Weaker peso will help investment, Espenilla says

Stanley White, Reuters

Posted at Sep 26 2017 01:30 PM

TOKYO - A decline in the Philippine peso is in line with economic fundamentals and will support growth by encouraging more investment in infrastructure, central bank Governor Nestor Espenilla said on Tuesday.

Speaking at a seminar in Tokyo, Espenilla said he saw limited pass-through to inflation from moves in the peso and said the current account balance was manageable.

The peso is Asia's worst performing currency this year, at one point falling to 11-year lows against the US dollar, partly due to a rise in capital goods imports to meet the needs of the governments ambitious infrastructure investment plans.

This is expected to push the current account into deficit for the first time in 15 years, which has raised some concerns among foreign investors about the country's resilience to external shocks.

"The peso's depreciation is in line with economic fundamentals," Espenilla said.

"What has changed is this current account deficit is a good deficit because it is being driven by investment. The Philippines is different than it was in the 1990s and during the Asian Financial Crisis."

The government aims to lift economic growth to as much as 8 percent with a six-year, $180 billion "Build, Build, Build" infrastructure program for new roads, airports, ports and railways.

Improved infrastructure is necessary to maintain the Philippines' high economic growth, but some analysts are worried about the impact on the currency and the balance of payments.

Imports of capital goods, mainly infrastructure-related, have risen more than 7 percent in the first 5 months of the year from the same period of 2016 to $12.1 billion.

For the first time in 15 years, the Philippines is expecting its 2017 current account balance to be in a deficit of $600 million.

Some investors and economists still harbor memories of the 1997 Asian currency crisis, when high levels of dollar-denominated debt and current account deficits roiled Southeast Asian currencies.

Espenilla dismissed these concerns, saying the Philippines has higher currency reserves, stronger economic growth, and lower levels of inflation.