Forex rules eased further

Posted on September 07, 2011

THE BANGKO Sentral ng Pilipinas (BSP) yesterday said it will allow companies with unregistered loans to buy dollars from banks, in another move to stem the peso’s appreciation amid expectations of continued heavy capital inflows.

The central bank also raised its outlook for its gross international reserves (GIR), which hit $71 billion in July, due to these inflows.

“For a certain period, we will allow companies and entities with foreign loans that are unregistered to buy dollars to service their loans,” BSP Governor Amando M. Tetangco, Jr. told reporters yesterday.

“This will increase the demand for dollars,” he said, adding this will ease pressure on the peso.

The move is also “part of the response to strong capital inflows.”

At present, foreign or foreign currency-denominated borrowings must be approved by and registered with the central bank.

Government borrowings must have prior approval, while those of private firms must be approved and registered.

This is to allow the BSP to monitor the size of the country’s foreign obligations and keep debt servicing costs manageable.

For private firms, approval and registration are required if the loans are guaranteed by the public sector or covered by foreign exchange guarantees issued by authorized agent banks.

Another condition is if the loans will be serviced with foreign exchange to be purchased from these banks or these banks’ forex units, or obtained by non-bank financial institutions for the purpose of relending.

“Even if they did not register, they will be allowed to buy dollars because the present regulation says you have to register before you have to buy dollars,” Mr. Tetangco said.

The plan will be implemented next year and for a limited period. Mr. Tetangco stressed the dollar purchases should be used to pay for existing dollar-denominated debts.

At present, Mr. Tetangco said those with unregistered foreign loans buy dollars from the “parallel market” or the black market.

The peso, even if it slid to P42.285 per dollar yesterday, has remained strong as it opened at the P44-per-dollar level at the start of the year.

Exporters have complained, while shipments have slowed due to declining orders from abroad.

Capital inflows, meanwhile, have been strong this year, as emerging markets have attracted investments seeking yields.

Foreign portfolio investments -- also known as “hot money” for the ease with which they enter and exit the economy -- hit $2.832 billion as of Aug. 12, more than four times the $715.97 million as of Aug. 13 last year.

The central bank has been unwilling to impose capital controls, choosing instead to make it easier to buy dollars.

In October of last year, the BSP approved new rules that made it easier to take dollars abroad.

Among others, it increased the limit of over-the-counter foreign exchange purchases by residents to $60,000 from $30,000 at authorized agent banks and foreign exchange corporations.

It also raised the pesos departing tourists or balikbayans may convert back to dollars to $5,000 from $200 without need to show proof they sold dollars for pesos.

With capital inflows expected to remain heavy in the coming months, Mr. Tetangco said the BSP now expects the GIR to rise to $74-75 billion this year.

The central bank originally forecast $70 billion but this was breached two months ago.

Mr. Tetangco said the balance of payments (BoP) surplus could be higher than expected as “the first semester [figures] were already big.”

The country recorded a $6.3-billion BoP surplus as of July, up by 82% compared to last year. This was also around 94% of the full-year estimate of $6.7 billion.

The central bank attributed the high surplus to inflows from remittances, exports and tourist receipts and investments. -- N. J. C. Morales