WASHINGTON—The Fed's eventual exit from easy-money policies will separate the emerging market wheat from the chaff.
One country that can handle the Fed exit is the Philippines, says the International Monetary Fund.
"When tapering does eventually begin, the Philippines' strong fundamentals…position the economy to adjust smoothly to the accompanying capital flow reversal and slowdown in regional growth," says Rachel van Elkan, the IMF's mission chief to the country.
Like many emerging markets, the Philippines took a hit earlier this year when Fed officials started talking about slowing down their large-scale asset purchases meant to spur the U.S. economy. Seeing a new interest-rate environment ahead in the U.S., investors pulled their capital out of emerging economies en masse, causing currency values to free fall and stock markets to plunge.
Although it has since somewhat recovered, the Philippines' peso depreciated 10% from early May to late August.
But Ms. van Elkan says the country's strong current account receipts, net creditor status, steady reductions in public debt and low foreign participation in government debt markets have helped insulate the economy against more capital flight. Manila's own Fed, Bangko Sentral ng Pilipinas, can also release funds from its Special Deposit Account to provide a cushion to growth, she said.
The fund expects the country's growth to only ease slightly next year, to 6% from its current rate of about 6.75% this year. Inflation isn't expected to be a problem, and the government's budget deficit is manageable.
In fact, Ms. van Elkin says risks to the country's growth are to upside.
"Absorbing the ample liquidity into productive sectors may prove challenging," she says, after an annual review of the country's economy. "Part of the liquidity could finance credit that is used to fuel demand for real estate, potentially with a strong procyclical effect on the economy," she added.
The Wall Street Journal
