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BSP can’t create sovereign-wealth fund

THE Bangko Sentral ng Pilipinas (BSP) is not allowed to put up a sovereign-wealth fund even with its ballooning gross international reserves, since its charter does not allow it to.

This is what BSP Deputy Governor Diwa Guinigundo said in reaction to calls from analysts and other investors that the BSP create such a fund to make equity investments and allow it to diversify its sources of income, thus safeguarding its “nest egg.”

A sovereign-wealth fund is what countries awash with dollars put up to serve as a form of nest egg. China has four such funds, while Singapore has two, including the Temasek Holdings that has investments in some listed Philippine issues.

Even Kiribati (in the Central Tropical South Pacific Ocean) has such a fund to make investments that would ensure the country’s access to a much higher rate of earnings. The Philippines, which has gross international reserves that are already equivalent to one year worth of imports—three months worth of imports for buffer fund are enough—cannot do so now because it has no such fund.

Monetary officials and analysts alike have been mulling over measures aimed at helping the BSP  recycle the large volumes of foreign capital that have been helping boost the value of the peso in recent months.

A sovereign-wealth fund had been discussed among analysts looking to address the impact of the buoyant peso on the remittance-fed and consumption-driven economy seen growing by 6 percent this year in terms of the gross domestic product.

Recycling all that money coming in from abroad is generally acknowledged as lacking or ineffective, no matter that the BSP is not to be faulted for this turn of events.

Guinigundo said instead of establishing  a sovereign-wealth fund, what is needed is for domestic demand to accelerate quickly and soon.

Although he did not specify what needs to happen to help recycle all that unused liquidity in the system, it has been generally acknowledged the government needs to light the candlestick soon and let the multibillion-peso Public-Private Partnership (PPP) Program happen.

Only one or two of eight or nine big-ticket PPP projects have been pursued as of date, which highlights the existence of readily accessible peso funds that no one is touching no matter that domestic interest rates are at all-time lows.

“Not even government is taking advantage of long-term peso funds” that costs next to nothing in relative terms, according to Jonathan Ravelas, chief market strategist at Banco de Oro.

He urged fund managers to replace dollar long-term funding possibly with short-term peso funds to help relieve the pressure on the exchange rate and boost domestic spending, as a short-term solution.

Rajan A. Uttamchandani of Esquire Financing, however, believes in paying off some of the country’s long-term dollar debts “and then spending a majority of internal funding on infrastructures,” particularly education and tourism.

“I am not sure there can be more that can be prepaid,” he said on debt prepayment.

The financing executive said the BSP is doing what it can to protect the purchasing power of families benefiting from some $21 billion worth of remittances.

“They are doing what they feel is fit and right to protect our OFWs. However, it is not an economically sound decision; I always believe in a long-term solution rather than a short-term fix,” he said.

There are those who doubt whether the cost of sterilizing the foreign inflows to help keep inflation in check out weight the benefits derived from a more or less stable peso.

It has been repeatedly pointed out the BSP pays an arm and a leg to keep P1.8 trillion worth of funds at its special deposit account (SDA) window from harming the rest of the economy in the form of higher inflation.

Such pressure remains benign according to BSP Governor Amando M. Tetangco Jr. and seen to keep at the low end of the official target of 3 percent to 5 percent this year.

Previously, former Socioeconomic Planning Secretary Felipe Medalla, who currently a Monetary Board member, said the country’s more than $81 billion worth of foreign currency reserves have rendered the economy virtually “invulnerable” to external shocks even as others point out to dangers associated with so-called excessive reserve accumulation.

Excessive reserves impose heavy financing costs on central banks and could undermine the BSP’s price stability objective, analysts said.

(Jun Vallecera)

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