Economy facing new risks

Prices of commodities including petroleum are beginning to spike upward again, which could derail global economic recovery and affect growth in the Philippines, according to economists.

“It can be a threat to all of these positive things that are ongoing,” said Jose Arnulfo Veloso, senior vice president and head of Treasury at the Hong Kong and Shanghai Banking Corp. in the Philippines.

Veloso warned that the 2008 situation might be replicated again, as investors decided to place their bets on commodities that subsequently pushed their prices. Crude was trading at about $80 per barrel in October this year.

The World Bank earlier warned about the risk of replicating the 1997 Asian crisis.

“The authorities in East Asia need to take adequate precautions to ensure that they do not repeat the same mistake twice in slightly over a decade,” it said.

Veloso said that as the Philippines’ gross domestic product growth continues to be robust, regulators should watch for flows of funds that are coming in. “The year 1997 is the perfect history,” Veloso said, referring to the economic developments that led to the financial crisis.

Junie Veloso, head of HSBC Philippines for corporate banking, said a lot of funds were now moving to second-tier countries, including the Philippines. “Investors continue to be very bullish about Asia and the Philippines. The last peso bond that we did is a very good indicator of confidence level and desire to go and to invest in the Philippines,” he said.

He said the Philippines was benefiting from being a part of Asia, and for being close to China. “I think Asia is the place to be. That’s why development is here,” he said.

World Bank Philippines senior economist Eric Le Borgne said while there has been a strong appetite for Philippine equities and bonds, this is supported by strong economic fundamentals in the country.

“The Philippines has been growing close to 8 percent, and advanced economies were growing at only 2 to 3 percent,” he said. “Some of it can also be related to interest rate differential. In the US and Japan, interest rates are close to zero.”

“These probably justify some of the appetite for the Philippines,” he said.

Le Borgne said both supply and demand of liquidity are balanced in the country. “If you look at supply and demand, there is not that much disagreement at the moment,” he said. –Roderick T. dela Cruz, Manila Standard Today