Foreign direct investment (FDI) net inflows were more than three times higher than the previous month’s level, reaching US$244 million in May 2006. This positive development brought the year-to-date FDI flows to US$743 million, up by 52.6 percent from last year’s level of US$487 million. The improvement in the current level of FDI flows was achieved on the back of the country’s improving macroeconomic fundamentals including higher first quarter real GDP growth at 5.5 percent, better-than-expected fiscal position following surpluses realized in April and May and decelerating inflation rate.
Accounting for the surge in FDI inflows during the five-month period was the reversal of the “other capital” account to a surplus of US$402 million from a net outflow of US$63 million in the same period in 2005. The other capital account is essentially comprised of intercompany borrowing/lending of funds between foreign direct investors and their local subsidiaries, branches or affiliates in the Philippines. During the period, the automotive and electronic industries, in particular, benefitted from these intercompany account transactions. Meanwhile, the reinvested earnings account also rose to US$17 million during the five-month period following foreign banks’ preference to keep their earnings in their local branches.
Net equity capital, while lower compared to the level posted a year ago, remained in surplus at US$324 million. Equity investments were directed to the manufacturing, real estate, financial intermediation and services sectors and were infused mostly by investors from the U.S., Japan and Hong Kong.