MANILA, Philippines—The Bangko Sentral ng Pilipinas will keep a policy that is tolerant of the rising inflows of “hot money,” saying the volume of the mostly speculative foreign capital was far from worrisome.
BSP Governor Amando Tetangco Jr. said that while the amount of foreign portfolio investments continued to rise even after posting a record high last year, the increase remained within manageable levels.
“There will continue to be inflows, but the increase is expected to moderate [this year],” Tetangco told reporters Friday.
He made the statement amid the continuous rise in inflows of foreign portfolio investments to emerging markets, as historic low interest rates in the United States and the gradually rising interest rates in the developing world were encouraging yield-seeking investors to put their funds in countries like the Philippines.
According to data from the BSP, foreign portfolio investments in the Philippines registered a net inflow of $973 million in the first quarter, up by more than 150 percent from $385 million in the same period last year.
The data indicate a rising trend, as net inflow of foreign portfolio investments grew substantially last year. These amounted to $4.6 billion in 2010, up from a mere $388 million the previous year.
Although the rise in foreign portfolio investments is a testament of confidence in the short-term growth prospects of the country, too much of it could cause a substantial appreciation of the peso and asset price bubbles.
Moreover, foreign portfolio investments are not much of help to the economy as foreign direct investments (FDIs) are. Portfolio inflows—funds invested in stocks, bonds, and other easy-to-liquefy securities—do not help much in job creation.
BSP Deputy Governor Diwa Guinigundo said that at present, the imposition of controls to the entry of foreign portfolio investments was not in the list of policy options for the central bank. Instead, the BSP would continue to use conventional ways to avoid the ill-effects of a surge in hot money inflows.
These measures include the easing of rules governing the outflow of foreign exchange. In the past, the BSP implemented a series of measures that relaxed the rules and requirements on bringing dollars and foreign currencies out of the Philippines.
“Using conventional monetary tools would be sufficient to address the kind of magnitude that we see in terms of capital flows. We don’t see the need for capital controls,” Guinigundo said.
Guinigundo said the problem with the imposition of capital controls was that it could drive away substantial amounts of foreign investments, which he said was not the objective.
The challenge faced by policymakers in the Philippines is to create an environment that will encourage fund holders to convert their short-term investments into long-term and job-generating funds, economists said.
This is because while foreign portfolio investments are rising significantly, the inflow of the much-needed foreign direct investments, or FDIs, continue to be moderate.