BOP gap seen shrinking to $100 million in 2002

The expected recovery of the economy in the second semester as well as the improvement in foreign direct investments will boost the country’s balance of payments (BOP) position to a deficit of less than $100 million by 2002.

This will be a near complete reversal of the $1.3-billion BOP deficit expected this year. The minimal BOP deficit projected for 2002 will result in a stronger peso versus the US dollar, and this is seen to subsequently translate to more stable consumer prices and lower inflation.

"There will almost be no (big) BOP deficit," said an optimistic Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura.

The BSP chief said he expects the BOP to improve dramatically when the local economy recovers along with the anticipated recovery of its global trading partners, especially the US.

The turnaround of the US economy which lost steam after the Sept. 11 attacks is seen to directly benefit its trading partners like the Philippines which relies on the US market to absorb its exports.

At the same time, Buenaventura said the National Government’s intention of frontloading its expenditures in the first semester in order to stir growth should also help pull down the BOP deficit.

Moreover, Buenaventura said he expects portfolio investments to return as confidence in the economy is restored.

"For next year, there should be a significant improvement in fixed income securities as well as selective investments in equities. When things normalize, people will start cherry-picking again," Buenaventura said.

Despite the economic downturn, there are two major developments that should bolster capital accounts.

These include the reported buy-in of the Atlanta-based Coca-Cola Bottlers into local concern Cosmos Bottling for about $200 million, along with the San Miguel Corp.-Kirin Brewer deal for another $540 million.

In a previous interview, Buenaventura said that the SMC-Kirin and Coca-Cola-Cosmos deals will help the external sector survive the first quarter.

The BOP account represents the country’s total transactions with the rest of the world, both in goods and services and in capital flows.

A negative BOP position translates into a drain on BSP’s dollar reserves, and a sustained deficit eventually leads to a weaker peso versus the US dollar.

Thus, with a lower BOP deficit, the dollar reserves will be higher. This in turn, will be critical in defending the local currency ward off attacks by currency speculators.

This year, the BOP deficit is expected to hit $1.3 billion. This is better than the worst case scenario of between $1.9 billion and $2.3 billion as earlier anticipated because of the earlier contraction of export receipts and lack of direct foreign investments.

Buenaventura said dollar remittances from overseas workers were substantial enough to matter in containing the BOP deficit. It is during the Christmas season that overseas workers send their remittances to their relatives.