By FIL C. SIONIL
Improving macroeconomic fundamentals combined by the unparalleled strength of dollar remittances from overseas Filipino workers (OFWs) is fuelling the appreciation of the peso against the US dollar, an ING Bank official said.
In a press conference, visiting ING Bank investment team head Rob Drijkoningen said the value of the peso now is a reflection of the "improving fundamentals" of the country, amidst a continuing cost-push inflationary threat.
He cited the surplus in the country’s current account position, a positive factor for the country compared to its peers in the emerging markets such as Argentina.
Drijkoningen believed that the regulators have successfully contained a spiralling inflation, despite its relatively high level, saying that "the degree (of threat) is not the same as before."
In fact, he opined that the monetary authorities have "flexibility" in "adjusting" the key interest rate policy should the pressures on inflation rate heightens.
However, Drijkoningen quickly pointed out that the Philippine authorities need to sustain its reform program, particularly on the fiscal front, to be able to progress economically as he foresees an upgrade in the credit rating three years from now, in 2009.
Though, the relative narrowing of the country’s budgetary deficit, he lamented "The Philippines still need to do its homework, a lot of more homeworks to do to attain the status of e.g. Korea and Taiwan (referring to the credit rating of these countries)."
Joel Kim, member of the ING investment team based in Hong Kong, expounded more on this, saying that the Philippine authorities must not waiver from the fiscal reform measures to bring the level of budgetary deficit and the country’s debt stock inorder to attract more foreign investors.
It was noted that the public debt as a percentage of gross domestic product remained relatively high at 83 percent versus the 60 percent of the European economies. Kim stressed that while "we see improvement in the fiscal front the sheer level of public debt" makes the country less attractive.
He believed the Philippines must "bring" the level down to a "more sustainable level," which is below 60 percent. "For as long as the Philippines is running a small deficit, its stock of debt is not shrinking. The Philippines has to reduce its stock of debt."
Other factors that has to be addressed by the authorities is corporate governance, deepening the capital market and further improvement in the banking sector, which continue to be saddled by non-performing assets.
Still and all, the ING Bank official acknowledged the progress of the Philippines in recent years, thus the reason for its overweight in external debt and neutral stance in local currency.
""The Philippines situation is a lot better right now," Kim said, adding, however, that the fiscal reform measures must proceed as planned.
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