In this Friday, Sept. 30, 2016 photo, an electronic board of the Philippine Stock Exchange is reflected on the mirror as a woman sips her drink at the financial district of Makati, south of Manila, Philippines. Analysts and businessmen point to uncertainties about Philippine President Rodrigo Duterte’s policies and flip-flopping pronouncements as largely to blame for foreign selling in the stock market and the peso’s plunge to a seven-year low, reversing initial optimism after his June 30 inauguration. AP Photo/Aaron Favila
MANILA, Philippines – Government economic managers said the current financial market selloff won’t affect the Duterte administration’s economic program.
“Economic reforms should continue to be implemented to boost growth and the country’s fundamentals should continue to be protected to sustain investor confidence,” Finance Undersecretary Gil Beltran said in a statement.
Beltran said the government should continue with its plan to boost spending and widen the budget deficit.
The Philippine Stock Exchange index (PSEi) closed 7,629.73 last Friday, ending the third quarter down 2.02 percent since the Duterte administration took over on June 30.
Since the start of 2016, however, the benchmark is still up 9.74 percent, although it lost 1.22 percent last week alone.
The downward trend was also evident on the local currency which settled at 48.50 to $1 last week, the weakest since the global financial crisis in September 2009.
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The peso lost 3.06 percent of its value since Duterte came to power. It shed 1.06 percent against the dollar last week.
“I do not want to speculate when,” Budget Secretary Benjamin Diokno told reporters late last week when asked when he sees the market recovering.
Finance Undersecretary and chief economist Karl Kendrick Chua also said “I do not know when will the peso’s slide against the dollar stops” after hitting its lowest level in seven years last week.
Diokno said a higher public infrastructure spending and a wider deficit would not be hindered by the present market situation.
“The Philippines promises to be one of the fastest growing country in this part of the world,” Diokno said in a text message. “We have set our medium-term fiscal plan…Our macroeconomic fundamentals are strong,” he added.
The plan involves widening the budget gap to three percent of gross domestic product (GDP) from just 0.9 percent last year to boost growth. This, in turn, will mean more needs to borrow funds.
Emilio Neri Jr., lead economist at Bank of the Philippine Islands, said this could also indicate further weakening of the peso as more imports are made.
“Higher spending can continue but could add to further weakening of external position as funding of imported capital equipment will add to already surging imports,” Neri said in an e-mail.
But Alvin Ang, economist at Ateneo de Manila University, said this is a good thing since more capital means more materials for further investment.
National Treasurer Roberto Tan, meanwhile, said borrowing funds are still okay since 80 percent would be sourced onshore, thus, won’t carry risk of increasing debts once peso declines.
But market movements still bear watching, analysts said.
“Nonetheless, it is important to note that confidence is more important than valuations in a global environment. Thus, when expected fundamental valuations are breached, that is another story,” Ang said.
Neri agreed. “If the President apologizes and retracts on some of his recent statements we could actually outperform our (emerging market) peers,” he said.
As capital moves out, Diokno reiterated that portfolio investments flowing in PSEi are naturally “destabilizing” in nature as they “come and go depending on short-term outlook.” “Hot money is exiting not only in the Philippines, but in other emerging economies, too,” he said.