Amid criticisms that the central bank was accumulating "too much reserves," monetary officials said that on the contrary, external liquidity would be the most effective shield against the shockwave that would result from another financial crisis.
The International Monetary Board (IMF) has been warning of another financial crisis arising from global current account imbalances and the Bangko Sentral ng Pilipinas (BSP) said over the weekend that policymakers needed to stay a step ahead of the global trend.
BSP Governor Amando M. Tetangco Jr. said that in the recent annual meeting of the IMF and the World Bank in Singapore, it was acknowledged that global imbalances needed to be addressed in a way that would bring about an "orderly and gradual adjustment."
"Joint cooperative efforts by major economies are needed in this regard," Tetangco said.
For the Philippines, Tetangco said the government would have to sustain its economic reform momentum to further improve its macro-economic performance.
"We need to continue and bolster our external liquidity position," Tetangco said.
At the moment, the country’s gross international reserves (GIR) is at a record high, reaching $21.427 billion as of end-August 2006, up by $153 million from the end-July 2006 level of $21.274 billion.
Although the reserves were primarily lifted by the dollar proceeds from the government’s foreign borrowing in January and July, central bank officials said the underlying strength was provided by steady dollar inflowsfrom overseas Filipino workers.
Aside from maintaining strong external position, Tetangco said the banking system also needed to complete its reform program to ultimately reduce the country’s vulnerability to external shocks.
The IMF is increasingly edgy over the global current account imbalances, particularly the imbalance between the US and the rest of the world that officials warned are not sustainable.
The IMF said the problem is global but had the potential to affect Asian countries profoundly.
According to the IMF, either a global downturn or financial market disruptions could affect Asian emerging markets "very seriously".
IMF managing director Rodrigo de Rato said there was an emerging consensus among policy makers on what should be done, but none has been reflected into action.
"Most policy markers agree that that is needed is fiscal adjustment and measures to stimulate private savings in the US, further exchange rate appreciation and measures to stimulate demand in some countries in emerging Asia," he said.