The Bangko Sentral ng Pilipinas (BSP) has expressed confidence that the Philippines would be spared from the flight of substantial capital away from emerging economies once the United States showed clearer signs of recovery.
BSP Governor Amando Tetangco Jr. said foreign portfolio investors were unlikely to dump all of their emerging-market assets just because of improving conditions in the world’s biggest economy. He said countries that have good fundamentals, including the Philippines, would remain attractive to foreign portfolio investors.
“Maybe there would be some outflow [of foreign funds], but that is not expected to be massive because the fundamentals of the Philippines continue to be sound and the country’s growth prospects remain favorable,” Tetangco told reporters Friday.
Speculations of capital flight away from emerging markets have increased following reports on improving economic indicators in the United States such as on employment and retail sales. It was also reported that the US Federal Reserve might soon reduce its stimulus program because of these improving indicators.
The idea that the Fed would end its stimulus program in the near future has prompted fund owners to buy dollar-denominated assets on Thursday. As a consequence, some emerging-market currencies, including the peso, registered a significant drop for a day. The local currency closed at 41.69 against the dollar on Thursday, down 51.5 centavos from the previous day’s finish of 41.175:$1.
Tetangco, however, said that what happened last Thursday was not expected to be a common occurrence even as the economy of the United States continued to improve. He said the Philippines would likely remain attractive, especially with the favorable growth outlook for the country.
After growing by 6.6 percent last year, the Philippine economy is expected by the government to grow between 6 and 7 percent this year.
The BSP earlier reported that the net inflow of foreign portfolio investments reached $1.13 billion in April, more than three times the $333.43 million in the same month last year. Cumulative net inflow for the first four months of the year amounted to $2.1 billion, three times the $766.18 million in the same period last year.
Monetary officials said rising foreign portfolio investments were welcome because these helped boost trading volumes in the country’s capital markets. However, they also said excessive amounts of portfolio funds posed risks of inflation and exchange-rate volatility.