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Fundamentals outweigh ‘noise’ -- BSP

Posted on October 10, 2016

THE PHILIPPINES’ “self-sustaining” growth should help fortify market confidence in its economy and calm investor jitters in the face of a volatile global environment and political “noise” at home, the chief of the Bangko Sentral ng Pilipinas (BSP) told peers gathered in Washington D.C. for the Oct. 7-9 International Monetary Fund (IMF)-World Bank annual Fall meetings.

“Because we are a small open economy and subject to shifts in global market sentiment, we have fortified our domestic sources of economic growth and built the necessary domestic institutions to help ensure that our good growth performance is self-sustaining,” BSP Governor Amando M. Tetangco, Jr. said in his speech, a copy of which was e-mailed to reporters last weekend.

The country’s robust growth momentum should give investors reason to remain confident at a time of uncertainty in global financial markets, rising geopolitical risks and some “noise” at home, Mr. Tetangco said.

Philippine gross domestic product (GDP) grew by 7% last quarter -- besting even China and second only to India among comparable Asian economies -- fueling last semester to grow 6.9%, just below the top end of a 6-7% official forecast for the entire 2016. The last two weeks have seen the IMF, World Bank and the Asian Development Bank pencil a 6.4% growth for the Philippines this year, while Socioeconomic Planning Secretary Ernesto M. Pernia reiterated on Thursday last week a 6.5% full-year projection which he first floated on June 21, nine days before President Rodrigo R. Duterte assumed office.

“It is easier said than done, but I believe the best tool to manage market sentiment is to anchor confidence on sound macroeconomic fundamentals,” Mr. Tetangco said in Washington D. C. late last week.

“Market sentiment is susceptible to irrational shifts and noises in the short run. But consistent and sustained sound macroeconomic fundamentals -- coupled with clear and timely communication -- will enable market players to eventually filter out noises and rationally align their expectations and sentiments.”

Mr. Tetangco’s remarks came as local financial markets have reeled from negative market sentiment, believed to be driven largely by external factors but aggravated by Mr. Duterte’s outbursts against key strategic trade and aid partners as well as a rising body count in the government’s fight against the narcotics trade.

Latest available BSP data show the weeks spanning Aug. 29 to Sept. 23 marking the longest stretch this year, so far, of net outflow of foreign portfolio funds amounting to some $790.06 million, as $1.871-billion total outflows offset $1.081-billion gross inflows.

The Philippine Stock Exchange Index has dropped 2.8% since the day before Mr. Duterte’s June 30 inauguration, the only decliner among major Asian gauges and trailing an 11% advance in the MSCI Emerging Markets Index. It’s the poorest showing for a new leader since stocks slumped 31% in 1998 in the first 14 weeks of the presidency of Joseph E. Estrada, the film actor turned politician who was impeached for corruption three years into his term.

Analysts partly attributed the weak financial markets to Mr. Duterte’s outbursts against the United States, the European Union and the United Nations and his oft-stated intention to move the country closer to China and Russia.

Central bank officials said the weaker performance of local markets was largely a reaction by foreign portfolio investors to a protracted guessing game on when the US Federal Reserve will again hike interest rates -- after doing so in December last year for the first time in nearly a decade -- causing emerging market currencies to depreciate against the dollar.

Global debt watcher S&P Global Ratings affirmed its investment grade rating for the Philippines last month, but flagged “rising uncertainties” in terms of policy predictability under Mr. Duterte.

Still, BSP’s Mr. Tetangco said the economy can well weather risks, backed by its solid fundamentals.

“We have also remained committed to economic reform. In other words, we have kept our ‘own house in order.’ We believe these initiatives have helped to anchor positive sentiment among both domestic and foreign investors,” Mr. Tetangco added.

In a separate speech during the IMF-World Bank Group meetings, Finance Secretary Carlos G. Dominguez III said the Philippines is poised to help fuel Asia’s economic expansion “in the next few years” on the back of investment-led growth and bigger public infrastructure spending while keeping “exemplary fiscal discipline.”

“As the mature industrial economies slow down, we intend to pick up the slack and contribute our fair share in driving growth for the global economy,” said Mr. Dominguez.

The Duterte government plans to spend more on infrastructure and social services in a bid to fuel economic growth by as much as 8% annually towards 2022, and at the same time trim poverty incidence to 17% by the time it steps down in the middle of that year from the 26.3% officially logged as of end-June 2015. -- Melissa Luz T. Lopez with input from Bloomberg