Athens’ move seen to ease volatility in financial markets

FINANCIAL markets may experience an episode of calm in the coming months after Greece’s decision to make a payment to the International Monetary Fund (IMF) as part of efforts to keep its economy afloat, easing global jitters over the fate of the euro.

The decision helped Greece win emergency funds from banks as Athens faced the prospect of running out of money. For emerging markets, the development should help ease volatile financial conditions, local officials said.

“Monetary authorities, including in the Philippines, can better concentrate on factors affecting inflation other than volatility in financial markets,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said.

In an e-mail to reporters, Tetangco said the improvement of Greece’s economy would be “overall positive” for the rest of the world, which should accelerate the normalization of monetary policies.

Last week, Greece made a 450-million euro payment to the IMF, reassuring markets of the troubled economy’s commitment to fend off an exit from the euro area.

Senior officials in Athens also emphasized that the government would push through with the privatization of assets, among other reforms, to give the Greek government fiscal stability.

BSP’s Tetangco said the stability of the global economy would help keep financial market spikes in check.

“For emerging market economies, this can mean enhanced stability in capital flows as one element of uncertainty is peeled away,” Tetangco said.

One of the key challenges the BSP has faced in past months was divergence in monetary policies among advanced economies, which are recovering from the 2008 Financial Crisis at an uneven pace.

For instance, Europe, still struggling with high debt levels, continues to ease monetary settings by pumping fresh cash into markets. Japan has also embarked on a massive quantitative easing campaign to combat deflation that has plagued its economy for decades.

In the meantime, the US economy’s recovery has gained traction in the past year, allowing the Federal Reserve to stop its monthly bond-buying program last October. The US Fed is also expected to start hiking interest rates this year, likely as early as June.

This divergence has caused imbalances in the flow of investor funds, with volatility spilling over into emerging markets like the Philippines. The flow of money in and out of the Philippines has significant implications on the domestic economy.

Excess cash from overseas makes the peso stronger, which hurts local exporters that earn in dollar. Capital outflows that weaken the local currency, meanwhile, makes imported goods such as food and fuel, and debt payments more expensive for companies that earn in peso.