Strong fundamentals seen to attract foreign capital

The Bangko Sentral ng Pilipinas (BSP) believes that foreign capital would continue to flow to emerging markets including the Philippines amid the continuing sovereign debt crisis in Europe and the economic slowdown in the US.

BSP deputy governor Diwa Guinigundo said the country would continue to attract foreign capital due to its strong macroeconomic fundamentals led by the stronger-than-expected gross domestic product (GDP) growth in the first quarter amid a low inflation environment.

“We have the pull factor of strong macroeconomic fundamentals and very few would argue against that especially in the light of continued search for yields and safe haven,” Guinigundo stressed.

The BSP official brushed aside the decline in the amount of foreign exchange that flowed into the country over the past few months due to the deleveraging in Europe and economic uncertainty in the US.

Data from the BSP showed that the net inflow of speculative investments or “hot money” was cut by more than half to $772.4 million in the first four months of the year from $1.646 billion in the same period last year as investments in shares listed at the Philippine Stock Exchange (PSE) declined.

Gross inflows posted a double digit level decline of 12 percent to $5.507 billion in the first four months of the year from $6.262 billion in the same period last year while gross outflows inched up by 2.6 percent to $4.735 billion from $4.616 billion.

The BSP said major sources of foreign portfolio investments include the US, the United Kingdom, Singapore, Luxembourg, and Hong Kong.

“I am not exactly losing sleep because of weak portfolio flows. This is something expected because of risk aversion as a result of sustained deleveraging in Europe and adverse economic reports from the US,” Guinigundo explained.

“After the dust has settled, I would expect foreign exchange inflows to resume. I believe we have a very good combination of monetary, foreign exchange and fiscal policies at present. I don’t think we should contemplate of additional measures to prevent foreign exchange outflows,” Guinigundo said.

Last March, the BSP further liberalized the country’s foreign exchange regulatory framework to boost confidence in the country’s strong macroeconomic fundamentals.

Under the amendments to the Manual of Regulations on Foreign Exchange Transactions, the ceiling for importations that would not be required to be supported by documents to be submitted to the BSP-International Operations Departments was increased 10 times to $500,000 from $50,000.

Likewise, the new guidelines also lifted the submission by banks and authorized agent banks – foreign exchange companies to BSP of hard copies of the “Consolidated Daily Foreign Portfolio Investment Registration and Outward Remittance Report.”

The changes would encourage outflow of foreign exchange and would ease pressure on the strengthening of the peso against the dollar.

The BSP has so far implemented six phases of reforms in its foreign exchange regulatory framework since 2007.