No. 70 - October 2005
The First Three quarters of 2005: Grading the Economy

Stronger Exchange Rate

Aside from maintaining price stability, the Bangko Sentral recently raised its policy interest rates to address exchange rate volatility after a series of interest rate hikes by the US Federal Reserve. In the first nine months, the average peso-dollar rate nevertheless appreciated by 1.3% to P55.239/US$ from P55.959/US$ a year ago. In end-September, the country’s gross international reserves reached an all-time high of US$18.6 billion. As of end-August, the preliminary balance of payments position was at a healthy surplus of US$2.29 billion from last year’s deficit of US$220 million. In end-June, the country’s outstanding foreign debt obligations reached US$56.0 billion.

Weak Trade

Merchandise exports rose at a slower rate of 4.6% in the first seven months compared to 8.0% a year ago. While overall exports reached US$22.9 billion from US$21.9 billion a year ago, exports of electronic products increased by only 2.4% to US$15.0 billion from US$14.6 billion. On the other hand, merchandise imports shrunk by 1.7% in the same period compared to an 8.6% expansion a year ago. While overall imports amounted to US$25.2 billion from US$15.6 billion, imports of electronic products weakened by 13.2% to US$11.4 billion from US$13.1 billion. Meanwhile, costly fuel imports expanded by 31.4% to US$3.4 billion from US$2.6 billion. The balance of trade deficit narrowed to US$2.3 billion from US$3.7 billion a year ago.

Lower investments

While trade performance has been dismal, investments in the stock market has been on an uptrend. The Phisix expanded by 10.2% to 1,942.07 points in end-September from 1,761.57 points a year ago. A year ago, however, the Phisix rose at a faster rate of 35.8%. Foreign direct investments approved by four agencies, on the other hand, fell by 65.8% to only P43.3 billion, compared to P126.6 billion a year ago. On the other hand, net inflows of foreign direct investments rose by 107.1% in the first seven months to US$499 million from US$241 million. Last year, net FDI inflows increased by only 27.5%. Net inflows of foreign portfolio investments also soared to US$2.0 billion as of the first week of October from only US$213.7 million a year ago.