Archive for November 2010

Debt watch Europe

November 23, 2010

The Irish government finally accepted the $109 to $123 billion bail-out fund from the IMF and the European Union. In exchange, the Irish government will have to swallow several harsh policies like drastic cut in spending, which adversely affects its welfare system.

The new financial turmoil in Europe has not yet reached a global pandemic stage like what happened in 2008-2009 that started in the US housing market and banks. But the global economic uncertainties are already there. While the Greece crisis has already mellowed, two other European countries, Spain and Portugal, are being watched, also because of their alarming level of public debt, high unemployment, and anemic economic growth.

The Philippine government and Philippine-based corporations and households should always remember that debt dependence is not a good policy. It is better to keep their debts to the minimum, so that when global credits would squeeze later on, there would be smaller financial squeeze to worry.


High RP Forex reserves

November 18, 2010

The Governor of the Bangko Sentral ng Pilipinas (BSP), Armando Tetangco, predicted that end-2010 gross international reserves (GIR) might reach $60 B, an all time high. Actual GIR as of end-October 2010 already reached $56.8 B.

There are various factors why the country’s foreign exchange (forex) reserves have been accelerating recently. One is the high inflows from OFWs’ remittances. Two, high inflow of portfolio investments (or “hot money”) in the stockmarket and related equity investments. The economic uncertainties in the US and Europe help push some investments out of those economies. Three is the rebound of exports earnings plus increasing earnings of business process outsourcing (BPO) firms.

With high GIR, the BSP and the Executive branch should consider retiring more public foreign debt to reduce interest payment burden, the single biggest item in the annual budget of the national government.

Debt watch: Ireland

November 17, 2010

Just a few months ago, the world’s attention were on Greece, then Portugal and Spain, because of their impending debt and fiscal crisis, coupled with high unemployment. Now, the world’s attention for debt watch is still on Europe, Ireland especially.

These developments abroad have impact on the Philippine economy, positively and negatively. Positively because some capital and businesses that are retreating from the adversely affected economies would be coming here, even temporarily. But negatively because business uncertainty in one continent would create a ripple uncertainty in other continents.

Meanwhile, China’s economy remain hot and humming, there is threat of high inflation as more income in the hands of average Chinese households would be seeking more goods and services to buy. The Chinese government is set to raise interest rates, which will have some negative message to business and investment there.

Asia-Pacific FTA

November 15, 2010

A Free Trade Area of Asia-Pacific (FTAAP) will be pursued, one of the results of Asia Pacific Economic Cooperation (APEC) summit meeting in Japan over the weekend.

The FTA will include the ASEAN member-countries plus China, Japan, S. Korea, India, Australia and New Zealand. The related news report is here.

Free trade benefits people. Exporters will have a wider potential market while importers and consumers will have a wider choice of suppliers from many countries at low or zero import tax. While there are some losers, their number is few compared to the gainers. And losses are often short-term while benefits are long-term.

Big inflows of portfolio investments

November 12, 2010

The Bangko Sentral ng PIlipinas (BSP) reported that net inflows (inflows minus outflows) of portfolio investments or “hot money” in the first 10 months of this year has reached $2.46 B, or 7x larger than same period last year’s level of only $358 million. See news report here.

This is good news for the country. While some sectors consider hot money as bad because of the high fluctuation in capital that they cause (they come in and out easily, causing sometimes major financial tremor), it should be taken positively.

They come in because some local companies want them here. Some local companies prefer to raise funds via portfolio investments than borrowing from banks for whatever reasons. That option should be made easily for them.

Besides, there are plenty of fiscal and corporate uncertainties in many rich countries in the world now. Like the endless threat of debt crisis in some European countries like Greece, Spain, Portugal and Ireland.

Local companies and the Philippine government should work more on improving the overall business environment, on stabilizing a level playing field for various players and businesses.

OFW remittances to hit $21 B in 2010?

November 10, 2010

The WB recently produced its “Migration and Remittances Factbook 2011” and it projected that remittances for overseas Filipino workers (OFWs) might reach $21.3 B this year. This was reported in this news story.

The world’s top remittances destination country in 2010 will be:

1. India, $55 billion

2. China, $51 billion

3. Mexico, $22.6 billion

4. Philippines, $21.3 billion

This projection of OFW remittances looks too big. Total remittances last year was only $17.35 B. Is it possible to have such a big jump of $4 B to reach $21.3 B this year? Looks too far out.

Nonetheless, OFW remittances will remain a major foreign exchange earner for the country and the family members of the workers abroad. This trend is not going to reverse anytime soon, unless government will impose new regulations that will discourage the outflow of more Filipinos seeking better opportunities abroad.

Gold at $1,400 an ounce

November 9, 2010

There is a growing inverse relationship between the US dollar and other major world currencies, and gold and other precious commodities. Gold has touched the $1,400 an ounce barrier. Silver and other commodities are on the upswing too.

More investors are realizing that the price of gold is not subject to certain intervention by governments, that the world monetary system many decades ago was based on the gold standard. As more global economic uncertainties surface, mainly coming from actual and potential fiscal crisis by many governments with huge public debt, many investors are parking their money in gold and similar commodities.