Capital flows are gradually recovering in PH, IMF notes

By Bianca Cuaresma, BusinessMirror

Posted at May 06 2014 07:41 AM | Updated as of May 06 2014 03:41 PM

MANILA, Philippines - Capital flows in the Philippines are gradually recovering after being beaten by negative sentiment spawned by the United States’s decision to taper its asset purchases this year, the International Monetary Fund (IMF) said.

IMF Resident Representative to the Philippines Shanaka Jayanath Peiris said in an interview that asset prices in emerging Asia, including the Philippines, have been affected by capital outflows, arising from the recent development in the US—the world’s largest economy and one of the country’s major trading partners.

But he added that this pressure on asset prices was now declining and the local markets have started to show early signs of recovery.

“Asset prices in emerging Asia are affected by capital outflows, so to the extent that there have been capital outflows that we know from the data, it explains partly why some of the asset prices have been under pressure from the beginning of the year,” Peiris said. But if you look at the trend, outflows are becoming less and less negative, he added.

Latest data from the Bangko Sentral ng Pilipinas showed that the country’s foreign portfolio investments continued to post a net outflow, although at a lower volume compared to the numbers earlier this year.

In particular, a net inflow of $134.86 million was posted in the week ending April 18, as the total inflow of $420.20 million during the period more than offset the $285.34 million seen in the week. This was the second-largest weekly net inflow seen thus far this year.

Peiris said the country has to remain watchful of capital flows, as these are “additional factors” to movements in stock prices and foreign-exchange levels in the country. Other factors include geopolitical risks in the global front.

Peiris said these geopolitical risks would always “have an effect on the growth of the Philippines.” Asked whether the dispute between the country and China would have an effect on the trade and economic relations of the country, Peiris said there remain no visible signs of tension in the two countries’ economic relationship as of now.

“At the moment, there aren’t many signs that there is a direct impact, so as long as it does not escalate, I think you should have a manageable impact,” Peiris said.