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BOP Yields $1.729 Billion Surplus for the First Semester of 2002

09.19.2002

BSP Officer-In-Charge Amando M. Tetangco, Jr. reported today that the country’s balance of payments (BOP) in the first half of 2002 yielded a $1.729 billion surplus, a reversal of the $606 million deficit recorded a year ago as both the current account and the capital and financial account continued to record strong performances.

The current account (CA) surplus in January-June 2002 more than doubled to $3.445 billion due to stronger balances in the merchandise trade and services accounts, which recorded a combined net inflow of $469 million compared to a net outflow of $81 million last year. A higher net inflow in the income account likewise boosted the current account position. The CA/GNP ratio reached 8.8 percent during the review period, comparing favorably with 4.0 percent last year.

The pick-up in global demand coupled with the government’s two-pronged strategy in the new export plan—industry clustering to enhance competitive advantage and an aggressive marketing program in both old and new markets—helped push exports to record the third consecutive month of double-digit growth for 2002 after more than a year of decline. [1] The expansion in exports reflected the strong performances of electronics and machinery and transport exports. The year-on-year growth of garments exports in June of 4.2 percent—the first during the year after seven months of consecutive declines—also contributed to the robust performance of exports for the first semester. This favorable development brought the year-to-date exports to $16.260 billion, 4.8 percent higher than year-ago level.

Meanwhile, imports of goods went up for the fifth month in a row since February, growing at 10.3 percent in June 2002. As a result, January-June imports reached $15.308 billion, 4.4 percent higher than last year’s level and a reversal of the 0.9 percent decline registered in the same period in 2001. Underpinning this development was the expansion in imports of raw materials and intermediate goods as well as capital goods. The rise in imports boosts expectations of sustained growth in exports in the coming months despite mixed signals about the robustness of the economic recovery in the U.S., the country’s major trading partner. As a leading indicator, the positive import growth augurs well for the manufacturing sector in the second half of 2002.

The income account for the first semester of the year increased by more than twofold to reach $2.750 billion. Overseas Filipino workers’ (OFWs) remittances, which continued to be a significant source of foreign exchange earnings, expanded by 43.2 percent to $4.143 billion in January-June 2002 relative to the year-ago level. Contributing to this development was the increase in the number of deployed new hires and rehires OFWs, which rose by 4.1 percent during the review period. The growth in OFW deployment was noted in Europe, Africa and the Americas. By skills category, the increase in deployed workers was noted mainly for transport equipment operators as well as professional, technical and related workers. The government continues to step up marketing missions to promote Filipino skills abroad. Prospects are bright, with the expanded hiring of the United Kingdom of OFWs in the medical field This development is expected to offset the impact of the trend towards “localization” and the economic slowdown experienced in some of the countries where Filipino workers are deployed. [2]

Meanwhile, the trade-in-services account in January-June 2002 posted a net outflow of $482 million, 48.4 percent lower than the level in the comparable period in 2001, due to lower net payments for transportation services and for miscellaneous business, professional and technical services. Increased net receipts from travel services, which rose by 36.4 percent to $513 million, helped trim the net outflow in the services account during the period in review due to the higher rate of decline in travel payments relative to that of travel receipts. The lower travel payments reflected in part the weaker peso and the program of the government to promote domestic tourism among local residents. The country’s tourism industry is expected to regain lost ground following the aggressive promotion blitz of the government through new international marketing campaigns to showcase the country’s tourism attractions. The government will also launch soon the “Visit Philippines 2003” in selected markets abroad. Recently, the governments of Thailand and the Philippines signed an agreement on tourism marketing strategies, which is expected to translate to a 25 percent increase in tourist traffic between the two countries in the next two years.

The net outflow in the capital and financial account narrowed by 33.8 percent to $1.488 billion during the period in review. The reversal of the portfolio investment account to a net inflow of $1.439 billion from a net outflow of $271 million last year dampened the negative impact of the higher net outflow of other investments and the lower net inflow of direct investments.

From a net outflow of $271 million in January-June 2001, portfolio investments for the first semester of 2002 reversed to a net inflow of $1.439 billion due to increased non-residents’ investments in resident-issued foreign denominated debt securities, particularly government-issued medium-term bonds. Non-residents’ investments in equity securities also rose by 18.5 percent to $339 million, indicating resurgence of investor confidence in the local equities market and as investors shifted investments to equity securities following relatively lower yields on bonds and other domestic financial instruments.

Non-residents’ investments in equity capital more than tripled to $730 million during the period in review. The bulk of non-residents’ equity investments emanated from Japanese investments in a local brewery company in March 2002. The rest was directed to other manufacturing companies, financial institutions and transport and storage services. Other major sources of direct investments were the U.S., U.K and Taiwan.

The net outflow in the other investment account expanded by 9.2 percent to $3.646 billion during the review period. This developed mainly on account of the higher net deposits abroad by resident banks to cover their clients’ import payments and to diversify their portfolio.

As of end-June 2002, the BSP’s GIR rose to $16.9 billion, 8.0 percent higher than the end-December level of $15.7 billion. At this level, the BSP’s GIR were adequate to cover 5.4 months’ worth of imports of goods and payment of services and income. Using other reserve coverage measures, the level of reserves was 3.2 times the amount of the country’s short-term external debt based on original maturity or, alternatively, 1.5 times the amount of short-term external debt based on residual maturity.

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[1] Industry clustering is a strategy aimed at strengthening the domestic base of an industry by putting and linking together similar businesses so as to ensure a steady supply chain. Industry clusters are usually private-led initiative but the Government extends support to enhance the trade and investments environment.

[2] Localization means preferential hiring by a country of its own residents

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