RP stays at bottom of financial index

THE PHILIPPINES kept its spot in the bottom 10 of the World Economic Forum’s ranking of the world’s leading financial systems and capital markets for 2010.

It placed 50th out of 57 advanced and emerging economies — the same spot it occupied last year — but gained 0.14 to score 2.97 in the Forum’s Financial Development Index (FDI).

“The Philippines maintains its ranking in the Index this year, but demonstrates an improvement in its scores across most of the FDI pillars,” read The Financial Development Report 2010 released yesterday.

“It continues to benefit from a relatively high degree of currency stability. The country has made strides with respect to financial intermediation, and its performance here is particularly driven by a fairly high degree of M&A (mergers and acquisitions), and securitization activities, as well as relatively well-developed bond markets,” it continued.

“Further improvement is necessary in order to fully translate these strengths into broad financial access.”

The report defines “financial development” as “the factors, policies and institutions that lead to effective financial intermediation and markets, as well as deep and broad access to capital and financial services.”

Financial development is measured through seven pillars, namely: institutional environment, business environment, financial stability, banking financial services, non-banking financial services, financial markets and financial access. The seven pillars are in turn measured through 122 variables such as initial public offering (IPO) activity, M&A activity, insurance and securitization, which measure the non-banking financial services pillar.

Scores range from 1 to 7, with 7 being the highest.

The Forum said the FDI allows advanced and emerging economies to benchmark themselves and prioritize areas for reform.

Among economies in Asia and the Pacific, the Philippines bested Indonesia, which placed 51st; Pakistan, 54th; and Bangladesh, 55th.

Hong Kong was the highest in the region at 3rd, rising by two spots, while Singapore was second highest at 4th, retaining its ranking last year.

Australia fell to 5th from 3rd place; Japan maintained its 9th position; Malaysia jumped five spots to 17th; China climbed four places to 22nd; while South Korea slid by one notch to 24th.

Thailand and India were up one place to 34th and 37th, respectively, while Vietnam retreated one notch to 46th.

Kazakhstan placed 49th, two spots down from a year ago.

“Hong Kong SAR… shows strengths across its institutional and business environments, as well as in the stability of its financial system,” the report pointed out.

Singapore was strong in the same areas as Hong Kong, the report said. “In particular, the country achieves top standing with respect to institutional environment, an achievement mainly driven by effective contract enforcement, and a sound handling of legal and regulatory issues.”

Despite their slumping economies, the US and the UK took the first and second spots, respectively, despite getting lower scores this year compared to the year before.

“While the US and United Kingdom top the rankings due to their deep and active wholesale markets, several ominous signs point to their leadership being in jeopardy,” a statement quoted Kevin Steinberg, chief operating officer of the World Economic Forum USA, as saying. “Aside from very low scores in financial stability, both showed weakness in their business environments, in particular their tax regimes, as well as the efficiency of their banks.”

The report also noted that emerging economies as a whole scored lower in the FDI compared to advanced economies: 3.16 against 4.45. — Judy T. Gulane, Businessworld