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