Endnotes

¹The underlying factors are quite different, however. The sharp appreciation of REER prior to the crisis was due largely to the depreciation of the yen. The recent appreciation of REER is due more to nominal currency appreciation as a result of foreign exchange inflows and general weakness of the dollar.

²The empirical results are available upon request. The four groupings refer to the types of capital flows used in the estimation. One is a combination of FDI and portfolio investment. The second and third are FDI and portfolio investment, respectively. And the fourth is remittances.

³Tables and results are omitted here but are available upon request.

⁴The results are likely to change, particularly for consumption and REER, if a consistent series for current transfers is obtained.

⁵An empirical study on the effects of the peso appreciation is beyond the scope of this paper. Tuaño- Amador, et al. (2007) allude to evidence of Dutch Disease in the Philippines, which is also manifest in the deceleration of the manufacturing sector simultaneously with the rapid growth of GDP. Manufacturing sector growth fell to 3.3% in 2007 from 4.6% a year before whereas GDP growth surged to 7.3% in 2007 compared to 5.4% in 2006. However, a more important undertaking would be to determine whether the peso is overvalued at the current exchange rate.

⁶Quoted from Tetangco (2005), pages 253-254. The details of the reforms are contained in the same paper.

⁷Information was sourced from the BSP.

⁸The EMP is calculated as The exchange rate is defined as $/peso, and %er and res are the percentage month-on-month change of the exchange rate and international reserves, respectively. The EMP normalizes the size of the intervention, therefore making comparisons across time valid.

⁹The sterilization coefficient is the coefficient from a regression on the contribution of net domestic assets to reserve money growth on the contribution of net foreign assets to reserve money growth.

¹⁰The correlation results were supported by regression analysis using the two-stage least squares procedures applied by the IMF (2007b) as described in Box 3.2 “The Effectiveness of Intervention: Additional Tests,” page 39.

¹¹The views of the BSP, as contained in this paragraph and the next two, were expressed by Dr. Cyd Tuaño-Amador, Managing Director for Research of the BSP, during the ADBI workshop in Tokyo on December 11-12.

¹²Dr. Tuaño-Amador cited the fact that the IMF mission recognizes that BSP needs to build up reserves. In the 2006 Article IV consultation report, IMF staff noted that “…reserve cover remains low compared to other emerging markets… Some further intervention to build reserves therefore seems justified.” Former IMF Managing Director Rodrigo De Rato in a speech in Thailand in 2007 stated that “There is a place in managing capital inflows for intervention, especially where inflows of capital appear to be a short-term surge rather than a long-term trend”…and that “the Fund recognizes that intervention can be an appropriate tool of macroeconomic management.”

¹³The views in this paragraph and the next were also expressed by Dr. Tuaño-Amador during the ADBI workshop on December 11-12, 2007.

¹⁴A recent World Bank Study explains the dilemma of rising economic growth and declining investment. See A. M. Bocchi, “Rising growth, declining investment: the puzzle of the Philippines.” Manuscript, November 1, 2007.

¹⁵A large part of this section is lifted from Agarwala (2004).

¹⁶The more appropriate term is “global macroeconomic imbalances” since the US has a deficit also with the EU. This issue and the possibility of East Asian investment being constrained by the need to support the US dollar is discussed thoroughly in the following recently published books Global Imbalances and the US Debt Problem – Should Developing Countries Support the US Dollar? Edited by J. J. Teunissen. Fondad, The Hague, December 2006; and Global Imbalances and Developing Countries: Remedies for a Failing International Financial System. Edited by J. J. Teunissen. Fondad, The Hague, June 2007. The books contain relevant policy recommendations on how to address the unipolar financial system.

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