Surge in foreign investments may hurt PH – Barclays

Christian B. Bautista
The British bank says high foreign inflows will cause the peso to appreciate

DOUBLE-EDGED. Foreign investments may strain the country's current account balance. Photo from AFP

MANILA, Philippines – A surge in foreign investments would drive long-term growth, but it may also hurt the economy, according to British bank Barclays.

In a report entitled “Double-edged Foreign Inflows,” Barclays said higher levels of foreign investments may “create additional appreciation pressure” on the peso, which, if not closely watched, may affect the country’s economic growth. 

“Foreign investment is likely to flow into countries with high historical returns on capital. Balance of payments data can help identify countries with particularly high returns on foreign investments in bonds and equities, and on foreign direct investment. We find returns on foreign investments have been high in Malaysia, the Philippines, Thailand and Indonesia, which bodes well for future inflows,” the report read.

“These (foreign investment) flows are perhaps unwanted as they create additional appreciation pressure… Currencies in Malaysia, the Philippines and China with high (past) returns for foreign investors and current account surpluses are likely to experience appreciation pressures.”

In an earlier interview with Rappler, Socioeconomic Planning Secretary Arsenio Balisacan said a strong peso is “threatening to erode our competitiveness.” A strong peso is said to pose a “serious threat” to OFW remittances and the outsourcing and export sectors.

To help counter the bad effects of currency appreciation, the British bank urged the Bangko Sentral ng Pilipinas to increase returns on foreign assets through the diversification of foreign reserves.

“We think the Philippines, India, Indonesia and Thailand may increase exposure to higher-yielding or strong-growth emerging markets in order to increase their historically low returns on foreign assets,” the report read.

“Given a relatively low external financing need, countries such as the Philippines, Malaysia, China and Thailand could benefit from diversification of their foreign reserves and boost the returns on their foreign assets.”

The country’s foreign direct investment inflows stood at P2.033 billion in 2012, up 10% from P1.852 billion in 2011. –