BSP mulls new forex lib measures

By Prinz P. Magtulis, The Philippine Star

Posted at Feb 04 2013 08:13 AM | Updated as of Feb 04 2013 04:13 PM

MANILA, Philippines - A fresh wave of foreign exchange liberalization measures is underway to “mitigate” a strong peso that has worried both the Bangko Sentral ng Pilipinas (BSP) and the government, a senior official said.

“We share the concern of the government about the continued appreciation of the peso and its negative impact on exports, remittances and BPOs (business process outsourcing),” BSP Deputy Governor Diwa Guinigundo told The STAR in a text message.

“As warranted, we shall continue to dip into our toolkit to address the issue of capital flows and exchange rate appreciation… (and) yes, part of it is FX (foreign exchange) liberalization,” he added.

Measures are still being “studied,” Guinigundo said, echoing last week’s pronouncements of Monetary Board member Felipe Medalla. He declined to provide a specific timeline on when they will be ready.

Liberalization measures are targeted at easing restrictions in taking out money from the Philippines. The central bank, last year, initiated the relaxation of some rules meant to encourage outflows and balance huge amount of inflows that has resulted into peso appreciation.

Among others, the easing on foreign exchange regulations effectively allowed importers to pay in advance for their shipments, lifted conversion requirements for foreign direct investments and exempted foreign loans for infrastructure projects from prior BSP approval.

With record-high international reserves and balance of payments surplus, the country can “absorb some outflows” if only to ensure financial stability, Medalla said last Wednesday. Aside from that, easing restrictions will also deal with some bank concerns on difficulty to pull out money from the Philippines.

All these, together with macroprudential measures such as the ban on foreign inflows to special deposit accounts and cap on non-deliverable forwards, were forms of “mitigation” against the peso’s rise, Guinigundo explained.

‘Very difficult’

He pointed out that it will be “very difficult” to “engineer a peso depreciation” since the strength of the peso has been backed by strong current account inflows, which are structural in nature. “Many central banks have attempted that in the past and failed,” he said.

“A good perspective is therefore to focus on some mitigation rather than leaning against the wind,” he added.

Socio-economic Planning Secretary Arsenio Balisacan flagged concerns on the rising peso anew last week, worrying it could dent job generation at a time when economic growth been solid. Growth hit above-target 6.6 percent in 2012.