit downgrade has negative effect on the Philippines remittance from the Overseas Filipino Workers. it would result in lower exports. Benjamin Diokno said that the impact of the downgrade on the local and global economy as “serious. Some. and reduced foreign direct investments (FDIs). Employment is going to be addressed by new ventures in the country. The exchange rate of money that comes from abroad will result to a smaller value. Still this chance is good for the Philippines. however.closely monitoring the US debt crisis after Washington lost its triple A rating but added it was too early to tell what the effect would be on Manila. Analysts are split on the issue with some believing that the increased risk in the US would cause foreign investors to look for other investments in other markets. with foreign investors returning to the US since US Treasuries remain to be one of the safest and most liquid in the world despite the downgrade.

and declining home prices. Another bad outcome is that the Philippines will be negatively affected by it since our exports will be considered more expensive and as result will decrease our buyers from other countries. Conclusion United States of America is one of the Philippines’ top two trading partners. our other trading partners are dependent on the USA. 2011 by Standard and Poor’s which is followed by another credit agency Moody’s. exports of the Philippines would be certainly affected. Even if our exports to America are already half of what it was in 2000. Our exports therefore will also be affected. If the market economy in the USA freezes. alas and alack. the credit rating downgrade which happens to be the very first for the United States that could cause further anxiety in financial markets still reeling from the effects of a continuing recession. . Unfortunately for the US it had been given a credit downgrade on August 5. S&P gave the US a “negative” outlook which means another downgrade might be possible within 1-2 years. They are deeply related to each other that it has a major influence in each other. Although the AA+ rating means the US is still within investment grade.will suffer from it. In addition. This might lead to a major surplus that can affect even small businesses. From the prized AAA rating the US has enjoyed since 1917 to a “still-good” AA+ level. It was pointed out that the US is expected to begin to seriously address its economic issues and will eventually get over the downgrade. rising unemployment.

08% of its value in August 04.In the Philippine settings. Nevertheless. 2011. attractive stock market. with the Dow Jones Industrial Average (DJIA) falling 4. They claimed that it was still too early to predict the impact it had in the country. there are still visible signs of US credit downgrade outcomes in the Philippines. A lot of people particularly the government officials and investors had been closely monitoring the US debt crisis after Washington lost its triple A rating. low interest rates.31% and the Nasdaq Composite Index losing 5. Lastly it reduced foreign direct investments (FDIs). US stocks suffered the worst one-day sell-off in two years. Although it was reported that the Asian stock market including the Philippine Stock Exchange (PSE) had suffered from the credit downgrade the first time the downgrade was given it was just for a short-term period and eventually regained its stable position. appreciation of Philippine peso. These effects are divided into two the positive side which consists of increase in investments. The dollar inflows are still affecting the movement not . and increase in people’s purchasing power. there are 3 major negative results brought by the credit downgrade the first one are the decrease in the remittances that enters the country. Another is the decline in Philippine exports since foreign buyers deemed Philippine products to be more expensive as compared before the US credit downgrade had happened. The Philippines is one of the developing countries in Asia that can greatly benefit from the unfortunate event that happened in the US. and creation of jobs. On the other hand.

Cargill and P & G and they cater to the domestic market not exports. It was reported that as of last July 8. The Bangko Sentral ng Pilipinas (BSP) traces the continued rise of the local currency from the strong foreign inflows. The above event resulted to a sharp decline in the oil prices in the world market. It is now amounting to 42.45 PHP a great increase in value in comparison to the recent years. Strengthening the value of Philippine peso will mean a greater purchasing power for it.54 billion. Another good point for the Philippines is that its investments won’t be greatly affected by the said credit downgrade this is mainly due to three factors. The reason behind it is due to the US dollar being closely-tied to the US economy. an expansion of almost fourfold against year-ago’s US$ 638 million. after the credit downgrade the US dollar had immediately depreciates making the value of foreign currencies such as the Philippine peso to increase. foreign portfolio investments. first. most of the American investments in the country are mostly into food manufacturing like Purina. Now.only of the peso but also the other currencies in the region making the stock market to continue going up. posted a net inflow of US$ 2. Second. otherwise known as hot money due to the speed it comes in and out of the country. there are still many countries other than US that are still very active in investing in the Philippines because of cheap labour and raw materials the country is . the Philippines has been buying oil which is an important input for almost all production processes for a lower price as compared before.

US have been seen as a riskier country as compared to prior the event. with less money being spent for debt servicing. . although the electronic industry is one the major players that brings the country great income the US credit downgrade will have but a small affect to it mainly because the Philippine is also heavily supplied by other countries like South Korea and Japan. The businesses inside the country will benefit from it since people will more money to spend that as a whole increases the aggregate output of the country. It is expected that a lot of other investors might also start unloading their US portfolios as they look for alternative investments in foreign markets like the Philippines. and this is going to be done through lowering the interest rates that it will offer the local and foreign investors. In addition. more money could be allocated to social services and infrastructure which could lead to higher GDP growth. Employment is going to be addressed by new ventures in the country since more investments mean more jobs for people. Having more investors in the country will lead to creation of jobs that will help Filipinos to uplift their standard of leaving. Due to the credit downgrade. This is where the Philippines will seek the opportunity to take these lenders. Last. Higher risk means it has to raise interest rates on the debt papers it issues in order to attract lenders.offering. One of it is Japan which is reportedly to be its major trading partner.

Without jobs or lower pay. the outsourcing job which translates into "call centres" opportunities in the country can spiral down (except the medical transcriptionists). In order to cope up with the currency crisis. It would result in lower exports. With business down. Lastly there will be reduction in direct foreign investments from America which won’t be that of a major problem since the Philippines still have a lot of trading partners that is outside the US like Japan and South Korea. the US credit downgrade also brought the Philippines three major negative outcomes. slower inflow of remittances from overseas Filipino workers. The appreciation of Philippine peso meant that the products the country sells will be more expensive for the foreign customers. companies resorted to massive lay-offs that directly affect Overseas Filipino Workers. Capital flight is possible but only in the short-term.Unfortunately. Another is that due to a negative image created by the US credit downgrade investors who unload their investment portfolios in the US will make businesses in the country including those Filipino owned to greatly suffer. with foreign investors returning to the US since US Treasuries remain to be one of the . they are going to look for other countries that can offer them cheaper products like China making the export activities in the Philippines to decline heavily. Americans cannot afford maids and caregivers. Not having a job means that they won’t have enough money to spend. and reduced foreign direct investments (FDIs). The remittances that will enter the country will decrease significantly. In return.

S. the country must reduce its debt and stabilize the economy. aside from the U. RECOMMENDATIONS Although a lot has been happening in the US still it is believed that they are still the most powerful country in the world. the world may have entered an era of less predictable and less stable global financial markets. The US dollar is still a stable currency that people should look up to. The government's economic managers should take concrete steps to cushion the possible negative effect of the U. It is also suggested for the Government to continue monitoring the country’s reaction the US events as to secure that it can immediately take the necessary steps to address the possible effects on the Philippines. To hold on to its credit rating. The researcher agreed to Senator Chiz . downgrade like strengthen its economic ties with world economic giants like China in order to absorb the shock. Last week. dollar and treasury notes that are more stable and as liquid and convertible to make it more flexible in case of another unexpected financial crisis to happen. the companies said they still believe the United States deserves the highest credit rating — but they warned that could change. The Philippines should look for alternative global currencies and benchmarks.safest and most liquid in the world despite the downgrade. So it is recommended for the Philippines to continue its deep relationship with the US. Actually. Unless the United States addresses the fundamental issues.S.

" Bing not tied up to one country means a larger chance of coping up in case major problems arise.S. Impact of the US Credit Rating downgrade by S&P.html. S&P to the U.com/? expert=Robert_Mendez. Leonard. Five Ways the Downgrade in U. Ylan Q. Bibliography 24 Frances (August 8.france24.com/globalfilipino/08/10/11/us-credit-downgrade-worries-pinoy-bizowners. 2011). 2011).S: Your credit is no good. remain resilient and strengthen economic ties with other countries to absorb the shock and hopefully make us less affected by similar occurrences in the future. Credit Rating Affects You. Retrieved from http://www. http://www. 2011.Escudero when he said that "We just have to ride this through and learn from it. 2011).salon. Andrew (August 25.Retrieved from http://www.html Mendez.pinoymoneytalk. US credit downgrade worries Pinoy biz owners. Retrieved from http://www.com/technology/how_the_world_works/2011/ 08/05/standard_and_poors_downgrade/index. Retrieved from http://www. Steve (August 10.com/ylan-qmui/2011/03/09/ABTPHIQ_page. The BSP should decrease interest rates offerings in the country as to attract investors that will create offer more jobs for Filipinos. (August 8.washingtonpost.com/stocks/. Angeles. . August 8. 2006) A Look at the Importance of Credit Ratings Retrieved from http://EzineArticles. 2011) Asian markets fall on historic US credit downgrade. Mui.com/en/category/tagspour-les-articles/usa.abs-cbnnews. Robert (January 1.

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