THE Philippines has developed to a point where
externally driven shocks, like the ongoing global downturn, no longer
render the economy vulnerable to foreign-capital outflows, economist and
Monetary Board member Felipe Medalla told thrift bank executives on
Tuesday.
He told the Chamber
of Thrift Banks the economy has amassed a wealth of resources—some $80
billion worth at present—which has helped insulate the country from some
of the nastiest ill effects of the sovereign debt and financial crisis
in Europe and the low growth prospects of the US, which is still the
country’s largest trading partner.
“We
are practically invulnerable to capital flow reversals,” Medalla, who
once served as socioeconomic planning secretary and director general of
the National Economic and Development Authority, said.
This
particularly pertains to gross international reserves of $80 billion at
present or enough resources to cover a year’s worth of goods imports or
pay for services and income.
The
increase in foreign-currency reserves run parallel to such improvements
as the rising level of gross savings and gross capital formation in
recent years, Medalla said.
These
developments, taken together with billions of dollars worth of
foreign-currency earnings of some 8 million overseas Filipinos, allowed
the economy to post 10 consecutive years of current-account surplus in
the balance of payments.
“This
helped raise our gross international reserves, making our external
balance virtually invulnerable to global shocks like the collapse of the
Lehman Brothers,” he said.
Until
it closed shop in late 2008, Lehman Brothers was the fourth-largest
investment banking outfit in the US recognized for the key role it
played in the unraveling of the global economy.
“In short, we don’t need foreign funds,” Medalla said.
Nevertheless,
Medalla said the Bangko Sentral ng Pilipinas, to which he is part of
the seven-man policy-making Monetary Board, is forced to buy some of the
yield-seeking dollars coming into the country to help temper the value
of the local currency, the peso.
“If
we didn’t buy all those foreign exchange, the peso would have
appreciated and that would be bad for Filipinos. This is more preventive
than anything. In addition, the reserves are a form of insurance,” he
said.
He gave
assurance the release of local currency with each purchase of dollars
should not kick inflation higher in the coming months as these have been
“sterilized” with the artful use of special deposit accounts (SDA).
Medalla
said some P227 billion worth of liquidity entering the system was
effectively siphoned off and shunted during a 30-day period ending on
August 3 this year.
As
a result, the SDA facility has now attracted P1.79 trillion worth of
funds that would have expanded money supply and contribute to inflation
conflagration, Medalla said.
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