Policymakers allay concerns over US move

MANILA, Philippines - Local policymakers yesterday downplayed concerns the scaling down and eventual pullback of US stimulus measures will create financial instability in the Philippines.

“Such expectation should recognize that the US Fed is gunning for a gradual, calibrated reduction of monetary stimulus,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa Guinigundo said in a text message.

On Wednesday, US Federal Reserve Chairman Ben Bernanke said the US economy is expanding strongly enough for the central bank to begin slowing the pace of its bond-buying stimulus later this year.

The statement confirmed market speculations cheap money from the five-year stimulus program will end soon, driving investors away from emerging markets such as the Philippines as US interest rate increases.

The Philippine Stock Exchange index, one of last year’s best performers, lost  186.53 points to settle at 6,326.67 yesterday after some rebound in recent days. The peso, Asia’s second best in 2012, averaged 43.583 as of noon time, the weakest in more than a year.

Strong fundamentals

Guinigundo said the country’s “strong fundamentals” will cushion the impact of market volatility.

National Treasurer Rosalia de Leon told reporters domestic investors would provide “support” to the financial markets as foreigners found their way back to the US.

“We expected this... At the end of the day, investors will look at strong fundamentals,” De Leon said.

The economy expanded 7.8 percent in the first quarter, the fastest in Asia.

At the same time, De Leon said domestic markets remain very liquid, with latest figures showing money supply growth hit 13.2 percent in April. In March, domestic liquidity grew 13.3 percent, the fastest in four years.

On the foreign exchange market, Monetary Board member Felipe Medalla said once investors “realized” the country is in good footing, the peso will “normalize and stabilize.”

The peso has lost 5.31 percent of its value versus the greenback when it ended trading at 43.23 on Wednesday against its 41.05 close on Dec. 28, 2012

“We shall continue to monitor the developments because the situation could be a result of quick reaction to the recent announcement of the Fed...,” Guinigundo said.

Shanaka Jayanath Peiris, representative of the International Monetary Fund, said the Philippines is “very strong” and has enough foreign exchange reserves to cushion outflows that may weaken the peso.

‘Positive side of things’

On the flipside, Purisima said a recovery in the US—and in other developed markets-- will actually “benefit” the country’s exporters and in effect, contribute to local economic growth.

Guinigundo agreed saying that “such a Fed stance...should translate into constructive opportunities especially for emerging markets like the Philippines.”

Merchandise exports plummeted by almost eight percent to $16.12 billion in the first four months of the year, latest government data showed. The US is one of the primary export markets for the Philippines.

“As you know, exports become the lone drag to growth in the first quarter,” Purisima said.

“We should look at the positive side of things,” he added.

Guinigundo, for his part, expects foreign direct investments (FDI) to rise as the US recover. More FDI— which dipped 8.5 percent to $1.303 billion net inflow as of March— will translate to more job opportunities.