THE BANGKO Sentral ng Pilipinas (Central bank of the Philippines) expects foreign direct investments to soon match inflows of ?hot money? inflows, saying that the country?s improving macroeconomic fundamentals have spurred investors? risk appetite.

?There has been a general improvement in confidence. We could see an increase in FDIs, especially with the projected acceleration of economic growth,? BSP Governor Amando Tetangco Jr. said.

Tetangco described the economy, which grew by a surprising 7.9 percent in the first half, to be in a ?virtuous cycle,? where better macroeconomic fundamentals attract investments which, in turn, further boosts growth.

He said this in reaction to observations that rising foreign capital inflows to the Philippines are largely portfolio investments, most of which are short-term funds.

According to analysts, the longer term FDIs are more crucial to a country?s economic development than the inflow of hot money, which are usually short term.

While rising foreign capital inflow may benefit the economy, it also presents risks, such as currency volatility, analysts said. And unlike FDIs, portfolio investments have no bearing on the economy as a whole because the funds are quickly and easily withdrawn.

Concerns have also been raised over the substantial rise in hot money, which may lead to asset price bubbles.

But the BSP had already downplayed the threat of price bubbles, explaining that the increase in Philippine property prices remained benign, slower even than that of other countries.

Tetangco said the share of FDIs to total inflows of foreign capital to the Philippines could become more significant in the months ahead, especially with the government?s aggressive promotion of its public-private partnership (PPP) program.

Data from the central bank showed that foreign portfolio investments into the country registered a net inflow of $701 million in the first seven months of the year?up 160 percent from $265 million in the same period last year.

Also, in the first five months of the year, FDIs reached a net inflow of $446 million?down 68 percent from $1.39 billion in the same period last year.