Philippine Officals Concerned About CalPERS' Investment after Credit Rating Downgrade

January 19, 2005 ( - Following the downgrading of the country's debt, Philippine officials are expressing concern that the California Public Employees' Retirement System (CalPERS) will pull out its investments in the country due to both debt and governance issues.

Officials from the pension giant and the South Asian government met last week to discuss the investment in the country, which tops $80 million, according to The Philippine Star. Economic Planning Secretary Romulo Neri, following the meetings, expressed frustration over CalPERS’ insistence that governance be included as a criterion for investing in the country, the paper reported.

“[Governance issues] have little to do with the ability to generate returns on investments,” Neri told the paper, noting that the Philippine stock market was one of the area’s best performers on the year.

Included in its governance concerns were labor issues, according to Malaya, a national newspaper, with Neri also questioning the combination of the two issues. “It is strange for a pension fund to be putting governance issues including labor issues as part of their criteria,” he told the paper.

CalPERS normally meets with Philippine economic officials to assess their investment in the country.

The governance issue, combined with S&Ps downgrading of the country’s debt from BB to BB-, may adversely affect the pension fund’s investment decision this year, according to the paper. Other officials expressed shock and consternation at the move, with Trade and Industry Secretary Cesar Purisima admitting that the government needs to work harder to improve the S&P rating.

“It came as a surprise to us that the downgrading was done amidst reforms being undertaken by the government,” Purisima said, adding that the country will “have to work double time to improve the S&P credit rating.” He also admitted that “the wake up call has been delivered,” according to The Star.

Similar concerns were raised last year, when CalPERS threatened to sell Philippine stocks because the country had failed to make the grade on the fund’s scorecard for market transparency and political openness in emerging markets (See  CalPERS Again Postpones Philippines Decision ). CalPERS’ consultant Wilshire Consulting had recommended that it be stricken from the investment list earlier in the year. During a one-year “cure period”, the Philippines was  supposed to correct deficiencies in its system to qualify permanently as an investment site, but it still fell below Wilshire’s cutoff point of two points, scoring a 1.86.  Wilshire had given the country low scores in areas of market practices and business conduct although the Philippine government argued that Wilshire based its recommendation on inaccurate data, and expressed concerns that the scores should have been higher.

However, it was ultimately decided in April that the fund would stay in the country (See CalPERS: We’re Staying in the Philippines ).