Investors worried over lawlessness; BSP allays fears
If the deteriorating peace and or- der situation and political instability in the Philippines are left unchecked, these could derail the strong economic growth and result in a volatile financial market, investors warned yesterday.
ING Bank Manila senior economist Joey Cuyegkeng said investors reacted negatively to President Duterte’s statement against leaders of longtime allies including US President Barrack Obama, the extrajudicial killings and the bombing in Davao City.
“Concerns also over extrajudicial killings and statements that may antagonize long-time allies are also making international news, which has elicited growing concerns from investors. The Davao City bomb blast killing 14-15 innocent citizens highlights the possibility of increased terrorist activity,” he said.
Duterte’s declaration of a state of national emergency and order to the Philippine National Police and the military to “suppress all forms of lawless violence” was also seen from a risk standpoint that the government needs assistance for the national police to counter a perceived state of lawlessness.
For others, lawlessness was also a result of government statements that may have encouraged vigilante killings.
“We believe that such political developments and concerns if unchecked would have more profound impact on markets and the economy,” Cuyegkeng said.
But Cuyegkeng noted that the country’s strong macroeconomic fundamentals would likely cushion the impact of recent developments on economic growth as well as the attractiveness of the Philippines as an investment destination.
He cited the seven percent growth in gross domestic product ( GDP) in the second quarter, the record $ 85.5- billion foreign exchange reserves as of end July and stable financial system.
“For now, the impact is likely to be marginal and is likely to be offset by favorable macro-economic fundamentals – structural inflows, high FX reserves, strong domestic demand and monetary and fiscal leeway,” he said.
However, growing concerns on political stability as well as the impending interest rate hike by the US Federal Reserve would continue to affect the value of the peso against the US dollar.
Gareth Leather, senior Asia economist of think tank Capital Economics, said in its latest Emerging Asia Economic Focus that the main risks to the Philippine economy are political in nature.
Leather noted that the main risks are centered on the uncertain political situation following the election of Duterte as president.
“Although Duterte initially helped to calm investor nerves by promising to continue with the economic policies of his respected predecessor, the situation has worsened in recent weeks,” he said.
He cited threats to shoot suspected drug smugglers without trial and the recent imposition of a state of lawlessness granting the military powers to help in police operations.
“With Duterte in charge, it is hard to rule out a sudden shift in policy or a disruption of the political stability that has characterized the last six years. Either would cause sentiment to sour and growth to weaken,” he said.
BSP chief allays fear
But Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. yesterday allayed investors’ fears on the impact of the bombing in Davao City and the declaration of a state of national emergency.
“There has been no negative reaction as far as the foreign exchange market is concerned,” Tetangco told reporters on the sidelines of the Philippine Investment Forum organized by Euromoney.
He explained the peso has stood its ground, strengthening against the US dollar by 10 centavos last Monday and traded within a narrow range yesterday.
In the equities market, the BSP chief said there has been no major pull out of funds from the Philippine Stock Exchange.
“There’s been no sell off or major negative impact. I think what we would need is to explain better what the objectives of the policies of government are,” he added.
According to him, it is important for authorities to inform investors about the objectives of the Duterte administration.
“There are of course very important objectives that the government is trying to pursue. And this has to be communicated well to the public. So we can avoid any possible misunderstanding and basically avoid lack of information that can lead to a different picture of what the government is trying to do,” he added.
Tetangco said monetary authorities are in touch with their counterparts abroad to apprise them about the developments, particularly the peace and order situation in the Philippines.
“We’ve been talking to our counterparts. I think they also want to look at what will happen next which is normal… Markets always try to look forward. And see where the opportunities lie and react accordingly,” he said.
“As I have said so far, it (state of national emergency) hasn’t affected market sentiment. I think the objective is to really improve peace and order and security in the country, which are really good objectives. Thats going to be positive for investment in the longer term,” he added.
The BSP chief also said the Philippines remains an attractive investment destination amid the positive GDP growth for the past 70 consecutive quarters.
“I believe the Philippine economy continues to offer a convincing case for investment and sustained growth. I say this with confidence because the Philippines has a good solid track record,” he said.