IMF says investor confidence may wane

The International Monetary Fund (IMF) said that despite the improvement in investment prospects in newly industrializing economies, the rising uncertainty in Southeast Asia, including the Philippines would dampen investor confidence.

In its newly released Asia-Pacific Regional Economic Outlook, the IMF said investments have been generally rising after the slump that followed the Asian financial crisis as high corporate profits have allowed firms to expand their operations and take advantage of good economic conditions.

However, the IMF said macro and micro-economic uncertainty would dampen the flow of foreign direct investments into the country and the region in general.

Specifically in Southeast Asia, the IMF said investment was undermined initially by the uncertainty over recent increases in fuel prices and then by the subsequent inflation and rising interest rates.

"Inflation has risen to double-digit levels in the ASEAN-4 due to fuel price increases, but second-round effects so far have been modest," the IMF said.

Headline inflation was now at the 101Ú4 percent mark in the ASEAN-4 because of the 153Ú4 percent rate in Indonesia, but the IMF said inflation in the Philippines was also significant at 71Ú2 percent.

"Looking forward, average headline inflation in the ASEAN-4 is projected to come down to nine percent in 2006 as the effect of fuel price increases wanes," the IMF said. "However, much depends on the path of world oil prices, and on future decisions to reduce oil price subsidies."

Beyond concerns over rising oil prices, however, the IMF said the low levels of investments in the country and the region, could also be explained by perceptions of rising uncertainty due to factors such as governance and corruption.