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BANGKO
Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco
Jr. ruled out Thursday the adoption of capital controls
as tools to curb sharp movements in the exchange rate
and moderate the strength of the peso.
He also
ruled out heavy BSP participation in the
foreign-exchange market to blunt the still-strengthening
peso, saying such would complicate monetary policy.
Tetangco
bared these views in a question-and-answer (Q&A)
document that his research staff subsequently posted on
the BSP web site.
The BSP
Q&A represents Tetangco’s latest effort at explaining
technical monetary-policy crafting in a language that a
reasonably educated person may understand.
The
document was also released against a background of
public pressure for the BSP to help ease the plight of
exporters and of millions of overseas Filipinos and
their families who now have to contend with a weak US
dollar.
Exporters have grown used to exchanging a US dollar for
P55 for a long time and have been complaining as the
peso steadily strengthened to around P40.60 a dollar.
The
peso’s near-term outlook was at a rate as strong as P37
a US dollar.
In
rejecting capital controls, Tetangco said data show
exports and remittances, rather than foreign capital,
make up the bulk of the foreign inflows.
Restricting the flow of foreign capital, therefore, “may
not effectively curb the peso appreciation,” he said.
“Furthermore, use of controls involves administrative
costs and has been shown to be ineffective in the long
run as ways to avoid them are found,” Tetangco said.
Frequent
and heavy BSP intervention was also ruled out.
“Heavy
intervention cannot be sustained for a long time because
it could create problems for monetary policy.
“If the
BSP continues to buy large amounts of dollars, it will
have to siphon off the equivalent amount of peso it has
released in the market to keep inflation stable. This
cannot be done without incurring massive costs.
“On the
other hand, not siphoning off the pesos used to buy the
dollars may lead to excessive money in circulation and
fuel inflation,” Tetangco said.
The
Philippine peso appreciated by 18.8 percent in 2007, the
second-highest appreciation among countries in
Southeast Asia, and continues to appreciate at present.
Its
strength was traced to favorable investor sentiment
fueled, in turn, by the economy’s strong macroeconomic
performance, strong output of 7.3 percent for 2007, low
inflation, lower-than-program budget deficit and
sustained overseas remittances, among others.
This
developed as the independent think tank Ibon Foundation
Inc. urged the government to impose capital controls on
the peso, such as restrictions on outflows of foreign
exchange particularly the dollar, to help ease the
worsening poverty situation in the country.
In a
statement, Ibon research head Jose Enriquez Africa said
the poverty situation has worsened due to increasing
prices and falling incomes of many Filipinos.
Ibon
said the mitigating measures would immediately benefit
millions of overseas Filipino workers (OFWs) and their
families in the country and give the quickest relief to
the greatest number of Filipinos.
Africa
said that more than nine million Filipinos are working
abroad as of the end of 2007 and there are more than 1.5
million Filipino families who consider remittances as
their main source of income. He added that the income of
the average one-OFW household was effectively reduced by
P11,300 last year.
“Capital
controls on portfolio investments will immediately stem
the severe appreciation of the peso by keeping dollars
in the local economy, and could even help restore lost
incomes,” said
Africa.
Africa
explained that one of the reasons for the peso
strengthening is the rapid increase in net
foreign-portfolio investments, which, for instance, rose
by a very large 77 percent to $3.7 billion in
January-November 2007 from the same period the year
before. |
