ECONOMIC WARNING The European Central Bank's new chief Mario Draghi gives his first press conference at the ECB in Frankfurt/M., western Germany, on November 3, 2011. The 17-nation eurozone is back in deep crisis following the shock call by Greece for a national referendum on a debt rescue reached with huge difficulty only last week. BSP Governor Amando Tetangco Jr. warned that a prolonged crisis in the eurozone could cause another round of volatility in the financial markets and eventually drag economies including the Philippines. AFP PHOTO / DANIEL ROLAND
The Philippines and other emerging markets throughout Asia may not be spared from the impact of the severe debt problems now upsetting Europe, the Bangko Sentral ng Pilipinas warns.
BSP Governor Amando Tetangco Jr. said the prolonged crisis in the eurozone could cause another round of volatility in the financial markets worldwide and eventually drag economies across regions.
“The global economy is interconnected. Emerging market economies can be insulated, but we are not immune. It is, therefore, quite important that the eurozone economies cooperate toward a speedier and credible resolution to their problems,” Tetangco told reporters.
Although emerging markets in Asia continue to post decent growth rates—with demand in most countries remaining strong—economists said they would continue to decelerate should the crisis in the eurozone extend further.
The eurozone is one of the biggest markets of emerging economies like the Philippines. It is also host to a significant number of migrant Asian workers, including Filipinos.
Late last month, global markets welcomed the announcement in Europe that a set of crisis measures would soon be implemented to address the problems in the continent.
However, Greece’s decision to hold a referendum and let its people decide on whether the proposed debt-reduction measures for that country should be adopted had spooked global financial markets again.
Should the crisis in the eurozone remain unresolved, economists said export earnings and general appetite for investments would be reduced further.
This is the reason why measures to strengthen the domestic economy are necessary, the BSP said, noting that, in times of crisis, an individual economy would sink or float depending on its strength.
BSP officials said measures like accelerated government spending on infrastructure and social services would help temper the adverse effects of the turmoil on the Philippine economy.
They said measures to improve the investment climate—such as easing the requirements for setting up businesses—should be undertaken to attract businesses especially at the height of global uncertainty.
As for monetary policy, the BSP said key rates would be adjusted to support the requirements for economic growth.
The BSP is poised to keep interest rates at their current levels, which are deemed by markets to be relatively low, to encourage spending and support growth, Tetangco said.
Policy rates influence commercial interest rates. The BSP had raised the key rates twice this year by a total of 50 basis points to curb inflation.
The overnight borrowing and lending rates of the BSP are now at 4.5 and 6.5 percent, respectively.
Although inflationary pressures had waned, the BSP said it would still need to boost growth given the adverse effects of Europe’s problems on other economies.