EDITORIAL More upbeat economic outlook

SLOWLY but surely the Philippines is emerging from the worst global economic crisis in decades.

A fresh whiff of good news came from the Bangko Sentral ng Pilipinas (BSP).

Characteristically behind the curve, the BSP last week decided to keep its policy rates at historic lows. Nothing new there as everyone expects the central bank to begin raising rates only after the May national elections.

Despite its unexciting decision to hold onto existing rates, the BSP nonetheless continued to wind down the stimulus package it put in place at the height of the global financial turmoil.

We’re referring to the central bank’s decision to reduce to its pre-crisis level the peso rediscounting facility—a window that allows commercial banks to liquefy their loans, thus oiling the credit-issuing process of the Philippine financial system.

The return to pre-crisis levels of the peso rediscounting window follows an earlier reduction of the same facility, as well as the tightening of standards when availing of the BSP’s liquidity enhancing measures.

It wouldn’t be far-fetched to say that the central bank is laying the ground for a policy rate increase—the impact of which is more long lasting and widespread.

We should not that its moves were made despite the threat of rising inflation—as a result of the El Niño and higher oil prices.

The BSP has maintained that the price pressures are coming from the supply side, and so are immune to monetary policy.

A second sign of good tidings is the central bank’s decision to raise its remittance growth forecast—from six percent previously to eight percent.

Indeed, it had been a source of embarrassment for many experts who forecast—with conviction—that overseas Filipino worker (OFW) remittances would fall by the wayside as recession claimed many of the host-countries.

While there had been layoffs, the number of new hires were such that the net effect was an increase in overall deployment as well as the stock of OFWs.

As in the Asian financial crisis of the late 1990s, OFWs similarly racked up their remittances this time around.

The amount of money sent defied prognoses of a downturn, resulting in personal consumption expenditures (PCE) propping up the Philippine economy when we most needed the support.

As of February, remittances were up 7.8 percent, or higher than the original full-year forecast of six percent.

With its remittance forecast higher, the BSP likewise raised its forecast for the country’s balance of payments (BOP) surplus.

Its earlier estimate placed the full-year surplus at $3 billion to $4 billion.

Last month, we enjoyed a $255 million surplus, an improvement over February’s $125-million deficit.

The March dollar surplus led to a $1.363 billion surplus in the first quarter.

A BOP surplus, which is realized when foreign exchange inflows are higher than outflows, adds to the country’s gross international reserves, which in turn strengthens the peso and tempers domestic inflation.

This explains the BSP’s reluctance to raise interest rates any time soon.

Of course, higher foreign exchange inflows come with a cost—less competitive exports and a smaller bang out of every OFW buck.

But the cost of fiddling with the market-determined exchange rate is higher than letting the demand-and-supply forces to price the peso—or the dollar for that matter.

The government should therefore continue working to bring down the cost of doing business in the country.

There is much to be done in this area—from repairing infrastructure damaged by last year’s typhoons, to building new ones where none exist.

With the economy recovering—thanks to remittance-led PCE and brisker exports—we should expect tax revenues to pick up soon. Given this, the government would have the wherewithal to address the pestering infrastructure bottlenecks.