BSP warns of more capital flight

By Kathleen A. Martin, The Philippine Star

Posted at Jan 18 2014 08:43 AM | Updated as of Jan 18 2014 04:43 PM

MANILA, Philippines - The country may continue to experience capital flight as global investors move out of emerging markets on the back of improving prospects in advanced economies

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said yesterday the improving global economy may also provide more headwinds for the Philippines as more capital may be diverted to advanced economies.

“While latest report from the International Monetary Fund projects a higher global economic growth for 2014, there could be a reversal of economic fortunes between advanced and emerging market economies that could tip the growth momentum toward the former,” Tetangco said.

“This could result in portfolio rebalancing away from emerging market economies that may cause short-term imbalances among prices of financial assets,” he continued.

IMF managing director Christine Lagarde earlier said global growth momentum has strengthened in the latter part of 2013 and this is expected to continue this year.

She noted that despite the rosy prospects for the global economy, growth is still seen to be below its potential.

Tetangco, however, said the Philippines has enough buffer to counter any impact of capital outflows to the financial system. “The country... has enough ammunition to withstand the adverse impact of a sudden capital flows reversal away from emerging market economies,” Tetangco said.

“The BSP can deploy a menu of policy actions similar to those adopted during the recent 2008-2009 global financial crisis such as providing liquidity through the BSP’s standing dollar facilities, preventing excessive volatility in the foreign exchange market, as well as access to regional financing arrangements,” he added.

Tetangco also said that as global growth gains traction, the Philippines may benefit from increased trade transactions, growth in tourist arrivals, and continued inflows from remittances of Filipinos abroad.

“Improving economic conditions in advanced economies could translate to higher exports receipts, foreign investments, tourism receipts and workers’ remittances from these countries,” Tetangco said.

The country saw net foreign portfolio investments rise by eight percent to $4.225 billion last year from $3.911 billion in 2012. Net foreign direct investments, meanwhile, amounted to $3.361 billion as of October.