THE GOOD AND BAD OF 51
The Philippine Star
09/05/2017

As the Philippine peso continues its flirt of the P51 per $1 level, the discussion on the merits – is it bad or is it good? – of a weak peso once more hogged the front pages.

Per Bangko Sentral ng Pilipinas (BSP) reckoning, the peso slid 2.8 percent from year-to-date levels, something that we should not be alarmed at, even if we have been accustomed for years to seeing the peso-dollar exchange rates at below 50. 

So is the current state of the peso good or bad?

Without going into the complex metrics of determining how this weakened peso affects the whole Philippines economy and its relation to the more convoluted behavior of key global currencies like the U.S. dollar and Chinese yuan, two good things immediately pop out.


Yes!

First, that our countrymen dependent on remittances from relatives abroad are happy that the foreign currency they can exchange for pesos fetches more than it did a year ago – or for that matter, since about 11 years ago.

With 51 pesos exchanging for a U.S. dollar, that’s P300 more for a 100 greenback note. Assuming that a family gets at least $300 a month from their mother or father abroad, that’s an P900 additional spending for the month. Not bad!

Second, our exporters are happy they are paid “more” in terms of pesos for the goods and services they sell to foreign clients. Of course, they would even be happier if the inflation rate were lower than the depreciation rate of the peso.

This means that they are buying raw materials for their products at about the same price that they were paying for about a decade ago, but would be getting a “bonus” from the weakening of the peso.

Since about 40 percent of the economy relies on dollar earning, that’s a big boost towards raising the gross national productivity (GDP) index. Again, more pesos earned for less dollars.

By the way, there are other sectors too that would be happy that the peso is losing its value, and these would be foreigners who visit the Philippines for their rest and recreation break. Like our OFW families, tourists will feel they are getting more in terms of services or goods for their dollar while enjoying the sights and sounds of the country.


No-no

The immediate problem arising from a more expensive peso would be the higher cost of importation – and the biggest one that we should mind would be oil and oil products. Global crude prices have somewhat been stable during the last few months, yet pump prices continue to rise.

Other imports, like machinery, most cars and car parts, metals, food products like milk, fertilizers and grain are similarly affected. This is, of course, worrisome because it means that we have to be earning more pesos to pay for the dollars that will be used to purchase essential products.

One other factor that has been volunteered that could be negatively affecting the peso is the President’s disposition towards certain internal and external policies that have been widely publicized, and are inhibiting foreign investors from taking a more positive outlook on the Philippines.

A vivid example of this would be Duterte’s anti-American sentiment, which understandably would make a U.S.-based business process outsourcing company think twice about expanding or opening operations here despite Filipinos’ suitability for the job.


Protectionism

Then again, there are the immensely complicated external factors that have affected the peso, but have similarly disturbed other currencies from both developed and developing economies.

First hand would be the strengthening of the U.S. economy, and the resulting aggressive rate hikes expected this year and in the near future under President Trump’s administration.

Similarly, should Trump single-mindedly pursue a protectionist stance, this would be a threat on emerging markets as well as China and India whose economies are highly dependent on the export sales of their manufacturing products.

The Philippines, being the largest beneficiary of foreign direct investments and a key trade partner of the U.S. to date, could find itself in an uncomfortable position during a transition period as the now-favored Chinese prepare to pour in money for short- and long-term projects.

On the other hand, there are views that the U.S.-declared protectionist stance could be moot and inconsequential since China and Japan seem to be on the mend, and as such, their respective currencies have successfully fought off a continued depreciation versus the U.S. dollar.

A stronger U.S. economy would also mean that foreign investments in the Philippines, which had reached peak levels after the global financial crisis of 2008, would be thinking of parking their money back to American soil.


Pooh-pooh

Our country’s economic team is pooh-poohing the peso’s recent depreciation to 51, citing three indicators that should be given more merit: persistently low inflation levels, continued economic growth, and an unabated creation of more jobs.

GDP growth had risen to 6.5 percent in the second quarter from 6.4 percent in the first quarter, and the Philippines is one of the strongest economies in the region, if not the whole world.

On the other hand, inflation averaged 3.1 percent in the first seven months of the year (government forecast was at 3.5 percent), but could end up higher for the whole year. It was only at 1.8 percent in 2016.

Even as the Philippine peso has been tagged as the worst performing currency in the region with its slow depreciation to 51, BSP officials describe this as a “healthy correction” that should safely keep until the end of the year.

We are further assured that the government is on top of the situation, and while the new BSP leadership under Governor Nestor A. Espenilla Jr. has adopted a more restrained policy about intervening in exchange rate setting, we are warned that it will not condone any speculative activities.

Now, should we feel comforted?


Facebook and Twitter

We are actively using two social networking websites to reach out more often and even interact with and engage our readers, friends and colleagues in the various areas of interest that I tackle in my column. Please like us at www.facebook.com and follow us at www.twitter.com/ReyGamboa.


Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center,
Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit http://www.bizlinksphilippines.net/.
 

TOP

 
 
 
.