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Current Account Still in Surplus Despite Global Economic Slowdown

10.22.2001

BSP Governor Rafael Buenaventura reported that the current account continued to be in surplus at $1.18 billion for the period January-July 2001.  A sustained surplus in merchandise trade and net income receipts helped prop up the current account balance.  However, the surplus during the period in review was lower than last year’s level due largely to declining export receipts.

Exports of goods, which declined by 11.3 percent, were affected by the global downturn in economic activity.  The slowdown in demand from the country’s major export destinations, the U.S. and Japan, was felt most keenly in the electronics exports.  Electronics, which accounted for more than half of the country’s exports, suffered a 19.3 percent contraction.  Nevertheless, electronics together with machinery and transport equipment as well as garments remained the country’s top three leading exports.

Imports of goods similarly declined, although at a modest rate of 0.8 percent. However, a moderate increase in imports of raw materials and intermediate goods was observed, suggesting inventory build-up ahead of the holiday season.

Governor Buenaventura noted that, despite the global slowdown and domestic economic concerns, direct investment inflows were sustained. For the first seven months of the year, net inflows of foreign direct investments amounted to $898 million, of which $726 million were direct investments by nonresidents—mainly from the U.S. and Singapore—channeled mainly to the telecommunication and manufacturing sectors. The balance was accounted for by residents’ capital repatriation of their investments abroad. Net inflows of foreign direct investments for the comparable period last year was $1.3 billion.

Meanwhile, investments by non-residents in the local equities market negated the impact of increased payments for maturing bonds and notes. This brought the year-to-date portfolio investments by non-residents to $191 million. However, residents’ portfolio investments abroad amounting to $154 million trimmed down the overall net inflow to $37 million.

On the other hand, the other investments account posted a higher net outflow of $4.391 billion due largely to lower withdrawals of short-term placements and deposits of resident banks with banks abroad.

Governor Buenaventura stated that this, together with a reduced current account surplus, contributed to the country’s balance of payments deficit of $917 million for the period January-July 2001. This level was higher than last year’s deficit of $267 million.

Notwithstanding the weakening of the external payments position, Governor Buenaventura said that the country’s gross international reserves as of end-July 2001 remained comfortable. At a level of $14.3 billion, reserves were sufficient to cover 4.3 months’ worth of imports of goods and payment of services and income. Reserves were also more than twice the level of the country’s short-term external debt based on original maturity and could cover 132.9 percent of short-term external debt based on residual maturity.

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