Balance of Payments in Philippines

The Balance of Payments (BOP) is a systematic record of a nation's total payments to foreign countries, including the price of imports and the outflow of capital and gold, along with the total receipts from abroad, including the price of exports and the inflow of capital and gold.

 

In Philippine’s BOP, there are large amounts of unreported or hidden international transactions. Between 1990 and 2005, the estimated unreported international transactions totaled US$ 128 billion (in 1995 constant prices).

 

It means large amounts of resources remain hidden when funds are needed to finance economic growth and development and that these large amounts of resources are beyond social control.

 

It is paradoxical that the magnitude of the unreported international transactions has been increasing, particularly during the financial liberalization period. It indicates, when the economic environment is deregulated and liberalized, there are more avenues available for financial flight, trade misinvoicing, and other hidden transactions.

 

This denotes a fundamental problem with regards to the government’s regulatory capacity and management capability over external transactions. More importantly, the results indicate a weak or weakening capacity to direct resources into productive domestic investments to support industrialization and realize robust economic growth. Perhaps, too, the unrecorded international transactions point to other economic issues as well, such as a prevailing domestic investment anemia, together with large underutilized productive capacities, and complicated by the unceasing domestic political uncertainties. In such environment, it can be argued that capital inflows are more likely to be short-term in nature; that is, investments in speculative activities (e.g., the stock market and real estate), which in turn lead to financial bubbles that contribute to an economic crisis, that further undermine domestic investments and sustain the unrecorded transactions.

 

The policy implication is that there is a need to rethink policy and policy reforms in the Philippines. More specifically, a reconsideration of capital management techniques to regulate capital flows and to strengthen prudential regulations in the domestic economy (including enhanced administrative capacity of the Bangko Sentral ng Pilipinas) is needed today. These are very important in order to improve macroeconomic fundamentals and to create a robust macro performance.

 

The unsustainable current and fiscal deficits, unstable inflation, uncompetitive foreign exchange, unsound debt management, interest rates that discourage domestic investments, remain important concerns to the Philippines. They should be addressed; but the mix of fiscal and monetary policies must be such that they stimulate robust economic performance and the corresponding adjustments in policies must sustain economic growth.

 

 

 (Value in million U.S. dollars)