FOCUS: Forex Liberalization Alternative measures

be feasible for the Philippine economy as it tried to open up to the international market and to attract dollar inflows. The International Monetary Fund (IMF), it should be pointed out, has approved monetary programs in other countries based on targets for net domestic assets.

With a modified monetary program, dollar inflows will precipitate a market adjustment with respect to money supply which will not run counter to the stabilization program. Further, these inflows would be more effective if these resources are used to retire external debt at discounted prices.

A looser monetary policy would not jack up interest rates and thus deter the inflow of short-term investments aimed at interest arbitrage. The exchange rate would thus start to approximate competitive levels given the lower supply of dollars.

A more market- efficient exchange rate would result in exports regaining competitiveness in the international market. The downside, however, is a higher inflation rate. But this is expected to be mitigated by a higher gross national product (GNP) growth rate because of more substantial export receipts and investments.

Finance Secretary Ramon del Rosario, Jr. and Central Bank Governor Jose L. Cuisia, Jr. have long pushed for higher money ceilings under the economic stabilization program ( ESP) to stimulate private sector credits. Complying with monetary ceilings under the ESP had long been a problem for the Government which badly wants to jumpstart the economy through higher money supply and government spending.

Extremely tight monetary targets and fiscal cutbacks have been directly responsible for stifling economic activity. As a result, domestic investments, employment, imports, and demand for foreign currency are at their lowest.

The IMF has, however, closed the door on the option of higher money targets, pointing to the need to contain inflation. It is, therefore, clear from the outset that there is no way for the IMF to relax monetary targets until the expiration of the standby arrangement in March next year.