Last week, the Bangko Sentral ng Pilipinas (BSP) disclosed that foreign portfolio investments to the Philippines or “hot money” posted a net outflow of $1.84 billion in January, the biggest monthly net outflow based on available data since 1999.
Data from the BSP showed that January’s overall net outflows are more than five times the $354 million recorded the previous months, and a sharp reversal from the $1.3-billion net inflow a year ago.
This is not a good sign.
On top of that, registered investments for January reached $1.28 billion, which is only 4.2 percent higher compared to the $1.23-billion inflows in December 2013. The BSP also admitted that registered investments recorded a decline of 54.5 percent from the $2.81-billion inflows a year ago.
This is also not a good sign.
The latest BSP hot money figures shos that the latest tapering move of the United States Federal Reserve cannot be discounted. And how many times have we heard BSP officials discount the latest moves of the central bank of the world’s largest economy?
In December last year, the US Fed cut its bond buying program by $10 billion to $75 billion starting in January. The US central bank further reduced its bond buying by another $10 billion to $65 billion a month starting this month.
With these development, fears of hot foreign money gradually or suddenly exiting emerging markets like the Philippines is likely to happen. And the latest BSP data on portfolio foreign investments is one sign that this is starting to happen.
So does that mean that the party is over, particularly for the Philippine stock market and the property boom that was partly funded by cheap sources of credit before the two latest tapering moves of the US Federal Reserve?
If that is so, then the Aquino administration had better rethink its current economic policy, which may have little to do in so far as establishing a firmer economic base for the Philippines is concerned.
In the past two years, the Aquino administration’s management of the economy got good grades from credit rating agencies, and various institutions. The property boom and a bullish stock market made the Aquino administration somehow feel confident that it was doing right in so far as the economy was concerned.
But the country still needed to attract more foreign direct investments on the same level as Singapore, Vietnam, Malaysia, and Indonesia. Also, power rates remained among the highest in the world, and smuggling remains rampant, which continue to hurt local industries and small Filipino farmers.
Besides these, the country from the onset of the Aquino administration did not act early enough to put into place a road map for the country’s industrialization.
However, the worst sign of a flawed or non-existent economic policy is the country’s ranks of unemployed that remain big. Last week, a Social Weather Stations survey showed that the country’s unemployed swelled to around 12 million in the last quarter of 2013.
With the Aquino administration having little more than two years left before the ends of its term, things can still be done to put real economic growth into place. Among those that can be done are: monitoring closely developments on the property sector to make sure that there would be no future oversupply or glut, and if there is a future glut, the BSP can start tightening lending to the sector; finish all road maps for industrialization, with emphasis on attracting more foreign investments into the Philippines; intensify anti-smuggling campaigns; continuing to support the country’s farming sector with more investments in irrigation, research and development, mechanization, and training on the latest technology; and reducing further bureaucratic red tape on the registration of both local and foreign business undertakings.
More importantly, the Aquino administration should take steps to further reduce power rates in the country.
So far, the administration should be lauded for increasing spending on infrastructure, and continuing with its “good governance” initiatives.
But what it needs to do is to establish a firmer economic base for the country, so the Philippine economy need not rely largely on hot money to prop up growth.