In its latest release of The World by 2050 report this month, HSBC elevated the prospects for the Philippines projecting it would be the 16th largest economy by mid-century. This is in stark contrast to where the country was positioned last year, outside the top 40, a remarkable leap in the space of a year. What fundamental change occurred to merit such a fantastic rise of 27 places from 43rd to 16th place?
Actually, the upgrade in the country’s prospects began in 2005 with the publication by Goldman Sachs of a paper, which included the Philippines among the “Next 11” or N-11 countries whose GDP would rival some of the advanced G-7 nations by 2050. Earlier this year, Citibank published a paper extolling the virtues of the Philippine economy by including it among a group of “3G countries” that have the “global growth generators” or 3G’s.
From an interview with the ANC (since the bank has yet to publish its report online), the head of the Philippine country office pinned it down mostly to monetary and fiscal settings. The healthy balance of payments position, complemented by the conservative fiscal position alongside a vibrant domestic economy and positive demographics or population growth all combined to place the country on the map.
Regardless of how accurate these projections are (in the case of HSBC, the numbers look dubious, with seven percent growth on average expected from now until mid-century), there can be no doubt as to their effect on capital flows.
‘Tis the Season
As the Bangko Sentral adjusted interest rates downward as a signal to the local economy to start investing or consuming more, there was talk of yet another credit upgrade in the offing for the Philippines. We could be the next country following Indonesia to be given investment grade status by these agencies. The outlook for the country was recently upgraded from stable to positive signalling such an upgrade.
If this trend continues, it would mean a steady stream of “hot money” into our local stock market which is already soaring. It would also mean lower borrowing costs for both our government and corporations seeking to raise capital from international bond markets.
But as the ironic maxim goes in the financial community, it is when banks are willing to lend that you don’t need to borrow. As investment banks queue up to lend to the national government, it is time that they begin to assess whether they need to borrow from abroad at all, or whether it would help the local economy to utilize the excess foreign reserves of the Bangko Sentral to finance its fiscal deficit.
For one, it would enable the BSP to earn a higher rate of return compared to purchasing US treasury notes which are earning close to zero percent. Two, it would help temper the peso’s strength and help the families of overseas Filipinos and exporters. Three, it would reduce the need for the BSP to purchase dollars in the spot market to dampen the peso’s appreciation, helping the bank maintain profitability.
Bragging or bargaining rights?
The government might take all these positive developments as a seal of good housekeeping on its part. The series of credit upgrades which occurred only after the 2010 elections might certainly be construed as the market’s faith in the capacity and competence of the administration to manage its affairs.
But apart from simply bragging about being mentioned in such publications, the government, particularly the finance department, must begin to heed the growing clamor among our central bankers, leading economists, exporters and ordinary Filipinos to plan a sustainable path of development as it seeks to balance its own books.
Regardless of how the world in 2050 might appear to its financiers, it needs to demonstrate the independence and autonomy required of it to plot a course in line with the nation’s interests. HSBC and other global investment banks might simply be positioning their products to our finance people. It takes courage and resolve on their part to either use our strong position as leverage or simply walk away from the table.