IMF Says Philippines Insulated From Eventual Fed Exit; Only Risk is Upside Growth, Thanks to OFWs

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 

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Zamboanga attack as diversionary tactic for 'pork' scam? Two lawmakers think so

Government troopers continue their assault on Muslim rebels, Sept. 12, 2013, in Zamboanga city in the southern Philippines.

Two party-list lawmakers on Monday urged the government to monitor the activities of the people behind the alleged pork barrel scam, saying any one of them could be a financier of the rebel attack in Zamboanga City.

 

"We can say that the financier might come from the people involved in the PDAF (Priority Development Assistance Fund) scam," said Magdalo party-list Rep. Gary Alejano at a press conference.

 

"In my own opinion, the people involved in the PDAF scam will not take this issue sitting down. The government should consider counteractions and monitor the activities of the people involved," he added.

 

Citing unnamed sources, Alejano and fellow Magdalo party-list Rep. Francisco Ashley Acedillo said at least ₱40 million was poured to Moro National Liberation Front (MNLF) for the Zamboanga siege.

 

Over a hundred people, most of them MNLF rebels, were killed in the two-week-long crisis that started September 9 when MNLF rebels loyal to founding chairman Nur Misuari attacked several villages and held several civilians hostage.

 

The two lawmakers declined to identify their sources or give clues as to the identity of the alleged benefactor of the fund, saying the media might be able to quickly narrow down the list.

 

Acedillo said a suspect in the pork barrel scam may have seen an opportunity in Misauri's reported displeasure at being left out in peace negotiations to launch a diversionary tactic.

 

"I think they saw an opportunity here because between that and funding another group to destabilization group, this is more urgent and this presented a distinct opportunity for them," he said.

 

"What I've said is, without going to the extent of concluding a grand conspiracy, this was a clear opportunity for them," Acedillo added.

 

The Magdalo lawmakers, both of them former military officers, challenged the government to investigate any leads that may show somebody related to the PDAF scam orchestrating the Zamboanga crisis, noting that other individuals in the past have used similar diversionary tactics to confuse the public.

 

"This is a challenge for the government to investigate this. If you remember in the previous administration when they are big issues here in NCR [National Capital Region] there are diversion issues in other areas," said Alejano, who was part of the group of soldiers that rebelled against the Arroyo administration, without elaborating.

 

— Patricia Denise Chiu/KBK, GMA News

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