BSP welcomes US bailout of Fannie Mae, Freddie Mac

Monetary authorities expressed relief over the bailout of US mortgage giants Fannie Mae and Freddie Mac, saying that the move would bring portfolio inflows back into the country and help strengthen the peso.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said yesterday that the US government’s historic decision to bail out the mortgage giants was followed by an immediate improvement in US share prices.

In rescuing Fannie Mae and Freddie Mac, the US government is taking an unprecedented step into the financial sector in a bid to steady an ailing housing market and ease a global credit crunch, analysts said.

A series of steps announced Sunday places the struggling mortgage finance giants in a “conservatorship,” which is the equivalent of a bankruptcy reorganization under the aegis of the government.

According to Tetangco, this was positive for the emerging markets that have been bearing the brunt of risk-aversion resulting from the perception of a credit crunch in the US.

“We can expect some inflows because of the increase in risk appetite,” Tetangco said. “It will improve the exchange rate and if sustained, it will help strengthen the exchange rate.”

Tetangco said the return of foreign portfolio inflows would also have a positive impact on inflation which hit a new 17-year high of 12.5 percent in August.

Together, Fannie and Freddie were estimated to own or guarantee about $5 trillion in US home loans. The increasing number of home loan defaults has been alarming US officials and markets worldwide.

Overall, Tetangco said the market relief over the bailout would allow investors to take a second look at emerging markets again, hopefully snapping out of the generalized pessimism that has led to withdrawals of their portfolio investments.

After bleeding out for several months, portfolio investments showed some strength in July but not enough to reverse the net outflow recorded in the first seven months of the year.

The Bangko Sentral ng Pilipinas (BSP) reported that registered foreign portfolio investments posted a net inflow of $20.2 million in July, ending months of huge outflows that resulted from jitters over inflation and economic slowdown.

Inflows in July this year, however, went down sharply from a $1.062 billion inflows recorded in July last year.

On a gross basis, the BSP reported that registered foreign portfolio investments amounted to $577.3 million in July. About 79 percent of this went to shares listed in the Philippine Stock Exchange (PSE).   – Des Ferriols