The Market Monitor Minding the Nation's Business
By Luis Leoncio
Despite growing external risks and the troubling statements of President Duterte, the country’s “underlying growth story remains intact,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said in a recent speech before the Tuesday Club of journalists at the Edsa Shangri-La.
“We hope that you who actually write the news and determine what gets printed and talked about will help us put this story front and center,” he added.
Investors should focus on the Duterte administration’s actions rather than Mr. Duterte’s statements. Tetangco said. “What is important is for one to be able to discern between what is noise and what is fact.”
Tetangco said Mr. Duterte’s dramatic foreign-policy upheaval had been misunderstood. Duterte’s intent, he said, was to support the economy by diversifying trade and investment partners, rather than shut the door on longtime
ally the United States, with which ties would only expand. “What they call (a) pivot to China does not necessarily mean we are pivoting away from the US,” he said, adding it was “not a zero-sum game.”
Tetangco, who is bowing out as BSP governor at the end of his second term in July, said the current administration has committed not only to pursue the reforms it is embarking but also to continue with the policies and reforms that had been put in place by the previous administration.
So this really suggests that there will be a continuity,” Tetangco said. “The decibel level may have risen but if you look at the facts, the economy is still doing very well.”
Mr. Duterte’s trademark outbursts have become worrisome among some investors, particularly those from the United States. He has told American firms unhappy with his anti-US remarks to pack their bags, and said he wanted US troops out of the Philippines for good. Tetangco also described 2016 as full of “tail events” or “fat tails,” which he described as a situation wherein “the bell curve (which is normally nicely shaped) is skewed.” “This indicates that events, which are normally “rare”, occur with more frequency,” he said.
“What is quite remarkable is this – despite all the tail events, the Philippines economy continued to perform well in 2016.” Tetangco said despite negative external developments, the domestic economy posted the highest expansion print in the region in the third quarter of 2016, with a 7.1 percent growth, as measured by gross domestic product (GDP). Inflation, or rate of price increases, remains low, with the 2016 average at 1.8 percent, below the government’s 2- to 4-percent target.
The banking system remains sound and stable and players are still very liquid, profitable and enjoy strong balance sheets.
The country’s external payment position remains robust, with foreign reserves hitting $81.05 billion as of end-December 2016.
Tetangco said these factors enabled the country to remain resilient, due mainly to reforms implemented in the past years such as the increase in the value-added tax (VAT) to 12 percent, the positive demographics, and independence of the BSP in crafting policies. ”We are, therefore, entering 2017 with solid buffers.
And we certainly need these, given the risk that we anticipate going forward,” he said.
This year, risks include the financial market volatility because of “many second-round implications,” he said, referring to the decisions of the US Federal Reserve, a synchronous policy in advance economies, oil prices developments, and populism and multilateralism polcies in the US and Europe.
Tetangco pointed out that “the operating environment has, indeed, become more difficult.” “Noise and global economic developments are creating financial-market volatility, which is complicating policy formulation and implementation. Nevertheless, our underlying growth story remains intact, and the support of economic policies continues to be strong as well,” he said. On interest rates, Tetangco said adjustments could be made, if needed, but there was sufficient space both on the monetary and fiscal side. The government, he said, could ramp up spending, particularly on infrastructure, for which the Philippines had “a lot to catch up on.” The BSP has maintained its monetary policy since it raised rates by 25 basis points in September 2014.