'US shutdown will have strong impact on Phl economy'

Cheryl Arcibal and Jovan Cerda (The Philippine Star) - October 1, 2013 - 1:57pm

MANILA, Philippines - The shutdown of the United States government following the deadlock between Democrats and Republicans in Congress will have a strong impact on the Philippine economy if the situation is prolonged, an economist said.

"If the shutdown will prolong it will definitely affect the exports and investment in the country," economist Cid Terosa from the University of Asia and the Pacific told philstar.com.

The White House on Tuesday has ordered the closure of government offices across the country after the Republican-led House of Representatives in the U.S. failed to get the Democrat-controlled Senate's approval of a spending bill that includes budget cuts from President Barack Obama's landmark Affordable Care Act. 

The shutdown will put about a million U.S. workers into unpaid leave and will close a number of government agencies.

(Related story: US government shuts down as Congress misses deadline)

Terosa said with the shutdown, economic and business activity in the U.S will slow down, affecting their export and investment activities worldwide.

"Definitely the impact will be strong because the U.S. is a major trading partner and the U.S. has major investments in the Philippines," he said.

As of July this year, the U.S. accounted for a 12.6-percent share in the total merchandise exports of the Philippines, translating to earnings worth $610.84 million.

Terosa said the Philippines is left with nothing but the option to diversify its exports and investments portfolio to minimize the effects of the shutdown.

Bangko Sentral ng Pilipinas Gov. Amando Tetangco, Jr. said the immediate impact of the shutdown would be on global and domestic market volatility, as investors move from risky assets to safe haven assets.

"The markets will watch the speed and form of the resolution. The domestic economy has sources pf resilience owing to the buffers we have built. We will continue to watch how the developments in the U.S. will pan out. We will, as is our policy, maintain a presence in the markets if the domestic market reaction leads to excessive volatility," Tetangco said.

For his part, Department of Finance Secretary Cesar Purisima said the Philippines will go through the U.S. government shutdown better than most countries.

“Fortunately for the Philippines, we enjoy a strong fiscal position, a structural current account surplus economy whose growth is led by consumption, and a young, educated population. This will allow the Philippines to ride out this situation better than other emerging markets - whose economic models are exports and extractives-based," he said.

Purisima, however, expressed concern on the looming debt ceiling deal, which will again test the ability of U.S. lawmakers to strike a compromise.

“What is more worrisome to the Philippines is if the U.S. political stalemate cause America to default on its debt by failing to pass a measure on the debt ceiling. A U.S. default, unimaginable for most of history yet now in the realm of the possible because of current political circumstances, can only lead to unprecedented chaos in the global financial markets," he said.

Meanwhile, an analyst said the strength of the domestic economy is expected to provide some cushion to the performance of the local stocks.

Justino Calaycay of Accord Capital said in a market report that the local stocks could continue their upswing supported by the Philippine economy, which grew better than expected at 7.6 percent in the year's first half.

"Unless the U.S. Congress comes up with a budget law [U.S. President Barack Obama] will not veto, financial markets  are expected to be shaken off its foundations... We do not disregard these warnings, but also putting light on the soundness of the macroeconomic backdrop to justify holding on to our original targets- or at the very least- remaining bullish on equities for the balance of the year," Calaycay said.

Last week, the market was mostly in the red as uncertainties over the U.S. budget rattled investors and traders. 

As of 12:56 p.m. Tuesday, the benchmark Philippine Stock Exchange index was in the green, gaining 52.60 points or 0.85 percent to 6,244.40

Of the six subindices, only mining and oil was in the negative territory, losing 21.82 points or 0.18 percent to 12,228.87. Leading the gainers meanwhile was the holding firms, advancing 58.69 points or 1.07 percent to 5,531.96.

Calaycay added that once the uncertainty over the U.S. budget and the debt ceiling hump is over, investors in the local markets are expected to be more "inward looking" and choose to hold equities. 

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