Thursday, 16 December 2010

$61-B GIR exceeds foreign debt

Business Mirror

THE country’s gross international reserves (GIR) reached a total $61.05 billion at end-November, the central bank reported on Wednesday. And, with the country’s foreign debt standing at only $55 billion as of latest count, this marks the first time the GIR would exceed debt levels.

The scenario was quietly predicted very early this year by Joey Concepcion III, chairman and chief executive officer at RFM Corp. On Wednesday, after the Bangko Sentral ng Pilipinas (BSP) report on the GIR data, he made another prediction: the foreign-exchange reserves will nearly double and hit $100 billion within two years.

That is something to watch out for, according to observers, and in Concepcion’s mind the $100-billion GIR level is not too far out of hand at all.

“At the current trend where you will count the direct foreign investments on the Private-Public Partnership [PPP] projects and other tourism-related projects, the $100-billion reserve in two years is achievable,” Concepcion said.

The PPP pertains to a massive, multiyear infrastructure buildup program seen to attract long-horizon investors whose funding requirements should help feed the continued flow of foreign capital into the country.

“This is probably the first time that our reserves have exceeded our external debt. The big jump in foreign-exchange [FX] reserves is mainly due to BSP’s decision to take delivery on maturing FX forward. In terms of reserves, we now rank higher than Argentina, Hungary, Canada, the UK, among others. Our reserve is 37.5 percent of GDP,” Concepcion said.

BSP Governor Amando M. Tetangco Jr. had reported the GIR was $4.1 billion higher in just one month to $61.05 billion at end-November, as a consequence of the merchandise exports, services receipts, overseas Filipino remittances, as well as investments.

The sharply higher GIR, which stood at only $45.45 billion at the start of the year, highlights the impact of massive flows of foreign capital seeking higher yields in emerging markets like the Philippines. While seemingly harmless for now, that is feared to come back and haunt the BSP regulators later when inflation begins to kick up.

To keep the local unit, the Philippine peso, from sharply appreciating, the BSP moderated the natural impulse to gain value by selling some of its dollar holdings, but in volumes too small to stem its steady appreciation.

The Philippine Dealing System has reported on the 5-percent year-to-date appreciation of the local currency, which averaged 10.1 centavos lower on Wednesday to only P43.938 per dollar.

“At the rate our central bank is defending the peso, they are flooding the system with a lot of pesos. Interest rates have to go down to the levels of 3 percent to stop the peso from appreciating. For the first time, I am seeing a 5-percent loan rate on one of my mortgages,” Concepcion said.

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