The recent shock to the country’s financial markets and the little effect it had on the real economy showed that the Philippines is much better equipped to deal with crisis-related capital flight, according to the Bangko Sentral ng Pilipinas.
“Our outlook hasn’t changed. We continue to see a good turnout in economic performance down the road,” BSP Deputy Governor Diwa C. Guinigundo said.
He was commenting on the recent release of data from the United States that showed the world’s largest economy grew at a slower-than-expected pace in the first quarter of 2013.
This comes shortly after signals by the US Federal Reserve that it would trim down its $85-billion bond buying program that was originally launched to prop up the American economy.
The signals by the US Fed earlier sent local equity prices crashing, wiping out all gains made by the local bourse since the start of the year. The peso also fell to its lowest point in more than a year as foreign investors pulled out of emerging markets to return to traditional safe havens.
Guinigundo said that despite the volatility in financial markets, the country’s foreign exchange income—linked to remittances from migrant workers and business process outsourcing (BPO) revenues—kept the country’s external payments position robust.
“Whenever there are capital outflows, normally one would see tightness in the market, liquidity and credit. But we didn’t experience that,” he said.
“Instead, it is clear that in the Philippines, we have both dollar and peso liquidity and it remains ample and consistent with what is required to sustain the economy,” he said.
This differed from the country’s situation during the Asian financial crisis in the late 1990s, wherein capital flight from emerging markets made it harder for businesses and households to take out loans, choking economic activity in the Philippines and across the region.
Guinigundo also allayed the analysts’ fears of the economy possibly overheating, following the release of data last week that showed domestic liquidity—the amount of money in the system—grew at its fastest pace in six years.
The fast growth in liquidity means more money in each person’s hands, leading to high inflation rates that can eventually choke economic activity.
“We believe overheating is a remote issue because the potential capacity of the economy has gone up. In addition, productivity has improved while efficiency appears to have climbed in recent years,” he said.