PH seen strong enough to withstand capital flight

The economy’s strong fundamentals may enable the Philippines to withstand the massive outflow of portfolio capital, and even attract long-term investments, the National Economic and Development Authority said.

According to Neda Director General Arsenio Balisacan, the latest volatility in the financial market will not be substantial enough to disrupt the country’s high growth trend.

“Portfolio capital may come and go quickly, but foreign direct investments (FDIs) are determined by fundamentals,” Balisacan told the Inquirer.

He said the Neda would keep the projection of a significant increase in FDIs this year despite the flight of foreign portfolio capital from the Philippines and other emerging economies.

Factors like the much improved fiscal situation of the government, manageable inflation, relatively low interest rates, and sufficient foreign exchange reserves all point to a stable Philippine economy, said Balisacan, who also serves as the country’s socioeconomic planning secretary.

And now that the country has secured an investment grade, it may not take much to persuade long-term investors to do business in the country, he said.

The Bangko Sentral ng Pilipinas on Thursday reported a $1.8-billion net outflow of foreign portfolio investments in January, a development seen in most emerging markets.

This was the biggest monthly net outflow on record, and was a reversal of the net inflow of $1.27 billion reported in January 2013.

The flight of portfolio capital from the Philippines and other emerging markets was brought on by the US Federal Reserve’s decision to scale back its stimulus program, which was meant to stimulate the American economy.

The value of the Fed’s monthly bond purchases was cut back from $85 billion to $75 billion in December, and further to $65 billion in January.

With the expected improvement of the US economy this year, most portfolio fund owners have decided to dump assets of emerging markets in favor of dollar-denominated ones.

But Balisacan said the adverse developments in the financial market would not spill over to the “real” economy.

The government expects the economy to grow between 6.5 and 7.5 percent this year.

It also expects the Philippines, which had lagged behind its neighboring countries in terms of FDI, to register a faster rate of rise in foreign direct investments this year.