Finance, Technology and Macroeconomics

Philippine Financial Account 2007

General Comments

(1) We generally agree with the conclusion of the paper that the country’s international investment position has improved since 2001 due to strong foreign exchange (FX) inflows and improved macroeconomic fundamentals.

(2) The comparison among emerging market economies (EMEs) is a fruitful exercise and provides an overall picture of the country’s relation with respect to other economies. However, the paper fails to provide a more graphic representation of this comparison and does not establish a benchmark where Philippines’ position may be assessed relative to others.

(3) The paper lacks extensive analysis of the country’s low level of foreign direct investments (FDIs) and the policy implications, through rational, does not stem from the description of the country’s financial structure.

Specific Comments

(4) We propose the following revision to first bullet of page 1: “Net foreign direct investment (FDI) flows, which had been slow in previous years, have turned strongly positive since 2005.” We find that the term “very weak” needs a basis for comparison.

(5) On second paragraph of page 5, we request that the paper cites the sources that argued for the relatively small need to attract foreign capital in the Philippines.

(6) We suggest the revision of the last paragraph of page 6 to include efforts that have been made to reverse the slump in investment, such as the implementation of Medium Term Public Investment Program (MTPIP), which guides public sector resource allocation and pipelines public sector programs and projects for official development assistance (ODA), private sector participation and other finance sourcing.

For its part, the BSP continues to foster stable macroeconomic environment by keeping inflation in check and the public’s inflation expectations well-anchored. On the external front, BSP policies have always geared toward: (a) ensuring sustainability of the country’s external debt; (b) maintaining an essentially market-determined exchange rate with scope for occasional official action to smoothen sharp movements in the rate; (c) maintaining a comfortable level of reserves; and (d) further improving the foreign exchange environment through FX deregulation.

The BSP also remains committed to the strengthening the banking system through continued structural reforms and speedier disposition of non-performing assets. The asset clean-up of banks has intended to help spur credit and investments, and contribute in providing the basis for more sustainable economic activity in the medium term.

To further develop the domestic capital market, the BSP continues to work actively with other government agencies and the private sector for the completion of critical market infrastructure to enhance system integrity and overall market confidence.

(7) On the first paragraph of page 8, we suggest the provision of a more detailed discussion on the standards of EMEs to which the paper claims that the Philippines falls short of. In particular, we strongly recommend the identification of the indicators and the benchmarks established on governance, property rights, cost of doing business, competitive market environment and freedom of entry.

On its specific suggestion regarding FDI, we wish to clarify that competition policies are in place, which have been effective in important sectors, such as banking, telecommunications and retail trade.
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Most of the comments were provided by Ms Tets. I just substantiated No. 6 but this provides a good framework in reviewing papers.

posted by JD @ 10:46 AM 1 comments

Comments on IMF's Access Policy

Review of Access Policy in the Credit Tranches and Under the Extended Fund Facility and the Poverty Reduction and Growth Facility, and Exceptional Access Policy

Background: In exceptional circumstances, a member's access could exceed the above credit tranche/EFF or overall GRA limits. The exceptional access apply in such cases.

Do the Directors consider the existing structure of annual and cumulative access limits in the credit tranches and the under the EFF, as well as the global limit on overall access to GRA resources provides an appropriate dividing line between normal and exceptional access?

Wala namang problema dito. Ang problema eh granting exceptional access between capital account and non-capital account cases.

We recognize the importance of flexibility in decision-making especially for unique circumstances. We are of the view, however, that existing structure may still need to come up with a clearer dividing line, which may be in the form of general principles, such as providing exceptional access to limit the contagion effect of a potential or actual crisis situation. In view thereof, we suggest that the paper provides a brief description of the bases on granting exceptional access in the past, which may serve as a starting point in developing a criteria in providing exceptional access.

Do Directors agree that the access ceilings and the delining access norms in the PRGF cases remain important to ensure the efficient use of the limited PRGF resources and should continue to be applied?

We agree that access ceilings and declining access norms remain important. We cannot rule out the possibility that the availability of IMF funding promotes investor confidence on member economies. As long as the international financial markets are assured that member economies have liquidity support facilities then we expect robust global economic activity.

posted by JD @ 9:31 PM 0 comments