Foreign funds pour into local subsidiaries

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“April was a time of some economic turbulence in the Philippines when it became clear that inflation, or the rate of change in prices trended up.”

The foreign principals of businesses operating in the Philippines for the long haul, more known as the foreign direct investor or FDI, extended more than twice the amount of loans to their local subsidiaries in April than they did in March, according to the Bangko Sentral ng Pilipinas (BSP).

The net lending of foreign principals to subsidiaries in the Philippines proved more than twice in April this year when this totaled $705 million compared to only $301 million in March.

This, the BSP said, indicated sustained foreign investor confidence in the economic future of the Philippines for the period no matter that external and domestic headwinds hound the Southeast Asian nation like everyone else in the region at present.

The net lending represents a snapshot of the volume of investments the foreign principals poured into so-called bricks-and-mortar enterprises in the Philippines for the period, funds that would not have been forthcoming had the foreign principals been convinced that Manila’s economic future was toast.

In part because of this development, aggregate FDIs in April alone nearly doubled to $1.03 billion from only $682 million in March.

In the first four months, aggregate FDIs accelerated by 24.3 percent to $3.20 billion this year versus only $2.58 billion in the same period last year.

April was a time of some economic turbulence in the Philippines when it became clear that inflation, or the rate of change in prices trended up from only 3.4 percent in January to 5.2 percent at present and well above the target ceiling of only 4 percent.

This was also the period when the Monetary Board, the policy-making body of the BSP, was looking down the prospect of an interest rate hike and subsequently did lift the rate at which it borrows from or lends to banks 25 basis points higher to 3.25 percent the following May.

This was also the period when the exchange rate deteriorated slightly on average to P52.099 per dollar from only P52.068 the previous April. The exchange rate would subsequently weaken further to P52.195 in May and still lower to P53.048 in June. At the moment, the local currency averages P53.393 against the dollar, based on BSP data.

But these developments apparently do not matter much to foreign fund managers who continue to pour actual resources on an economy whose local output, or the gross domestic product (GDP) at $315 billion is one of the most vibrant in the region.

According to the BSP, so-called equity placements far outstripped withdrawals totaling $262 million in April alone versus withdrawals of just $15 million.

These are foreign resources invested in long-haul entreprises that generate employment for Filipinos and tax revenues for the national coffers and by these measures are preferred over “hot” or speculative investments.

Net investments in equity capital amounted to $247 million as gross equity capital placements increased more than three times to $262 million from $84 million, while withdrawals remained broadly low at $15 million, the BSP said.

“Equity capital placements emanated largely from Singapore, Hong Kong, Netherlands; the United States and Japan. These were mainly invested in manufacturing; arts, entertainment and recreation; real estate; financial and insurance; and holesale and retail trade activities.

Meanwhile, reinvestment of earnings by non-resident investors amounted to US$75 million during the period,” the BSP reported.

The previous March, equity placements stood higher at $351 million and withdrawals totaling $33 million.

The foreign principals likewise opted to plough back what profits they generated totaling $75 million in April from $63 million the previous March.