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NEWS UPDATES 27 July 2010

IMF sees hot money in the Philippines

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Foreign portfolio investment will continue to flow into the Philippines despite its significant external debt, an International Monetary Fund (IMF) official told the Manila Times.

“My sense is that overall mood on the Philippines is actually quite positive. I see buoyancy in the next six months. I see stable portfolio investments which will remain in surplus overall, driven by a variety of factors,” Vivek Arora, IMF mission chief, said.

Europe’s debt crisis will send investors flocking to emerging markets such as the Philippines, the IMF said.

Portfolio investments—also called hot money—registered a net outflow of $86 million in June, a reversal of the $178 million net inflow in May.

The Bangko Sentral ng Pilipinas (BSP) said this resulted from investor concerns on the euro zone’s problem, the negative outlook on the U.S. and China, compounded by the Philippines’ budget deficit.

“I don’t read that much into one-month data. The [Asia Pacific] region, not only the Philippines, during the last six months has been affected by the crisis in Europe,” Arora said.

Standard and Poor’s earlier said the Philippines is less vulnerable to Europe’s debt problems since the large share of Manila’s foreign-currency-denominated bonds were in the hands of local investors, and a small share of peso-denominated bonds were held by nonresidents.

The international credit rating firm said the Philippines’ external liquidity was supported by more than $15 billion in annual overseas Filipino worker remittance inflows, which helped boost the country’s dollar reserves.

Preliminary data from the BSP showed that the country’s gross international reserves rose to $48.4 billion at end-June, or $7 million higher than the end-May level of $47.7 billion.

Monetary authorities project the GIR to go beyond their upper-end forecast of $50 billion.

The BSP holds international reserves for the foreign exchange requirements of the country in case the domestic commercial banks’ supply of the greenback falls short of demand. An ample GIR level helps prop up the peso and keep domestic inflation at bay.

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