MANILA, Philippines - Despite the apparent slowdown in the economy in the first quarter, central bank authorities expressed confidence that both foreign portfolio or hot money and direct investments would recover before the end of the year.
Portfolio investments bounced back to a net inflow of $498 million in May but about $27 million worth of foreign direct investments actually flowed out of the country in March.
According to BSP Deputy Governor Diwa Guinigundo, despite the fact that the economy had slowed down to a halt in the first quarter, the BSP did not believe that the country is going into a recession.
“I don’t think we are going into recession,” Guinigundo said. “I maintain we have a generally improving and resilient economy.”
Guinigundo said the market would be able to distinguish and differentiate. At the end, he said investors should start showing renewed interest in the Philippines and its resiliency.
Guinigundo said.
Guinigundo said the BSP has not revised its projected FDI level for this year, adding that inflows would still turn out positive.
Although still expected to be positive, foreign direct investments are projected to fall to $700 million this year as investors hold back their plans to invest in the Philippines in the midst of the global economic recession.
Last year, foreign direct investments amounted to $1.4 billion, indicating that this year’s level would be half of the foreign direct investments that trickled in, going mostly to power and telecommunications.
The BSP said yesterday that fears of a dramatic economic decline had the same effect in the financial market but this year, monetary officials are expecting portfolio investments to recover from last year’s $3.7-billion outflow to a $600-million inflow for the whole year.
Guinigundo said yesterday that the central bank was making a “conservative” projection for this year, counting only foreign direct investments that are already in the pipeline and scheduled to come in this year.
According to Guinigundo, the expected FDI flows are going into power and telecommunications although some inflows are also expected to go into mining and quarrying, even some agricultural businesses.
Guinigundo said the latest projections are already factored in to the projected gross international reserve level of $38 billion for 2009 and the balance of payments level of $700 million.
According to Cyd Amador, managing director of the BSP’s Monetary Stability Sector, the BSP would normally count pending applications in the various investment agencies.
“This time, because we know that risk aversion is pretty strong, we didn’t do that,” Amador said. “We only factored in the investments that were already scheduled to come in. These are inflows that were already in the pipeline that we were certain would come in this year.”
But Guinigundo said the BSP is also projecting a significant increase in investments classified as “other accounts” which included project and program borrowings of the National Government as well as inter-company borrowing between Philippine companies and their foreign principals.
“Last year we saw a $3.1-billion outflow in other accounts because companies here were paying back loans to their parent companies,” Guinigundo explained.