Short-Term Capital Flows, A Menu of Regulatory Options for the Philippines

Paper for Action for Economic Reforms' Seminar on Capital Flows, April 25-26, 2002 Lake Island Resort, Binangonan Rizal.

Just when a few lessons were about to be learned from a crisis
supposedly triggered by "external factors" (the Thai baht), an internal
crisis triggered a new round of speculation that plunged the Philippine
stock market to its lowest level in 10 years and eroded the peso's
value against the dollar to record lows.

This paper propounds some proposals to regulate short-term capital
flows and puts forward some prudential regulation that ought to be
taken, not necessarily to prevent a crisis, but to mitigate the impact
of hedge funds on the Philippine economy. An update on the current
level of appreciation by Philippine monetary authorities and how it
dovetails with Action's advocacies is also shared.

The dust of the 1997 Asian currency turmoil has just about settled,
with Philippine authorities claiming the country came out of it the
least scathed. Cross-country data have shown though that it has not
recovered as much as other Asian countries that were worse hit like
Korea, Malaysia and Thailand. And indeed just when a few lessons were
about to be learned from a crisis supposedly triggered by "external
factors" (it all started with the Thai baht, remember?) an internal
crisis triggered a new round of speculation that plunged the Philippine
stock market to its lowest level in 10 years and eroded the peso's
value against the dollar to record lows. What started as a creeping
crisis of confidence
that slowly engulfed the Estrada Administration turned into a tight grip that led to its eventual suffocation.

No, this paper will not tell you about how the Filipinos did it all
over again with the socalled EDSA People Power 2. Rather, as its title
simply states, it intends to propound some proposals to regulate
short-term capital flows and put forward some prudential regulation
that ought to be taken, not necessarily to prevent a crisis, but to
mitigate the impact of hedge funds on the Philippine economy.

Some of these proposals will be lifted directly from an earlier paper
done on the same topic. Within these proposals, an update on the
current level of appreciation by Philippine monetary authorities and
how it dovetails with Action's advocacies will be shared.

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