MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has identified four countervailing forces that would help the Philippines survive the weak global demand amid the fragile economic growth in advanced economies led by the US as well as the sovereign debt crisis in Europe.
BSP Governor Amando Tetangco Jr. said the country’s strong external payments position, resilient banking system, demographic dividends, and manageable inflation would serve as countervailing forces to offset weak global demand.
“The country enjoys three... no, four factors that have become countervailing forces to offset the slack in external demand that we now face (because of the volatile global market),” Tetangco stressed.
He pointed out that the favorable external sector dynamics would continue to be a source of strength for the Philippine economy.
He said sustained foreign exchange inflows, including remittances of overseas Filipinos and earnings from the business process outsourcing (BPO) sector have provided the BSP the opportunity to build up its international reserves.
Once the revitalized tourism program of the national government goes into full swing, Tetangco said the country’s external liquidity position would improve even more.
“This will further enhance the country’s self-insurance. The BSP maintains a policy of a market-determined exchange rate, with scope for official action only against excessive rate movements. With the varying effects of exchange rate movements on different economic sectors, this policy has proven to be most equitable and efficient for the overall economy,” he said.
The BSP sees the country’s gross international reserves (GIR) - the sum of all foreign exchange flowing into the country - hitting a new all time high of $79 billion this year from $75.3 billion last year. It also expects the balance of payments (BOP) surplus stabilizing at $2.8 billion this year from $10.9 billion last year. The BOP position refers to the difference of foreign exchange inflows and outflows on a particular period and represents the country’s transactions with the rest of the world.
The BSP chief also cited the country’s banking system that continued to remained stable amid the mounting challenges posed by the current global economic conditions.
“The reforms - which were instituted well ahead of this crisis — paved the way for banks to enhance their risk management systems, adopt international accounting standards and improve transparency and disclosure to clients. These have, in turn, promoted well-capitalized, better-governed, and ... profitable banks,” Tetangco said.
He pointed out that the bank regulator does not foresee a significant adverse impact on banks even if the BSP announced an accelerated adoption of higher capital requirement under the Basel 3 framework starting January 2014 as the industry’s capital adequacy ratio (CAR) stood at 17 percent way above the BSP treshhold of 10 percent and the international standard of eight percent.
He also noted the country’s demographic dividends and domestic consumption continued to be fuelled by strong remittances from Filipinos working abroad.
‘We have a vibrant, young, skilled, ready-to-consume population. The country’s domestic consumption has certainly continued to buoy our economic growth. Consumption has also remained to be underpinned by strong remittances from overseas Filipinos and receipts from the BPO sector,” he added.
According to him, the country’s inflation remained manageable and is expected to fall within the mid-point of the BSP target of three percent to five percent this year and next year.
Monetary policy has certainly been successful in providing just the right amount of domestic liquidity.. to fund the productive sectors of the economy. This favorable inflation outlook has allowed BSP to accommodate economic growth, without fuelling an asset price bubble,” Tetangco stressed.
The BSP’s Monetary Board has so far slashed interest rates by 50 basis points this year due to benign inflation outlook and slower than expected global economic growth. The 25 basis point reduction last January 19 followed by another 25 basis point cut last March 1 brought the overnight borrowing rate back to a record low of four percent and the overnight lending rate at six percent.
The Cabinet-level Development Budget Coordination Committee (DBCC) sees the country’s gross domestic product (GDP) growing between five percent and six percent this year after slackening to 3.7 percent last year from 7.6 percent in 2010 due to weak global trade and cautious spending by the Aquino government.
“Given all these factors, I believe there is basis for continued optimism on the country’s growth prospects,” the BSPchief said. - By Lawrence Agcaoili