GLOBAL FINANCIAL markets were on edge last week after Greece failed to make payment on a loan due to the International Monetary Fund, sending stock and currency markets tumbling worldwide. The Philippines was not spared the nervousness, causing the peso and the stock market to end lower.
But after the initial panic, it was apparent that the impact of Greece’s debt crisis on the Philippines would be minimal. As Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. described it, the temporary closure of banks in Greece might cause volatility in Philippine financial markets, but strong economic fundamentals would shield the country from any fallout.
The global fear is more than just about Greece defaulting on its debt, but on its looming exit from the European Union that many experts predicted could cause some volatility not only in the eurozone but in other markets as well. Last Sunday’s results of the referendum wherein Greeks rejected austerity measures proposed by creditors did not help in calming the markets.
The banks and stock market in Greece were closed for a week starting June 29 up to yesterday after Prime Minister Alexis Tsipras’ decision to call a referendum on July 5 on European and IMF proposals for Greek austerity reforms in return for bailout funds. The deepening crisis has raised the possibility that Greece might withdraw from the 19-nation euro currency, now referred to as “Grexit.” There was turmoil in world markets: The euro fell against the US dollar, bond rates soared in Italy,
Spain and Portugal, and nervous investors fled financial markets.
But in the Philippines, the main stock price barometer PSEi ended on June 29 down just 55 points, or about 0.72 percent, making the country one of the world’s better performing markets on that day (losses in other Asian exchanges ranged from 2 to 3 percent). The peso also weakened slightly against the greenback. Tetangco’s assessment that the Greek crisis should not have much of an effect on the Philippines is well anchored. Philippine banks have no Greek assets in their books. Remittances from Greece accounted for only 1.37 percent of the total inflows as of last March. Add to this the report last week from Moody’s Investors Service saying that banks in the Philippines and in Asean in general were well-placed to comply with stricter capital and liquidity requirements under Basel III. In short, the financial system in this part of the world is stable and capable of absorbing fallout from the Greek crisis.
Philippine Stock Exchange president Hans Sicat has also observed that, in theory, the crisis should be contained given that the Greek economy and its liabilities were small compared to the European Union, and that the only question was whether Asia would think the situation “will or will not create contagion.” Even the IMF representative in the Philippines, Shanaka Jayanath Peiris, said the Asian region would be relatively resilient to financial market volatility related to the Greek crisis. Peiris specifically cited the Philippines’ low vulnerability given the limited foreign participation in local debt markets, large foreign exchange reserve buffers, and current account surpluses seen as offering protection.
The Philippines’ gross international reserves (GIR) totaled $80.86 billion as of end-May. Made up of the central bank’s assets in various currencies, gold and special drawing rights (the currency of the IMF) as well as foreign exchange deposits of the national government and state firms, the GIR indicates the country’s capability to pay for imports and service foreign debts. The current GIR level is enough to cover 10.6 months’ worth of imports. The current account surplus, an accounting of the fund flows from foreign trade as well as the transfer of income in and out of the Philippines, was at a healthy level of $3.3 billion as of last March.
Perhaps the biggest downside for the Philippines is that if the Greek financial crisis triggers an increase in borrowing costs, then its foreign debt will be more expensive to service, and some public and private borrowing plans abroad may be shelved. Still, the Philippines is no stranger to global financial crises. It hurt really bad from the crisis that hit Asia in 1997 but recovered quite well, so much so that it weathered the US subprime-induced global crunch of 2008. This Greek tragedy can be no different.