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THE International Monetary Fund (IMF) said emerging markets should
reduce their dependence on external funding to lessen their
vulnerability to the ongoing US sub prime mortgage crisis.
In its Global Financial Stability report, the
world’s so-called “lender of last resort” said emerging
markets so far have been broadly resilient, except for those that
depend on external funding sources.
“External corporate debt ha[s] felt the impact
of the turbulence in advanced countries and costs of funding have
risen. [F]urther shocks to investors’ risk appetite for emerging
market assets cannot be ruled out if financial conditions worsen,”
the report said.
Considered an emerging market, the Philippines
has reduced its dependence on foreign borrowings since last year as
the government opted to source from the domestic market to slow down
the peso’s rapid appreciation and help preserve the earnings of
overseas Filipino workers (OFW) and exporters.
Asia’s best performing currency last year, the
peso’s recent strength has been anchored on strong dollar inflows,
primarily OFW remittances and foreign investments in the local stock
market and other peso-denominated financial assets.
This year, the government cut its commercial
foreign borrowing to $1 billion, and has asked foreign donors to
lend the country in pesos.
As for the private sector, the Bangko Sentral ng
Pilipinas last year said credit debt obligation exposure of local
banks amount to less than 0.2 percent of their combined assets.
The IMF said some emerging markets remain
vulnerable to credit pullback, especially in those cases where
domestic credit growth has been fueled by external funding sources,
and where large current account deficits require financing.
The report estimates that falling US housing
prices and rising delinquencies on mortgage payments could lead to
aggregate losses related to residential mortgage market and related
securities of about $565 billion, including the expected
deterioration of loans.
The IMF said central banks should strengthen
their role in credit discipline and improve their instruments for
relieving liquidity stress.
“The immediate priority facing policymakers in
some mature market countries is to address the vulnerabilities to
systemic instability in ways that minimize both moral hazard and
potential fiscal costs,” the lender said.
-- Maricel E. Burgonio
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