Foreign capital inflows drastically slow down


Even the once above-the-fray central monetary authority we call the Bangko Sentral ng Pilipinas, it seems, has joined the panicky efforts of President Aquino’s propagandists to reverse his image as a failed president.

It issued a few days ago a press release that was dutifully parroted by an uncritical media: “Foreign Direct Investments Post 55 Percent Increase in November 2013; January – November Level Up by 37 Percent.”

The reality: Foreign equity going into the country contracted by nearly half, from $1,252 million in the first 11 months of 2012 to just $665 million in the comparable period last year.

According to BSP data itself, the flow of the so-called “hot money” or “portfolio investments,” mostly in the stock market, has reversed: withdrawals of funds in December was $354 million more than the amount coming in. Last month, the amount was a staggering $1.1 billion.

For its PR offensive to help Aquino, the BSP exploited its adoption of the International Monetary Fund’s so-called Balance of Payments Manual Sixth Edition (BPM6) in its recent “praise-Aquino” release. BPM6 expanded the items that would be included in the category of foreign direct investments in the country’s balance-of-payments accounting.

The new BPM6 manual allowed the inclusion of certain other loans extended by a foreign company to its local affiliates as part of “foreign direct investments.”

However, what is suspicious in the BSP’s foreign direct investment report for 2013 (January to November) is that the amount of such “debt instruments” is huge, at $2.3 billion, more than triple the $665 million foreign equity inflows. (See table below).

And he’s wondering why unemployment has gotten worse.

And he’s wondering why unemployment has gotten worse.

Such other foreign loans that were classified as part of “foreign direct investments” never breached the $400 million level, and were even negative values, meaning net repayments of debts. Last year for instance this item included as “foreign investments” was even a negative $215 million.

But how could foreign companies’ loans to their affiliates balloon from a negative $215 million level in 2012 to $2.3 billion in 2013? It would if the BSP thought this is a clever way of padding foreign investment inflows. And unlike the other components of the BSP’s data on foreign investments, it claimed that “country breakdown statistics are not available” for such “other capital”.

Most probably foreign companies’ existing advances to their subsidiaries and affiliates that were extended even years ago were reclassified by the BSP as “foreign direct investments”. Voila! The BSP crows that the foreign investment “inflows remained robust on the back of sustained investor confidence in the growth prospects of the economy.”

Reflecting Aquino’s political rise and fall, foreign investments into the country surged from $511 million in 2011, or his first full year in office, to $1.3 billion, to decline to $665 million last year. (I use here the stricter yet more commonsensical notion of investments as “equity capital” which excludes foreign companies profits still unremitted abroad and their debts to other foreign entities.)

It is unlikely to bounce back this year, not only because foreign investors’ governments have either become disappointed over Aquino’s incompetence in economic management, or just plainly detest him—as in the case of China and Hong Kong as well as Belgium.

Global funds have started to go back home to the US from the higher-yielding emerging markets they have exploited since 2009. The US shift in monetary policies have started attracting higher yields since last year. There has been in fact a net withdrawal of US capital from the Philippines of $675 million from January to November 2013, compared to the huge $745 million American investments here in the same period in 2012.

What saved us from a foreign-investment collapse has been Japan, whose investments overseas—quite lucky for Aquino and us—have surged since 2011. This has been due to several factors working in combination: the strengthening of yen after the collapse of the biggest US investment banks in 2009, Prime Minister Shinzo Abe’s economic stimulus efforts, and Japan’s unattractive demographics.

From a low of just $70 million in 2012 (January to November) Japan’s direct investments here have surged to $495 million last year. However, this is just a drop in the $9 billion bucket of Japanese capital that has moved into Southeast Asia in the same period.

On the whole, Aquino’s record in attracting foreign capital pales in comparison with that of his predecessor, Gloria Macapagal-Arroyo. Average annual foreign capital inflow under Aquino’s watch totaled only $683 million; it was nearly double that under Arroyo, $1,111.

Foreign capital inflow reflects domestic capital inflow. It is both domestic and foreign capital that create businesses and factories that create jobs.

And it’s a puzzle to him that unemployment in our country has risen?
www.rigobertotiglao and


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  1. Invesments will be slow to come due to heavy traffic,goverment red tape,corruption and most of all the constitution needs to be ammended…and one last thing this government is known not to honor contracts entered into by the previous administration

  2. @JT:

    Agreed 100%, we need to get rid of corrupt officials. How about the corruptors, via PDAF and DAP, of already corrupt officials, or honest officials (if there ever was such a thing in our benighted country)? We need to remove our blinders and take a critical look at the current set of officials we have. Get rid of the illusion that Ninoy, Cory and Pnoy, not to forget the whole Aquino-Cojuangco clan, are God’s heaven-send to the Philippines and worthy of sainthood. Get real!!! Likewise, governing a country when armed only with good intentions, in the case of Cory, has gotten us nowhere but from the frying pan and into the raging fire.

    We need to amend Ciry’s Constitution and change our form of government from our present presidential system to a parliamentary form of government. Six years for an incompetent and/or corrupt president is way too much. Have mercy on our people. In the same manner as six years for an honest and capable president would be too short.

  3. Raymond Stenhouse on

    Who would invest in a country that has so much corruption and whose officials plunders the profit. If foreigners come into the country they are called and treated as Aliens.

  4. Let us face the fact no foriegn investor will invest in a factory or industry where the cost of electric power is one of the highest in Asia. The growth rate should be measure in the annual growth of power consumption we consume annually. There are no factories in these whole world that does consume power to produce goods for the market.

  5. Felix Servidad on

    Pnoy government boasts of 7.2%growth of the economy but cannot produce enough jobs for the people, some experts says in Korea and in Japan 7percent growth of the economy = 7 million jobs, in the Philippines 7.2%growth of the economy could not even produced a million jobs, perhaps it’s time for Pnoy to get serious otherwise when his term is over he will be remembered the worst president in Philippine history.

  6. Mr. Tiglao. First of all I am an OFW for the last 30 years and no affiliation to any of the political parties like yourself or by accused and accuser in the pork barrel scam. The investment inflows and outflows is expected to happen. I would not immediately conclude that outflow of investment is bad. The reason could be either there are developing countries that have better investment climate and investors closed to previous government divertine their investments. The bigger picture is the government of PNoy is trying to clean up corruption in our government. I am glad that for a long time we have a leader who is bent in putting high officials found corrupt in court or even in jail. Naturally there are those who have been affected or disgruntled and will say anything bad to the current leaders of the government. There is definitely intervention from above to get rid of corruption in our country. With the help of our Almighty “Luy, Tuazon and possibly Gigi Reyes will put things right. Furthermore, if you’re a military strategist, you would not allow PH to weaken. Hence, Obama is coming to our country primarily to show support to our government, to beef up our security and help our economy grow tenfold. Does this makes sense? We can all talk about inflow and outflow of investments but we need to get our house in order by getting rid of corrupt officials.