MANILA, Philippines - The Central Bank on Thursday approved new foreign exchange liberalization rules in a bid to encourage dollar outflows and stem the peso’s appreciation as cash seeking higher returns deluges Asia.
The new rules raise the limit on dollar purchases and do away with documentary requirements.
"These changes are a result of the continuing efforts by the Bangko Sentral ng Pilipinas (BSP) to keep the foreign exchange regulatory framework responsive to and attuned with the current economic conditions and to align it with the policies of neighboring countries in the region to maintain the competitiveness of the Philippines FX regime," central bank Governor Amando M. Tetangco, Jr. said in a statement.
The announcement came as a Malacañang official said the Philippines and Thailand had agreed to push for stronger cooperation among Association of Southeast Asian Nations (ASEAN) members to address the issue of capital inflows.
President Benigno C. Aquino III and Thailand Prime Minister Abhisit Vejjajiva met yesterday before the opening of the 17th ASEAN meeting in Vietnam.
"The two leaders agreed there should be more talk between the central bankers and finance ministers of the two countries and of ASEAN so we can coordinate more closely our actions because of the strong currencies we are seeing right now," Presidential Communications Group Secretary Ricky A. Carandang said in a radio interview.
"While our exports numbers are still strong, there are some concerns from our exporters that profit margins are getting squeezed and revenues are getting smaller," he added.
Thailand, in stemming the surging baht, has imposed a 15% withholding tax on interest and capital gains earned by foreign investors on Thai bonds.
The BSP has declared that it does not want to impose capital controls and prior to yesterday’s announcement said it would make it easier to take dollars out of the country.
As part of the new rules, the central bank raised the limit on over-the-counter foreign exchange purchases by Filipino residents from accredited banks to $60,000 from $30,000.
Tourists and Filipinos residing abroad may reconvert their pesos into as much as $5,000 -- from $200 -- at airports and other ports of exits without needing to show proof they sold their dollars for pesos when they first arrived.
Importers may purchase as much as $1 million, from $100,000, at accredited banks to make advance payments for their purchases.
Foreign currency loans of the private sector that are registered with the central bank may be prepaid without prior BSP approval, subject to the following requirements:
- a notice of intention to prepay that is submitted to the BSP at least one month before the target payment date;
- presentation to the selling bank of a BSP registration letter, ID card and original BSP letter acknowledging receipt of notice of prepayment; and
- foreign exchange purchases not exceeding $50 million per day
Banks can also act on requests for peso conversion by foreign investors that want to remit abroad.
The amount that each investor may purchase each year for outward investments or investments in debt papers was also raised to $60 million from $30 million.
"These proposed amendments are expected to encourage greater FX outflows at this time the domestic currency has been appreciating against the US dollar," Mr. Tetangco said.
He said the new rules are expected to have only a minimal impact on domestic liquidity and inflation.
The new rules, which make up the fourth phase of foreign exchange reforms, will take effect 15 days after their publication in a newspaper.
In January last year, the BSP approved the "third wave" of foreign exchange reforms with banks no longer required to submit to the central bank reports on their sale of foreign currencies to entities wanting to invest abroad.
The peso has appreciated by around 7% since the start of the year. It is presently trading at around P43 per dollar from around P46 per dollar in January.
Funds have been flowing to Asia, attracted by the region’s robust growth while Europe and the US continue to slump.