The International Monetary Fund (IMF) chief Economist Olivier Blanchard warns emerging markets to prepare for the capital outflow. In the emerging market economies, where the Philippines is included according to the news, they must give emphasize on improving the potential growth while handling the capital outflows.

One of the factors of the capital outflow is the monetary policy in the US wherein the investors who had investments in the emerging market economies want to be repatriated. In the developing countries, these foreign investors are very important because they can provide money and knowledge that can help to expand the small companies and to increase the sales abroad. They can also give additional employment that can help in decreasing the unemployment rate.

IMF wants developing countries to increase the potential growth and at the same time, to be prepared for the possible outflow capital. With this, the repatriation of investors will not pull down the economy of these emerging markets.

This is the reverse of the warning of the IMF few months ago about capital inflow. In the capital inflow, the threat is that the Asian currencies value could raise which is detrimental to the exporters and could also form asset bubble.

On the latest projection of IMF on the emerging markets, this would grow 5.4 percent this year and the next. This is slower than the 5.3 percent and 5.7 percent for 2013 to2014. On the other hand, the Philippines is projected to grow faster at 7 percent and 6 percent.

As of the first quarter of 2013, the Philippine GDP is posted at 7.8 percent from 6.8 percent of the first quarter of 2012. This is driven by the manufacturing and construction backed up by financial intermediary. Manufacturing industry has 9.7 percent growth while the construction has 32.5 percent growth. It can also be observed that the Agriculture, Hunting, Forestry and Fishing industry has increased from 1.1 percent in the first quarter of 2012 to 3.3 percent in the first quarter of 2013. There is also an increase in growth rate in the Industry sector from 5.3 of the first quarter last 2012 to 10.9 percent of the first quarter this 2013. The opposite happened in the service sector which has decreased from 8.4 percent of the first quarter 2012 to 7 percent of the first quarter this year. This shows that the GDP is not only driven by the service sector unlike on the previous years, but the growth of GDP is also due to the growth rate of other sectors. With this, it can be implied that some of the different sectors are experiencing development which can account for the increase in GDP.

Looking at the foreign investment in the Philippines, the total approved foreign investments for the first quarter of 2013 went up to 86.7 percent which is to 34.6 billion pesos from 18.5 billion pesos last year. The top three prospective investing countries in the Philippines include British Virgin Island, Japan, and Netherlands. These approved investments are expected to generate 27, 620 jobs. Form this, it can be implied that Philippines is no longer purely dependent on US. Although the Philippines is no longer dependent on US, still US monetary policy can affect the Philippine economy.

Thus, in response to the recommendation of the IMF for the emerging markets, the Philippines has a big potential in managing the growth at the same time preparing for the threat of the capital outflow.

References:



http://www.philstar.com/business/2013/07/15/969671/imf-issues-warning-capital-outflows

http://www.nscb.gov.ph/sna/default.asp

http://www.nscb.gov.ph/fiis/

http://www.nscb.gov.ph/pressreleases/2013/PR-20130626-ES4-01_1Q13FDI.asp




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