Regulator expects more ‘hot money’ to flow in

MANILA, Philippines—The Bangko Sentral ng Pilipinas expects more foreign “hot money” to flow back in starting March—a reversal of the trend reported in February.

According to BSP officials, the knee-jerk reaction to the potential default of Greece is beginning to wane and the market is now refocusing on the Philippines’ favorable macroeconomic fundamentals.

Also, the BSP’s move last week to further liberalize foreign exchange rules, particularly by making it easier for people to bring dollars out of the country, is an indication that the Philippines is confident it will not suffer from any serious capital flight, they added.

Consequently, the liberalization policy will reassure foreign portfolio investors about placing their money in the country.

“February was a time when concerns about the problem of Greece were at its peak. There were concerns that European banks may pull out funds [from emerging markets like the Philippines] and provide additional funding to Greece,” BSP Deputy Governor Diwa Guinigundo said.

But since Greece had met the requirements to secure another bailout fund this month, avoiding a potential default on its maturing obligations, market jitters had somewhat eased, brokers said.

Guinigundo said foreign fund owners are expected to refocus on fundamentals of an individual country, and he said the Philippines should again experience net inflows of foreign “hot money.”

The country’s economic managers often point to sustained economic growth, low inflation, declining debt burden and rising foreign exchange reserves.

“This month we are now again experiencing inflows. The best proof of this is what is happening in the equities market,” Guinigundo said, referring to the rise in the Philippine Stock Market Index this month.

In February, foreign portfolio investments taken out of the country exceeded the inflows, with the net outflow hitting $305 million. The amount was a reversal of the $586 million in net inflows registered in January.

Last week, the BSP announced it further relaxed foreign exchange rules. For instance, banks are no longer required to report portfolio outflows on a daily basis. Also, importers need not submit documentary requirements to the BSP for importation worth as much as $500,000. Previously, the ceiling was set at only $50,000.

BSP Governor Amando Tetangco Jr. said the liberalization is meant to ease trade.

“The liberalized environment is intended to streamline reportorial requirements to ease reporting burden, reduce paper requirements, and … help facilitate trade transactions,” Tetangco said.