MANILA, Philippines - The Philippines has developed to a point where externally driven shocks, like the ongoing global downturn, no longer render the economy vulnerable to foreign-capital outflows, economist and Monetary Board member Felipe Medalla told thrift bank executives on Tuesday.
He told the Chamber of Thrift Banks the economy has amassed a wealth of resources—some $80 billion worth at present—which has helped insulate the country from some of the nastiest ill effects of the sovereign debt and financial crisis in Europe and the low growth prospects of the US, which is still the country’s largest trading partner.
“We are practically invulnerable to capital flow reversals,” Medalla, who once served as socioeconomic planning secretary and director general of the National Economic and Development Authority, said.
This particularly pertains to gross international reserves of $80 billion at present or enough resources to cover a year’s worth of goods imports or pay for services and income.
The increase in foreign-currency reserves run parallel to such improvements as the rising level of gross savings and gross capital formation in recent years, Medalla said.
These developments, taken together with billions of dollars worth of foreign-currency earnings of some 8 million overseas Filipinos, allowed the economy to post 10 consecutive years of current-account surplus in the balance of payments.
“This helped raise our gross international reserves, making our external balance virtually invulnerable to global shocks like the collapse of the Lehman Brothers,” he said.
Until it closed shop in late 2008, Lehman Brothers was the fourth-largest investment banking outfit in the US recognized for the key role it played in the unraveling of the global economy.
“In short, we don’t need foreign funds,” Medalla said.
Nevertheless, Medalla said the Bangko Sentral ng Pilipinas, to which he is part of the seven-man policy-making Monetary Board, is forced to buy some of the yield-seeking dollars coming into the country to help temper the value of the local currency, the peso.
“If we didn’t buy all those foreign exchange, the peso would have appreciated and that would be bad for Filipinos. This is more preventive than anything. In addition, the reserves are a form of insurance,” he said.
He gave assurance the release of local currency with each purchase of dollars should not kick inflation higher in the coming months as these have been “sterilized” with the artful use of special deposit accounts (SDA).
Medalla said some P227 billion worth of liquidity entering the system was effectively siphoned off and shunted during a 30-day period ending on August 3 this year.
As a result, the SDA facility has now attracted P1.79 trillion worth of funds that would have expanded money supply and contribute to inflation conflagration, Medalla said.