US default 'unthinkable' but PH is ready - Purisima
NEW YORK - No one expects the United States to default on its debt obligations, but if it happens, the Philippines, which holds nearly half of its global reserves in U.S. Treasuries, could weather the storm, the Philippines' top finance official said late on Sunday.
"A U.S. default is something unthinkable. But we're facing it from a much stronger position," Philippine Finance Secretary Cesar Purisima told Reuters in an interview.
He added that the Philippines is finally growing at a healthy and steady pace after years of being Asia's economic laggard. Its improved economic performance will help it face this latest global challenge, Purisima added.
"There's really nothing we can do, but focus on the things that we can control and that's why we're continuing to work on our fundamentals."
U.S. Senate talks to resolve the latest fiscal crisis showed signs of progress, but there were no guarantees that the U.S. government shutdown was about to end or that a historic default would be avoided.
The U.S. Treasury reaches its debt ceiling and runs out of authority to borrow on Thursday.
He added that the Philippines does not have a specific action plan in case of a default, because Purisima believes it's not going to happen.
"I am not even thinking of a default. We have full faith and confidence in the United States," Purisima said.
The Philippines held about $38.9 billion in U.S. Treasuries as of July 2013, based on the latest U.S. capital flows data from the Treasury department. That's equivalent to about 47 percent of the Philippines' international reserves in July of $82.942 billion.
The Philippines, a long-time ally of the United States, feels the need to hold U.S. Treasuries because the U.S. is one of the country's largest trading partners.
Yet despite the troubles facing the United States, Purisima believes the U.S. dollar should still be the world's reserve currency.
"The U.S. is still the world's largest economy and it is the most efficient even though its politics has been polarized," said Purisima. "It has the traits and features that make the dollar ideal as a global reserve currency."
The Philippines has been one of the few bright spots in Asia, having been upgraded to investment grade by all three ratings agencies. It has been growing at a solid pace in the last few quarters: the economy grew 7.6 percent from April to June. It has kept pace with China, with the two becoming the region's fastest growing nations this year.
Purisima said the prospect of the Federal Reserve's eventual reduction of stimulus would have a muted effect on the Philippines because it has a current account surplus and it is less dependent on hot money capital flows.
"No one is immune from the Fed's tapering, but global investors have started to differentiate the countries within emerging markets," the finance official said.
"There are emerging market countries that are export dependent, and there are economies like the Philippines that relies on domestic consumption, which means we are less dependent on the vagaries of the global economic environment."
The Philippine peso was down 4.7 percent so far this year against the U.S. dollar, but has been spared the steep losses suffered by its peers in Southeast Asia, as the Fed tapering its bond buying became evident from May until early September. The Indonesia rupiah, for instance, has fallen more than 15 percent in 2013.
In fact, he said the Philippine government intends to raise financing in the offshore debt market next year, "not because we need the money, but because there has been demand for our debt paper." He hasn't decided yet on the size of the bond issue.