MANILA, Philippines - The net inflow of foreign portfolio investments, known as hot money, plunged 94 percent in the second week of October amid the sovereign debt crisis in Europe and the economic uncertainly in the US, the Bangko Sentral ng Pilipinas (BSP) reported over the weekend.
Data from the central bank showed a net inflow of foreign portfolio investments of $10.74 million from Oct. 10-14 or $161.99 million lower than the net inflow of $161.99 million in the same period last year.
Gross inflow of “hot or speculative” money fell 45.7 percent to $174.15 million in the second week of October from $329.92 million in the same period last year while outflow increased 10.2 percent to $163.41 million from $148.18 million.
However, the net inflow of foreign portfolio investments jumped 126 percent to $3.207 billion from January to September from $1.42 billion booked in the same period last year despite the slowdown in the amount of capital that flowed into the country last September. Gross hot money inflow surged 84 percent to $13.223 billion in the first nine months of the year from $7.189 billion in the same period last year while outflow expanded at a slower pace of 73.6 percent to $10.015 billion from $5.769 billion.
For the month of September alone, the BSP said net inflow plunged 69.7 percent to $149.68 million from $494.05 million in the same month last year. Gross inflow retreated 2.4 percent to $1.388 billion in September from $1.422 billion in the same month last year while outflow surged 33.4 percent to $1.238 billion from $928.62 million.
Monetary authorities said the easing external payments position of the Philippines over the past few months was only temporary and would recover in the coming months on the back of the country’s sound macroeconomic fundamentals.
BSP Governor Amando M. Tetangco Jr. earlier said the flow of funds into emerging market economies including the Philippines has been affected by the risk contagion from the fragile global economic environment as well as the sovereign debt crisis in Europe.
“There may be some rebalancing of investor portfolio positions going forward due to uncertainties in the global arena but structural flows, I believe, will continue to be supported by our own domestic fundamentals,” Tetangco stressed.
Latest data showed that the country’s gross international reserves (GIR) retreated for the first time in 19 months to reach $75.639 billion in September or $301 million lower than the revised record level of $75.94 billion booked in August on the back of the revaluation losses of the gold holdings of the central bank as well as the payment of foreign loans by the National Government.
The GIR is the sum of all foreign exchange flowing into the country. The BSP originally saw the GIR hitting a new record level of between $63 billion and $64 billion but was later revised to range of $68 billion and $70 billion and finally to $75 billion. The country’s foreign exchange reserves surged 41 percent to a record $62.37 billion last year from $44.24 billion in 2009.
On the other hand, the country’s balance of payments (BOP) surplus grew 51 percent to $9.721 billion in the first nine months of the year from $6.443 billion despite a sharp decline last month due to the reversal of foreign capital inflow. The BOP surplus contracted to $719 million in September from a surplus of $3.062 billion in the same month last year.
The BOP refers to the difference of foreign exchange inflow and outflow on a particular period and represents the country’s transactions with the rest of the world.
Originally, the BSP sees the country’s BOP position posting a surplus of $6.7 billion this year and $4.4 billion next year. Last year, the BOP posted a record surplus of $14.4 billion on the back of strong remittances of overseas Filipinos, high earnings of the business process outsourcing (BPO) sector, sustained export growth as well as surging foreign capital flows.
As early as August, the BOP target of $6.7 billion set by the BSP was breached due to strong foreign capital flows to emerging market economies, including the Philippines.
“We are still running way ahead of our current projections,” Tetangco explained.
Furthermore, Tetangco added that the “three-pronged” agreement reached by European leaders to help Greece put its national finances in order and prevent the region’s huge debt crisis from spreading to larger eurozone economies, including Italy, would calm the volatile global market and boost investors’ confidence.
“We are nevertheless hopeful the measures would be sufficient, at least, in shoring up confidence and calm in the markets,” Tetangco stressed.
Last Wednesday in Brussels, eurozone leaders agreed to raise the main euro bailout fund known as the European Financial Stability Facility (EFSF) to one trillion euros from the current 440 billion euros while private banks holding Greek debt accepted a 50 percent loss.
Furthermore, an agreement on bank recapitalization was reached wherein banks would now be required to raise about 106 billion euros in new capital by June 2012.
BSP officials said the country’s strong external payments position continued to provide the Philippines with comfortable buffers against possible external shocks and helped ensure its external debt sustainability.
Last June 23, the Philippines received another credit rating upgrade from London-based Fitch Ratings that raised the sovereign rating to ‘BB+’ or a notch below investment grade on the back of the country’s strong economic growth, improving fiscal position as well as robust external payments position. - By Lawrence Agcaoili
