Gov’t should not worry about ‘hot money’—WB

MANILA, Philippines—The World Bank said the Philippines should refrain from worrying about rising foreign portfolio investments, which are usually short-term and speculative in nature, stressing it should instead be bothered by its failure to transform hot money into long-term investments.

Ivailo Izvorksi, one of the bank’s lead economists, said the Philippines remained a laggard among developing Asian nations as far as job-generating investments by foreigners was concerned.

He said the amount of foreign investments that generated jobs and that flowed into the Philippines was anemic and comparable only to those going to low-income countries.

“The challenge for the Philippines is to translate these inflows into long-term investments,” Izvorksi said in a video press conference last week on its latest assessment of Asia-Pacific economies.

In 2010, foreign portfolio investments to emerging Asian economies, including the Philippines, surged to record highs.

In the case of the Philippines, net inflow of foreign hot money exceeded $4 billion, or more than 12 times the $388 million registered the previous year.

Analysts said this was partly due to the robust economic performance of the Asia-Pacific region, which grew much faster than the average growth for industrialized countries.

The significant increase in hot money inflows elicited concerns among Asian policymakers as the foreign portfolio investments pushed the values of Asian currencies against the US dollar, a development they said could eventually cause a decline in Asian exports to Western economies.

Monetary officials were also concerned that the short-term and speculative investments could cause asset prices to bubble.

But while some developing Asian countries saw an increase in inflows of foreign hot money, they likewise witnessed an increase in inflows of foreign direct investments, which were seen to generate more jobs and boost economic growth.

The situation of the Philippines was rather different, however, as the country saw foreign direct investments shrinking last year amid a surge in hot money inflows.

Foreign direct investments amounted to $1.71 billion last year, down 13 percent from $1.96 billion the previous year.

Izvorski said the Philippines should take advantage of the increase in inflows of foreign hot money by implementing measures that could encourage fund owners to transform their money into long-term and job-generating investments.

He said concerns over the potentially ill-effects of a surge in hot money inflows should be replaced by efforts to make the funds work for the Philippine economy.