By Butch Fernandez & Genivi Factao
Malacañang, citing the country’s “stable macroeconomic fundamentals,” on Tuesday voiced confidence the Philippines can ride out the European Union (EU) imbroglio ensuing from a financial crisis that may compel Greece to drop out from the bloc.
At a Palace briefing on Tuesday, Communications Secretary Herminio B. Coloma Jr. assured that the instability gripping Europe is not likely to have serious adverse effects on the Philippine economy.
“According to Finance Secretary Cesar V. Purisima, the Philippines is in a much stronger position now to face the volatility that may result from ‘Grexit,’” Coloma told Palace reporters, referring to the possible exit of Greece from the EU.
Coloma noted that “reserves are at historic highs; our external debt are long-dated and now down to 15 percent of GDP [gross domestic product].” He added: “Our current account has been in a surplus for 13 straight years. Our banks are better capitalized, and the economy is more diversified than ever.”
Given its stable macroeconomic fundamentals, Coloma assured the Philippine economy is now much stronger and could withstand potential shocks.
The Palace’s view was echoed by Asia United Bank Vice President for Fixed Income Desk/ Treasury Group Aldwin Christian Ang.
Ang said that, given the country’s relatively limited exposure in Greece, they don’t think the Greek crisis will be an issue for the Philippines.
“As a trade partner, definitely no. If you look at Greece and its relationship to Europe and its relationship to the rest of world, Greece is a small country. It does not export that much. Much of its economy is driven by tourism. We don’t think that there’s going to be an issue,” he told the BusinessMirror.
“The only issue that we are actually wary of, and that’s why we don’t have a lot of exposure to Greece and we don’t have a lot of exposure in the euro zone, is the secondary-derivative impacts of those,” he said. If one bank that may have an exposure there will have a problem, basically the financial system freezes up. Because of regulations, the global investment banks are limited in terms of taking on risk.
“From the treasury perspective, from the buying and selling of investment securities—the liquidity isn’t there anymore. It’s not as liquid as before; that’s the problem. There’s abrupt shock and impact on asset prices, but, in terms of fundamental impact of Greece [on the Philippines], we don’t think so,” he said.
Bank of the Philippine Islands CFO and Head of Enterprise Services Group Joseph Gotuaco said in an earlier interview that the Greece default could affect the sentiment of foreign investor toward the Philippines. He said they worry a bit because Greece’s impending default may impact on the appetite of foreign investors to invest in emerging markets.
“If Greece has an ugly default, it will tar countries like us. Investors might say I don’t want to go to emerging markets anymore. But the Philippines will do well, even if worse happens in Greece. I think the Philippine growth story is very strong; the remittance will not stop; and business- process outsourcing is doing well,” he added.
Economic analyst and Political Science professor at De La Salle University Richard Heydarian said any impact of the Greece crisis on the Philippines will be secondary, since the country has relatively limited economic linkages with the European nation.
“An impending Greek default or total euro exit, a prospect that is seen as increasingly likely, will send shock waves throughout capital markets and may significantly impact larger economies in Europe, particularly Italy, as well as have other derivative deleterious effect on major economies in North America and Asia, which have robust linkages with the Philippines,” he told the BusinessMirror.
“It remains to be seen how far Brussels and Germany will go to avoid a ‘Grexit,’ but global stock markets are already showing reversals, while desperate measures, such as capital controls, are being imposed on Greece to avoid a rundown on its financial markets. The situation is dire, and could get even more dramatic if the ongoing brinkmanship between Athens and euro-zone countries and Troika continues,” he added.
US stocks dropped sharply on Monday and global markets plummeted even more as the crisis between Greece and its euro-zone creditors edged toward a financial cliff for the nation.
Major US indexes lost more than 2 percent, and European markets fell more than 3 percent, as investors shifted into safer assets, mainly US and German bonds, until the Greek debt drama resolves itself with a default, a deal or an extension.
Without an extension, the Greek government is expected to default on a $1.8-billion payment on Tuesday on its bailout from European creditors and the International Monetary Fund.
(With MCT)