Speaking before global financial experts at the World Congress of Financial Executives in Makati City yesterday, ING Bank chief economist Timothy Condon said foreign investors will remain short term as long under a heavily controlled forex environment.
"Those heavily managed exchanged rates make them natural targets for speculation and hot money flows and the Philippines today is experiencing some of these pressures," Condon said.
He, however, predicted said that the Philippines will receive a positive credit rating in the first quarter of 2006.
"The country deserves it," he said, refusing to elaborate.
He said that speculation was "an inverse of long term investment because it involves buying or selling with the aim to make a quick profit while hot money is money that is in one currency but is likely to be exchanged for another quickly in order to gain higher returns. Hot money flows cause the depreciation of the first currency."
Instead the economist suggested that exposure to global capital flow must be increased by opening up capital accounts.
"You have an underdeveloped financial market, that is excessively dependence on banks," Condon said. "Capital mobility is a good thing because it helps develop financial markets. We don’t want to be overly depended on banks."
Asian economies are generally small thus not having the volume or size to develop their capital markets.
Condon said Asian economies should to allow greater flexibility in exchange rates.
"I think within 20 years we are going to have an Asian currency in other words a Euro for this part of the world," the bank economist predicted.
2006 is a good market back drop for emerging economies given that the US is experiencing a strong economy. US growth is predicted to strengthen although it may not be good for long-term growth of Asian economies.
The ING chief economist said that 2006 will be a "very good year, and that inflation will not be a problem." – TPT