Investors holding back till Duterte’s economic program begins


More indications of so much money flooding the country’s financial system have been emerging.

What is disturbing are signs that although recent official data points to a fairly robust Philippine economy, with businesses earning profits, the earnings are not being reinvested into expanded or new business activities, or even into short-term investment in stocks.

On Wednesday, the Bangko Sentral ng Pilipinas announced it would again raise the amount of its Term Deposit Facility offer – a program the central bank uses to absorb excess money from the country’s financial system – from P80 billion to P100 billion for the auction scheduled for October 5.

Banks and other financial institutions deposit their excess holdings in the TDF, and have a choice of a seven-day or 28-day deposit term, at which point they can retrieve the funds, earning a bit of interest in the process.

When the TDF was begun in June, the volume offer – the total amount of deposits the BSP would accept – was P10 billion for the seven-day and P20 billion for the 28-day tenor. Since then, the BSP has raised the volume offer for the 28-day tenor three times, and is now doing it again, for a total of four increases in just four months.

The central bank said demand for the TDF has been growing. In the latest auction on Wednesday, for example, the P90 billion total volume offered attracted more than P180 billion in subscriptions. Most of the tenders in recent auctions were getting rejected. The central bank’s steady raising of the TDF volume indicates that it is struggling a bit to mop up the extra money in the financial system.

While all this, even in its simplest possible explanation, sounds very technical, it has some very down-to-earth implications.

First of all, the central bank has to ensure that the amount of liquidity, or money, in the financial system is just right – too much would lower the value of the peso, making imports expensive, and cause higher inflation, while too little would harm exporters, and slow business spending for expansion of production and wages.

The reason there is so much money flooding the financial system is that the economy is in fairly robust shape, and businesses are earning profits. What they are not doing, however, at least not at a rate that moderates the growth of excess liquidity without BSP intervention, is reinvesting those earnings into expanded or new business activities, or even into short-term investments in stocks or fixed-income securities. The money is simply being parked in company accounts and reflected in banks’ ever-expanding deposit holdings.

According to several analysts, the reason this is happening is abundantly clear. While would-be investors are optimistic about the economic program described by the Duterte administration, they are not at all anxious to actually make investments until they see the tangible implementation of the program – particularly the expansion of infrastructure development, but also expanded government spending in housing, health, and social programs, initiatives to build the country’s industrial base, and expand and upgrade agriculture, among other things.

The “wait-and-see” posture by investors has been the rule for most of this year; they waited first to see how the election would turn out, and are now waiting to see what the new administration will do. That is understandable, and is not cause for alarm.

But the “honeymoon period” of the administration is nearing its end – October 8 marks 100 days in office for President Rodrigo Duterte – and everyone is expecting some substantial work to begin.

We hope that the President and his economic planners are prepared to do just that, mindful that the government needs to keep fueling the brisk economic momentum so far achieved as much as molding a politically stable and humane society, even while it proceeds with ridding the nation of drug crimes and corruption.


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