Greek default a risk to peso, markets

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Greece is not a major trading partner of the Philippines, but local economic managers are urged to prepare to adjust policies for whatever little impact may come from a Greek default on the local currency and equity markets.

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Fallout from the crisis has been weighing on Philippine Stock Exchange (PSE) prices over the past few months, especially the last few weeks, and the peso is expected to get hit next.

“We’ve been seeing the impact of worries about a Greek default over the past few months… on markets [worldwide],” said Astro del Castillo, managing director of First Grade Finance Inc., pointing to investor reaction to the Greek debt crisis as the driver of the local stock market’s descent to the 7,500-7,400-point level from the 8,000 territory. “Investors are wary about what could happen next.”

Victor Abola, economist at the University of Asia and the Pacific (UA&P), warned that a default by Greece is expected to strengthen the US dollar as the euro weakens.

Abola believes, as most local economists do, that the Philippine economy remains sound, largely supported by Filipino overseas workers’ remittances. But he said the government must be ready to meet a possible increase in demand for cash or US dollars, although the amount is not likely to be significant.

“The peso will also weaken, though not by much really – say, to P45.50 – P46.00 [from the present P45.09]. But that’s good for us because of OFW [overseas Filipino workers]remittances and exports, which will boost growth,” he said.

Earlier, the Bangko Sentral ng Pilipinas (BSP) warned that a default by Greece on its obligations months tend to have serious repercussions on financial markets, but stressed that the Philippine economy is robust enough at this point to fend off the impact of market volatilities.

Del Castillo also shares the view that given its track record through previous global crises, the Philippine economy looks prepared to handle the impact of a Greek default.

“We’ve seen how the market perform during the past crises. We were able to surpass them. I think we’re equipped,” he said, but he added: “Of course we should also be prepared to make adjustments for the potential economic repercussions of [a Greek default’s]impact on the financial markets. We have to be vigilant.”

Abola does not expect to see fallout from a Greek default in the same magnitude as that of the Lehman Brothers during the last global financial crisis, agreeing with the central bank that the country’s external accounts and economic fundamentals are strong enough.

“This default will not be like the Lehman Bros.’ closure because most of Greece’s debt is to the Euro governments. So a banking crisis is not likely to occur even in the eurozone,” he said.
Brink of default

Greece is teetering on the brink of a default that could see it crash out of the euro before a key debt deadline was due to expire on Tuesday, as the Greek prime minister warned Athens’s coffers were empty.

Talks between Greece’s left­wing government and its creditors – the “troika” of the European Union, European Central Bank and International Monetary Fund (IMF) – fell apart last week after Prime Minister Alexis Tsipras said any deal would be put to a referendum.

Tsipras sought to calm nerves on Monday by leaving the door open to talks, saying the July 5 plebiscite on the creditors’ latest cash­for­reform plans would leave the country “better armed” in the fight for a debt deal.

But the premier also made clear Greece would be unable to make the €1.5 billion ($1.7 billion) payment due to the International Monetary Fund on Tuesday, the same day its international bailout program expires.

Greece’s imminent default takes the country and the rest of the eurozone into uncharted territory.

Standard & Poor’s rating agency downgraded Greece’s credit rating deeper into junk territory, saying the referendum brought it closer to default.

Fitch also cut its ratings on four major Greek banks to “restricted default” on Monday after the government ordered commercial banks closed for a week and established capital controls.

WITH AFP

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