Bangko Sentral rules out capital controls

Tetangco says economy to weather financial turmoil


BSP Governor Amando Tetangco Jr. FILE PHOTO

Capital controls to stabilize the country’s financial markets are off the table despite the recent crash in local share prices and the depreciation of the peso, the Bangko Sentral ng Pilipinas (BSP) said Tuesday.

As asset prices in emerging markets collapse because investors are pulling out of emerging markets due to an improving US economy, the BSP said it remained confident that the country’s macroeconomic fundamentals would be enough to keep the Philippine economy thriving.

“We are not looking at capital controls,” BSP Governor Amando M. Tetangco Jr. told reporters.

Capital controls have a spotty record in emerging markets like those in Southeast Asia. In 2006, the Thai government tried to require 30 percent of all foreign money to be deposited in its central bank for at least a year. The move backfired as Thailand’s stock market crashed. The rule was reversed a day later.

The International Monetary Fund, in 2010, said capital controls could be an effective tool to combat the destabilizing effects of “hot money,” referring to investments in stocks or government securities.

The Philippine Stock Exchange Index (PSEi) on Tuesday fell to “bear market territory,” erasing all of its gains since the start of the year as investors reeled from the effects of the US Federal Reserve’s signals to end its easy money policies.

The capital flight also pushed the peso to its weakest in several years, bucking most analysts’ expectations that the local currency would stay strong against the greenback throughout the year.

Throughout the turmoil, the BSP has called for calm, noting that while foreign investors may choose to leave the country, the Philippines’ external payments position remained robust.

Remittances from overseas Filipino workers (OFWs), expected to reach $22.5 billion this year or higher by 5 percent from 2012, and revenues from business process outsourcing (BPO) firms would keep the peso strong despite the volatility in financial markets.

The country’s booming tourism sector is also expected to contribute substantially to the economy’s dollar income, the BSP said.

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  • Cristina

    The best way to weather the effect of market vulnerability is for Filipinos to be the major players in the Philippine financial market. Just imagine, 1M Pinoy to invest in the financial market at a minimum of 1000php per month (1M x 1000=1Bphp). Imagine how much it will help the local economy. Regretfully, major investors in the Philippine financial market are foreigners that when they scent a change in the market, immediately they liquidate their investments and put it to some other countries. It will be a different scenario if it is the other way around. If Filipino’s control the local financial market and combined it with the OFW remittances to sustain local spending, Filipinos can kiss those unstable foreign investors goodbye and say, good riddance!

    The problem with Filipino’s when it comes to investing they are very lax and highly conservative. Our mentality is to be the best employee we can be when we should aim higher to be the best businessperson. As parents, we push our children to study hard so they could land a good job and earn good salary while those business people, they push their children to study hard so that they can put up their own business. See the difference?

    Government will change inevitably but we make our own future!

    • marienkind

      Investing in the financial market doesn’t really directly help the local economy unless we’re talking about additional listings or initial listings. The number of stocks are usually constant to a certain degree and it’s just the price that fluctuates.

  • koolkid_inthehouse

    let the market decides itself.

  • carlcid

    The Philippine government is an obsequious stooge of foreign creditors, the IMF, World Bank and the credit ratings agencies. It will never have the “cojones” to stand up to its masters, specially since capital controls are frowned upon by these institutions. Thailand, Malaysia, Japan and China have more gravitas, and do not need puppet-masters to tell them what to do. They will do what is needed for the good of their country and their people, even if it means being accused of being currency manipulators. The Philippine government would rather bully its own people, by foisting more taxes, tormenting taxpayers and increasing the cost of basic commodities and services, just to please the foreign overlords.

  • Weder-Weder Lang

    Capital controls? Not only Thailand, but Malaysia did it too for quite some time in the aftermath of the Asian Financial Crisis. Depending on who you ask, some say it worked for MY and some say it did not. Even Paul Krugman indirectly supported the idea back then in an article in BusinessWeek. Joseph Stiglitz also endorses the idea in his book. To each its own. We may need the peso to slide further to make our export industry more competitive, attract more FDIs, and strengthen the BPO industry.

    As for PNoy, it’s downhill for him from here.

    • Rosani Masau

      Right now, India is the biggest competition in the BPO industry and their 55 vs $1 makes them very attractive to outsourcing investors. Philippines GDP largely depends on the BPO Industry and OFWs which are considered as exports. Kind of agree with you that having the peso slide down to 45 vs $1 is a good thing for our economy as it will make our peso more attractive.

      • Guest

        Indeed. Because of the stronger peso, many BPO companies in PH have shelved expansion plans. Those planning to set up shop in PH have also had second thoughts. Wells Fargo did not expand as rapidly as originally planned. HP wanted to expand but was held back by the stronger peso. Bank of America decided to retain bulk of their volume in India until the peso weakens and labor cost in PH comes down. Deutsche Bank is on a global headcount cutback. JPMC is tight on headcount and not replacing natural attrition in some LOBs as they used to. Accenture and IBM are just beginning to ramp up as the peso weakens. Even ING is waiting in the wings until the peso further weakens. Those are just some info I gathered from the industry.

        I hope this administration will take a more proactive approach in growing the BPO industry, which in fairness to Arroyo she did very well. More incentives such as longer tax holidays for BPO investors, more COEs and more ROHQs. Otherwise, China’s BPO industry will take more and more of the non-voice work (even those requiring English), on top of their domination on electronic data management and other back-end support.

        Here’s to hoping that PNoy will devote some of his attention to the BPO industry. Otherwise, there will be more unemployment, underemployment and brain drain. Not that a president with a silverspoon sticking out of his mouth really cares, but hope springs eternal.

      • Weder-Weder Lang

        And create more jobs locally thereby putting more money in people’s pockets and boosting domestic consumption.

      • koolkid_inthehouse

        more foreign investments more works for Filipinos.

    • carlcid

      History has shown that, after the midterm, Philippine Presidents usually decline in popularity, as dissatisfaction sets in. Cory Aquino’s last 3 years in office were highlighted by the “rolling blackouts”, coups, natural disasters and widespread disenchantment with her presidency, specially after the buoyant expectations just after EDSA.

      Fidel Ramos also lost his luster after the middle of his term, with financial scandals hounding the military and his administration and severe infighting among his own party and supporters. It culminated with the Asian financial crisis, which occurred one year before his term ended.

      Erap, meanwhile, was ousted a few months before the middle of his term.

  • klepto

    Looking forward to 56 so it’s easy to pay in full the remaining balance for the pony.


    THIS is the moment where BOYS are separated from the MEN.

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