Do something about ‘hot money,’ Asia urged
The Philippines and other emerging markets in Asia should establish firm strategies that would convert short-term “hot money” inflows into long-term and job-generating investments, according to the International Monetary Fund.
The institution reiterated its call after it learned that Asia could again experience a steep rise in the flow of foreign portfolio investments to the region, following a brief lull.
Anoop Singh, director for the Asia-Pacific department at the IMF, cited projections when he said that once European leaders come up with a credible solution to the debt crisis in the eurozone, risk aversion in the global financial markets would begin to wane and portfolio investments to emerging Asian markets would pick up again.
“When risk aversion declines, capital may come back quickly to emerging markets. This is in light of the fact that the Philippines, in particular, and Asia, in general, are going to grow much more rapidly than advanced economies,” Singh told the Inquirer.
He said that, with Asia’s economic growth outstripping that of advanced economies in the West, portfolio funds would begin to flow East.
In this case, Singh said, the Philippines and its neighbors should be able to draw an effective strategy to maximize the benefits of foreign portfolio investments.
“What is important is for Asia to build a policy framework that will ensure that capital goes to sectors and areas that are important for medium- and long-term growth,” Singh said.
Strong inflows were a sign of confidence in emerging Asia. But foreign portfolio investments are mostly short-term placements, which may lead to volatility in exchange rates and buildup of inflationary pressures. It does not help much in the area of job generation.
The IMF said that if emerging markets were to firm up strategies to convert the inflows into long-term investments, then economies in Asia would greatly benefit more from these funds.
The institution recognizes efforts of some governments, like that of the Philippines, to promote partnerships between the state and the public sector for implementing infrastructure projects.
Also, financial markets, which are swimming in liquidity, may be tapped to fund such efforts, he said.
Governments or private entities are encouraged to tap the highly liquid financial markets by issuing bonds and using the proceeds to fund key infrastructure projects.
Singh said public-private partnerships for infrastructure projects should be intensified since this would be the best way to maximize the economic benefits of liquidity.
The Philippines last year launched its Public-Private Partnership (PPP) program, under which the government would invite private firms to invest in priority infrastructure projects.
Until last month, when Europe’s debt woes took a turn for the worse, inflows of foreign portfolio investments to Asia had been on the rise.
In the case of the Philippines, “hot money” registered a net inflow of $3.1 billion from January to August this year, up by 230 percent from the $926 million reported in the same period last year.
But in September, net inflows amounted to $150 million, declining by nearly 70 percent from the $494 million seen in the same month last year.
The reversal was attributed to the prolonged crisis in the eurozone, which spooked investors.
