The shutting down of the United States government would spark global and domestic financial market volatility, the Bangko Sentral ng Pilipinas (BSP) said on Tuesday.
“The immediate impact would be on global and domestic financial market volatility, as investors may move away from risk assets to traditional safe haven assets,” BSP Governor Amando Tetangco Jr. said.
The United States federal government shut down for the first time in 17 years on Tuesday, as Congress failed to end a bitter budget row after hours of dizzying brinkmanship.
The White House budget office issued an order for many government departments to start closing down, triggering 800,000 furloughs of federal workers.
On a day of dysfunction and ugly rhetoric in the divided US political system, Republicans had repeatedly tied new government funding to attempts to defund, delay or dismantle President Barack Obama’s signature health care law.
But each time their efforts was killed by Obama’s allies in the Democratic-led Senate, leaving the government in limbo when its money ran out at the end of the fiscal year at midnight Monday.
“The markets will watch the speed and form of the resolution. The domestic economy has sources of resilience owing to the buffers we have built,” Tetangco said.
The BSP governor also assured the public that the country’s central monetary authority will continue to watch how the developments in the US will pan out.
“We will, as is our policy, maintain a presence in the markets if the domestic market reaction leads to excessive volatility,” he said.
Meanwhile, the Department of Finance sees the shutdown as “unfortunate” event for the Philippines and other countries.
“This is highly unfortunate for the rest of the world, as even countries like the Philippines are taken on a wild economic ride because of the political game of chicken in Washington,” Finance Secretary Cesar Purisima said.
He added that “the US enjoys a level of global political power as the world’s largest economy and the holder of the global reserve currency, but I hope that the political leadership in Washington also recognizes their global responsibility, as their domestic disputes now carry ramifications across the world.”
Despite the situation, Purisima noted that the Philippines enjoys a strong fiscal position, a structural current account surplus economy whose growth is led by consumption, and a young, educated population, that will allow the country to ride out the situation better than other emerging markets.
“However, what is more worrisome to the Philippines is if the US political stalemate cause America to default on its debt by failing to pass a measure on the debt ceiling. A US default, unimaginable for most of history yet now in the realm of the possible because of current political circumstances, can only lead to unprecedented chaos in the global financial markets,” he said.
Mayvelin U. Caraballo With AFP