Mr. Usigan formerly worked for the Department of Economic Research, BSP Head Office. This article appeared in the CB Review, January 1989.
Prologue: An Update
The fast growing trend toward globalization and economic interdependence in the 1990s have made it increasingly difficult for individual nations to isolate their exchange and payment systems from the rest of the world. Numerous Asian countries have liberalized exchange regulations, cognizant of the region's increasing integration with international commodity and financial markets.
Hongkong and Singapore have been characterized by more open and advanced financial and foreign exchange markets for some time now, while exchange controls were loosened only in the late 1980s in Taiwan and South Korea. But together, the experiences of these tiger economies and the more recent phenomenon of the newly industrializing ASEAN states, namely Tahiland, Malaysia and Indonesia, confirm the wisdom
behind placing a healthy respect for market mechanisms.
The Philippine foreign exchange system has been characterized by a continued surging back and forth between controls and attempts at deregulation. These policy shifts were made for the most part in response to developments in the balance of payments, international reserves, and the exchange rate.
The onset of 1990s witnessed a definitive shift to a more liberal environment. In 1991 a new foreign investment law expanded the coverage of sectors open to full foreign ownership. In January 1992, a major reform package was put in place to transform the country's payments systems. In April 1992, the Central Bank deepened the foreign exchange market and improbve the mechanism for exchange rate determination. Off-floor interbank trading of foreign exchange was reopened under the Philippine Dealing System, a system which links participants through an electronic screen-based network for sharing information.
In August 24, 1992 the green light was flashed for the full liberalization of foreign exchange regulations on current account transactions. The most important chages in these decontrol measures are as follows:
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Commodity exporters have been allowed full retention and
free use of all their export earnings, and their access
to loans from foreign currency deposit units (FCDUs)
further widened.
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The mandatory foreign exchange surrender requirement
imposed on service exporters has been lifted.
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Authorized agent banks have been allowed to sell,
without prior CB approval, foreign exchange to residents
for payment of invisible transactions (e.g., travel,
remmitances to dependents aborad, medical and
educational expenses).
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And, full and immediate repatriation privileges have
been granted for all types of foreign investment,
together with the freer entry of investments which no
longer require prior Central Bank approval.
Following these moves toward liberalization, the foreign exchange regulatory framework of the Philippines is now comparable with the most liberal in Asia. In fact, it has become more liberal than those of Malaysia, Thailand, and South Korea.
The update was compiled by the webspinner from various articles in the CB Review.
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