BSP SAYS NO TO FOREX INFLOW RESTRICTIONS
MANILA, OCTOBER 15, 2007 (STAR) By Des Ferriols - The Bangko Sentral ng Pilipinas (BSP) said it would not impose restrictions on foreign inflows to reduce the adverse impact on domestic liquidity.
BSP Governor Amando M. Tetangco Jr. said over the weekend that rather than imposing restrictions, the BSP would instead implement further liberalization to ease both inflow and outflow of foreign exchange.
The dramatic increase in foreign exchange inflows in the form of investments and remittances have led to a surge in domestic liquidity and the rapid appreciation of the peso against the dollar.
But Tetangco said the negative impact of inflows would not be helped by imposing restrictions which would only create distortions in the financial market.
“We are looking at reforms on both the current and capital accounts now and we are considering further liberalization,” Tetangco said.
According to Tetangco, the details of the second “set” of foreign exchange liberalization measures are being discussed but the ultimate is to improve the functions of the foreign exchange market.
“We want to make our rules more supportive of an expanding economy that has global linkages,” Tetangco said.
Tetangco said that at the moment, the impact of strong foreign exchange inflows is being sufficiently contained by the BSP’s liquidity management tools.
“These tools are producing the desired result of moderating liquidity growth,” he said.
The BSP had opened its special deposit accounts to trust entities last May, a move that has helped the central bank mop up liquidity from the system to prevent the inflation rate from spiraling out of control.
Inflows have continued to surge into the market but so far, the BSP has been able to slow down domestic liquidity growth to 14.9 percent in August from a high of 26 percent in April.
The second wave of the BSP’s foreign exchange liberalization would make it easier for Filipino investors to invest abroad, lifting de facto restrictions on capital outflow.
Discussions are on-going about proposed measures that would balance the liberalization of foreign exchange inflows, adjusting what officials called the “natural balancing mechanisms” that used to be restrictive.
The next wave of liberalization, according to the BSP, would facilitate greater ease of direct investments abroad by Filipinos.
The BSP earlier said it was not talking about raising existing ceilings further but officials said there were “documentary reforms” that could be implemented to ease investments abroad.
At present, Filipino investors are required to file applications and submit regular reports that took time to process. Officials said this often caused delays that affected business decisions.
Chief News Editor: Sol Jose Vanzi
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