Hot money outflow

It was Alexander Pope who said that a little learning is a dangerous thing. While Pope did not say it in explicit words, he must have meant that people with less education or lacking of depth in knowledge tend to open their mouths rather recklessly and as a result they put themselves in compromising situations. They speak with little prudence and circumspection that often ends in regrets.

I must admit that my background is not in economics such that if I dwell on this subject where my learning is little, I tread on dangerous grounds too. But I learned that a turtle can only move forward if it sticks its head out of the carapace, its top shell, even if in the process it takes the risk of being caught. I take this risk of being caught treating on a matter not of my preference because I hope to start a more intelligent discussion on the subject among the learned in our midst.

Let me bring your attention to the State of the Nation Address delivered by President Ferdinand R. Marcos, Jr., two weeks ago. The president began by emphasizing the country’s economic growth. He noted a supposedly steady GDP increase of 6.5% in the past year crediting the growth to increased foreign investments, among others.

This is what I want to take note of. When I heard the claim made by the president of the country’s economic growth, I wanted to believe him even if in the back of my mind his statement was not supported by some verifiable data. President Marcos Jr. cited no supporting figures. I hoped to find the kind of information confirming what the president said.

The other day, I came upon a report that sounded economics to me. It mentioned something about hot money outflow. I heard this term in a bankers’ seminar which I, in representation of a small bank, helped organize some time ago. I, therefore just have a little learning on this topic although I knew it to refer the flow of funds (or capital) from one country to another. If the investment climate of one country is perceived to be unhealthy, its investors take their capital from such country and transfer it to another country. Even if such hot money outflow is done only in order to earn a short-term profit on interest rate differences and/or anticipated exchange rate shifts, it nevertheless means that some funds are flying out of a country.

The report that I read added my distrust of the president. It was of the kind that made the SONA claim of President Marcos Jr., of having completed 5,500 flood control projects untruthful with floods rampaging over almost the entire Luzon just two days after SONA. This time, a news item from the Bangko Sentral ng Pilipinas placed an economic claim of President Marcos Jr., in a shadow of doubt. The president’s announcement that the 6.5% growth rate was partly achieved by foreign investment seemed dented by a central bank report. Transactions on foreign investments registered with the central bank through authorized banks posted a net outflow of $27.26 million. While the hot money outflow occurred in June barely a month before the SONA, it was a reversal of the $42.86-million net inflow in May, as well as the $280,000 inflow a year ago.

Government fiscal managers may point out that a US$27 million hot money outflow is not really considerable where billions of dollars are on the menu. But they cannot hide the economic fact that when fund holders find the business environment unhealthy, they stash their money somewhere else. The hot money outflow last June, as noted by the central bank, is an indicator of the apprehension of funders on the seemingly risky condition prevailing in our country and that red flag cannot just be cast aside.