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Foreign capital inflows drastically slow down

Even the once above-the-fray central monetary authority we call the Bangko Sentral ng Pilipinas, it seems, has joined the panicky efforts of President Aquino’s propagandists to reverse his image as a failed president.

It issued a few days ago a press release that was dutifully parroted by an uncritical media: “Foreign Direct Investments Post 55 Percent Increase in November 2013; January – November Level Up by 37 Percent.”

The reality: Foreign equity going into the country contracted by nearly half, from $1,252 million in the first 11 months of 2012 to just $665 million in the comparable period last year.

According to BSP data itself, the flow of the so-called “hot money” or “portfolio investments,” mostly in the stock market, has reversed: withdrawals of funds in December was $354 million more than the amount coming in. Last month, the amount was a staggering $1.1 billion.

For its PR offensive to help Aquino, the BSP exploited its adoption of the International Monetary Fund’s so-called Balance of Payments Manual Sixth Edition (BPM6) in its recent “praise-Aquino” release. BPM6 expanded the items that would be included in the category of foreign direct investments in the country’s balance-of-payments accounting.

The new BPM6 manual allowed the inclusion of certain other loans extended by a foreign company to its local affiliates as part of “foreign direct investments.”

However, what is suspicious in the BSP’s foreign direct investment report for 2013 (January to November) is that the amount of such “debt instruments” is huge, at $2.3 billion, more than triple the $665 million foreign equity inflows. (See table below).

And he’s wondering why unemployment has gotten worse.

And he’s wondering why unemployment has gotten worse.

Such other foreign loans that were classified as part of “foreign direct investments” never breached the $400 million level, and were even negative values, meaning net repayments of debts. Last year for instance this item included as “foreign investments” was even a negative $215 million.

But how could foreign companies’ loans to their affiliates balloon from a negative $215 million level in 2012 to $2.3 billion in 2013? It would if the BSP thought this is a clever way of padding foreign investment inflows. And unlike the other components of the BSP’s data on foreign investments, it claimed that “country breakdown statistics are not available” for such “other capital”.

Most probably foreign companies’ existing advances to their subsidiaries and affiliates that were extended even years ago were reclassified by the BSP as “foreign direct investments”. Voila! The BSP crows that the foreign investment “inflows remained robust on the back of sustained investor confidence in the growth prospects of the economy.”

Reflecting Aquino’s political rise and fall, foreign investments into the country surged from $511 million in 2011, or his first full year in office, to $1.3 billion, to decline to $665 million last year. (I use here the stricter yet more commonsensical notion of investments as “equity capital” which excludes foreign companies profits still unremitted abroad and their debts to other foreign entities.)

It is unlikely to bounce back this year, not only because foreign investors’ governments have either become disappointed over Aquino’s incompetence in economic management, or just plainly detest him—as in the case of China and Hong Kong as well as Belgium.

Global funds have started to go back home to the US from the higher-yielding emerging markets they have exploited since 2009. The US shift in monetary policies have started attracting higher yields since last year. There has been in fact a net withdrawal of US capital from the Philippines of $675 million from January to November 2013, compared to the huge $745 million American investments here in the same period in 2012.

What saved us from a foreign-investment collapse has been Japan, whose investments overseas—quite lucky for Aquino and us—have surged since 2011. This has been due to several factors working in combination: the strengthening of yen after the collapse of the biggest US investment banks in 2009, Prime Minister Shinzo Abe’s economic stimulus efforts, and Japan’s unattractive demographics.

From a low of just $70 million in 2012 (January to November) Japan’s direct investments here have surged to $495 million last year. However, this is just a drop in the $9 billion bucket of Japanese capital that has moved into Southeast Asia in the same period.

On the whole, Aquino’s record in attracting foreign capital pales in comparison with that of his predecessor, Gloria Macapagal-Arroyo. Average annual foreign capital inflow under Aquino’s watch totaled only $683 million; it was nearly double that under Arroyo, $1,111.

Foreign capital inflow reflects domestic capital inflow. It is both domestic and foreign capital that create businesses and factories that create jobs.

And it’s a puzzle to him that unemployment in our country has risen?