Investments considered missing link in Phl growth story

MANILA, Philippines - The Philippines will need more investments if it is to sustain last year’s growth momentum and avoid capital inflow risks, something the Aquino administration vowed to pursue together with the private sector, officials said.

Potential investors were invited Tesday to pour in money to the Philippines, which saw its growth rate accelerate to above-target 6.6 percent last year from the average of 4.5 percent over the past decade.

“The investments that you will bring into our country will redound to tens of thousands of jobs for our countrymen—men and women who will be able to put food on their tables, send their children to school, and meet the needs and wants of their families,” President Aquino said at the Philippines Investment Forum.

“Together, we will be empowering them: giving them greater power to contribute to economic growth and opportunities to uplift their lives and even the lives of their fellow Filipinos,” he added.

Investments accounted for two percent of gross domestic product (GDP) last year, Finance Secretary Cesar Purisima said, adding that the goal is to increase this to six percent by 2016.

This should bode well with the Bangko Sentral ng Pilipinas’ (BSP) job in managing capital inflows, which otherwise could prompt financial excesses that could damage the economy, Governor Amando Tetangco Jr. said.

The private sector, which was equally optimistic on the economy’s prospects, said much is needed to be done to make the country investment-led and deepen the capital markets.

For one, more foreigners should be attracted to pour in capital to the country even as the foreign direct investments (FDI) reached a five-year high of $2.033 billion last year.

“I like to see investment-to-GDP to rise. One of the factors that held back the Philippines according to credit raters is that investment to GDP is too low, FDI is still low relative to other BB+ countries,” said Matt Hildebrandt, chief Philippine economist at JP Morgan Bank.

The Philippines, rated BB+ by Fitch Ratings and Standard & Poor’s Ratings Services, is targeting investment-grade status this year. That could be achieved, Lena Teoh of Credit Suisse said, but reforms should be undertaken.

Entrepreneurship should be promoted, she said, and the government must be able to identify sectors and industries that could be “liberalized.”

Manuel V. Pangilinan, chief executive officer of First Pacific Co. Ltd., agreed, saying “with liquidity flushing through the system, you need to open vents in the economy.”

“The more investments there are, the better,” he added.

Currently, investments have been channeled mainly to local financial markets driving the Philippine Stock Exchange (PSE) index to 84 record highs since July 2010. Locals continue to outnumber foreign bourse investors, PSE president Hans Sicat said.

“If we reach investment grade, there will be additional pool of funds that will be unleashed in the country,” Sicat explained.

As for the bond market, Jose Emmanuel Hilado, senior vice president at Rizal Commercial Banking Corp. said rates could get lower as “central banks [are]  bringing down the rates globally.”

Foreign inflow threats

However, more foreign inflows may not be entirely good news. Among other challenges, Hilado said further strengthening of the peso could persist. A strong peso trims the value of export and remittance earnings, among others.

Asset bubbles could not also be discounted, although Sicat said the PSE in particular is still a safe investment destination. “We have good valuations now,” he said.

Tetangco said the BSP will remain watchful of developments, particularly in equity and real estate prices, to ensure financial stability.

“The BSP therefore is attentive to pressure points that could impact on price stability and financial stability,” he said.

“The challenge is to keep the momentum of possible change strong.”