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Compared to the Thai Baht, whose value was approximately equal to the Philippine Peso before 1980, now, its exchange rate had likewise diminished, but only up to Bh 35.00 to the US dollar, as against our P51.65 per dollar. On the other hand, another Asian neighbor, Japan, had shown gradual appreciation of its currency from P 0.03 twenty years ago to P 0.54 at present. What are the factors for these discrepancies? And what are the causes that brought the gradual decline of the Philippine Peso? CAUSES OF PESO DEVALUATION
In the beginning, the Philippine Peso was equivalent to US$ 1.00. According to official sources, the Philippines first experienced devaluation of its currency in 1934 when the United States was undergoing the worst economic crisis in history – the Great Depression. Since our currency was pegged to the US dollar then, when the US government passed the Gold Reserve Act of 1934 which devalued the US dollar, the peso was consequently devalued at P 2.00 to US$ 1.00.
Then, on November 8, 1965, the International Monetary Fund officially reduced the gold contents of the peso by half, thereby depreciating its value to P 3.95 per dollar. This action by the IMF was best described by Filipino economist Dr. Gregorio S. Miranda: “For quite some time, the Philippines was in a state of monetary crisis brought about, among others, by government overspending especially for purposes of political expediency or economic imperatives.. In order to save itself from bankruptcy, the government had to buoy itself up by seeking loans for loans about to mature by the end of 1969. The government did, and in so doing, in effect, surrendered its monetary sovereignty to the International Monetary Fund from which it sought and got a third tranche, or a loan to cover a previous loan about to mature then. The floating rate is thereby the product of the IMF’s effort to restructure our foreign obligations premised on certain conditions”.
Thus, on February 21, 1970, the Central Bank promulgated CB Circular No. 289 which allowed the peso to float and seek its true market value. This created an increase in the prices of imported goods, and locally produced goods with imported components. Eventually, by June 1983, the Central Bank devalued the peso to P 11.00 to a dollar. After four months, on October 5, 1983, the peso was further devaluated with a rate of P 14.00 per US$ 1.00. This later depreciation was decided upon, when the balance of payments deficit increased unexpectedly by $800 million by the third quarter of 1983, and the Central Bank could no longer afford to finance further deficits.
There was no clear cause as to the devaluation of the peso from P 14.00 to P 25.75 during the Aquino Administration, but the US stock market crisis in 1987 may hold the key to our understanding. Called the Black Monday, a fall in stock market prices in the United States on October 29, 1987 created turbulences in the world capital markets. It triggered a financial crisis around the world including London and Tokyo. it was a world economic crisis. The same thing happened in 1997-1998 when Asia experienced a financial crisis which shook and rocked prices of half the world’s currencies, and brought the peso value down to P 28.00 per US dollar.
The recent P 50.00 per dollar exchange rate is the effect of the maturing of our IMF and World Bank loans which had already ballooned to $ 66 Billion in 2004.
These are just the direct explanations as to why the value of the peso is gradually depreciating. However, there are still some underlying factors that had brought about these events.
The Effect Of A Strong Peso On Growth
POSTED BY: ZHYRA SISON ON SEPTEMBER, 14 2012
Strong Peso may affect exports and growth.
The Philippine peso has been trading at a four year high for the past few days, with the local currency opening today at P41.49 pesos against the dollar. Analysts note that this will reduce the competitiveness of Philippine exports, denting the country’s growth.
“The effect of a strong peso on growth is negative,” Benjamin Diokno, economics professor at the University of the Philippines, said in an interview.
The a “strong rebound” for the export sector is unlikely owing to continuing weakness of the global economy and the unabated strengthening of the local currency, Diokno said
The export sector, which accounts for 40 percent of the Philippine gross domestic product, is forecast to grow 10 percent this year. This is a turnaround from last year’s weakness, with export revenues falling by as much as 27. 4 percent in September 2011, a two-year low. Exports were cited as one of the factors that slowed last year’s GDP to 3.6 percent.
“The strong peso will make exports expensive and imports cheap. This can drain foreign reserves and worsen balance of trade,” Cid Terosa, economist at the University of Asia and the Pacific.
Terosa added this is further aggravated by the decline in the export of electronic products – the country’s top export earner – owing to a global slowdown.
2. Social Issues / Economic Effects Of The Foreign Exchange Rate Economic Effects Of The Foreign Exchange Rate
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Printable Version Essay: Economic Effects Of The Foreign Exchange Rate
This paper tackles the effects of the foreign exchange rate as a whole and how it affects the country and at the same time how it gets affected. This paper enumerates the advantages and disadvantages of having a strong Peso. The paper also discusses what factors affect the strengthening and weakening of the Philippine Peso. This paper also includes an in depth analysis of how the foreign exchange could affect and gets affected by the economy, the society and politics. OVERVIEW
The Philippine exchanged rate is express in terms of one unit of dollar versus one unit of peso. There are two cases on how an exchanged rate would be determined the first system is the free floating exchange rate where the supply and demand force of the market is the index and the other system is the fixed exchange rate given directly by Bangko Sentral ng Pilipinas. The free floating exchange rate would be given more consideration since it’s the system that mostly affect our economy and being supported by BSP adopted since 1970. In the cases when the demand and supply is not stable, the BSP has the authority to enter and provide guidance in the market to prevent the volatility effects in the exchange rate fluctuations that affects inflation. They also fixed firmly the demands for foreign currency by providing liquidity when required. This system applied in the Philippines is consistent with its goal to aim external competitiveness through market efficiency. Peso appreciation provides numerous benefits on our economy like lowering inflationary expectations or pressures and added additional savings resulted from foreign debt servicing but it also negatively affects the export market and the beneficiaries of the remittances given by the OFW. The peso continues to struggle in the year 2005 but compared to 2004 it appreciated by 1.72%.
The factors that affect the peso and help increase the standing of our economy are the remittances by the Overseas Filipino Workers on different countries around the world. The increase level of foreign investors who are willing to give up their money to establish business in the Philippines due to high level, confidence given to our government by the new policies implemented RVAT is also one of the strong factors that affects peso. The RVAT law includes the credit rating given by the foreign credit investigators (S&P and Filtch) now includes Philippines in the list of the countries, meaning the level of credibility given to us increase when it comes to handling debts. Those scenario mentioned basically appreciates the value of peso against the US Dollar. Looking on the negative factors, an increase affects mainly the export business in the market because of the unfavorable influence on the productivity and level of investment as well as the political commotion that creates a big impact on the peso depreciation.
The steps taken by The BSP in order to stabilize the foreign exchange market during the year 2005 are increasing the interest rates to 25 basis points to decentralize the possible risks to inflation expectations. The required reserves are also increased by one percent that resulted to ten percent from nine percent, this implementation would mop up surplus peso liquidity that has a connection on inflationary impact this took effect last July 15, 2005. Currency Risk Protection Program was made this is a program where corporate and foreign exchange investors purchase foreign exchange from banks at predetermined rate in the future through this said CRPP it would diminish pressure on the exchange rate.
In the year 2006 the BSP implemented additional measures in 2006 to improve its foreign exchange regulations through Circular 507 and Circular 519. Circular 507 (dated 19 January 2006) required any person who brings into or out of the Philippines foreign currency, as well as other foreign exchange-denominated bearer monetary instruments, to declare the same in writing and to furnish information on the source and purpose of the transport of such currency or monetary instrument. Meanwhile,Circular 519 (16 March 2006) amended the regulations on foreign (italic paragraph citation http://www.bsp.gov.ph/downloads/Publications/FAQs/exchange.pdf.) The government is expecting to maintain the strength of the Philippine peso in the year 2006 even though there’s a present precariousness in the financial markets. It is expected that the peso would yield to external shocks like the country’s stable macroeconomic fundamentals: national government fiscal policies where it would continue to support the peso, continuance inflow of remittances from OFW, direct foreign investments including exports that’s being currently worked out by the government. STATISTICS
By the year 2005, the Philippine Peso appreciated by 1.72%, decreasing from P56.04 per dollar in 2004 to P55.09 per dollar in 2005. During the first five months of the year 2005, an appreciation of 2.35% was exhibited averaging to P54.75 per dollar. However, by the month of June, the Peso started to depreciate reaching its lowest point in 2005 at P56.32 per dollar on July 8 which continued to the month of September. This was caused by the oil price hikes and expectations of U.S Fed rate hike. Even so, during the last quarter of 2005, the Peso recovered and closed at P53.06 per dollar, the highest since May 2003. In 2006, the peso continued to appreciate reaching to an average of P51.83 per dollar for the first 4 months. Within these 4 months, the peso has been fluctuating due to the political events that have occurred. Nevertheless, the peso strengthened reaching an average of P50.96 per dollar due to the sustained dollar inflows from the Overseas Filipino Workers’ remittances and the investments from China, Singapore, Japan and other countries as well.
By May, the peso depreciated as it reached to an average of P52 per dollar; And by June, dropped to P53.59 per dollar. This was caused by the Higher risk aversion in the global markets and the possible increase of the Federal Reserve Bank’s interest rate. Conversely, the peso appreciated by 1.66% reaching to a level of P52.31 per dollar on June and closed at P51.97 per dollar on July 25, after the president’s State of the Nation Address. And by August, it reached to a P51.33 per dollar rate, increasing by 1.90% from its previous rate. Due to the increasing confidence by investors and improving economic conditions, the peso further increased its value and reached to an average rate of P50.37 per dollar in September and P49.91 in early October, the highest level since 2002. Volatility during the year 2006:
Due to oil price roll backs and the approval of the RVAT law, the peso’s volatility improved early in January 2006 averaging P0.19. It continued its trend in March to an average of P0.13. However, the peso’s volatility increased to P0.30 in April and P0.59 in May which was caused by the depreciation of the value of the currency. In June, volatility decreased to P0.23. This was attributable to the increase of the country’s GDP by 5.5% in the second quarter of 2006. But it rose again in July to an average of P0.43. This was based on the peso devaluation reaching P53 per dollar. On august, Volatility decreased to an average of P0.21. Factors such as the decrease in fiscal deficit by 57.67% for the first 8 months of 2006 compared to the first 8 months of 2005, and the increase in the Gross International Reserves (GIR) by 0.72% higher than that of July-2006, were attributed to the decrease of volatility. As the peso continued to toughen, the volatility decreased to an average of P0.16 in September. However, as of October 9, 2006, the dollar devaluated from a level of P49.908 to P53.587. This has caused its volatility to increase to an enormous P0.89. The volatility of the peso was caused by different factors that strengthened and weakened the economy. These strengths are:
A. Sustained dollar inflows from overseas remittances such as OFW remittances, export earnings and foreign direct investments. Foreign capital inflows increased during the First General Corporation’s, the Philippines’ third largest power producer, initial public offering and Universal Robina’s additional stock offers. B. The government’s high dollar reserves and direct investments. C. Improved investor confidence. Instigated by the lower-than-expected government budget deficit of P146.5 billion in 2005 compared with the programmed deficit of P180 billion. This was on account of higher revenues and tighter spending. The development of macroeconomic fundamentals, improving fiscal position and strong economic growth caused the security by investors. D. Implementation of Key Economic Reforms. The implementation of he RVAT Law. E. Credit rating outlook upgrades. From negative, the Philippines’ credit rating was improved to a stable rating by S&P and Fitch. And the decision of CaLPERS’ (California Public Employees Retirement System) to include the Philippines in its list of permissible investment markets appreciated the local currency. F. Increase in the net foreign portfolio investments. This was accredited to the overall positive reaction in the market due to the improvement in the government’s fiscal position, and led the stock market trading to heave to its highest level in the last 6 years. These weaknesses are:
A. Higher oil prices in the economy.
B. Political turmoil. The impeachment case against President Arroyo threatened to eradicate the political stability of the Philippines, which investors are afraid of. C. Credit downgrades by international credit rating agencies. These weaknesses all created market apprehensions that caused some possible investors to back out. D. The contracting interest rate differential between local and foreign interest rates (following the series of US Federal Reserves’ rate adjustments). This made the cost of investing in the Philippines, if not expensive, less inexpensive from the cost of investing in foreign countries, which have a more stable economic and political standing. IMPACT ON THE ECONOMY, SOCIETY AND POLITICS
Foreign Exchange could significantly influence an economy of a country in different aspects. Changes in the Foreign Exchange rate directly affects the performance value of the Philippine Peso and in turn be an advantage or a disadvantage depending on the sector being affected. For the Philippine Peso to be considered an advantage, first requirement is that the Philippine Peso should be strong against the US dollar. It doesn’t really follow that the currency will just aim to be strong against the US Dollar but it is just the most common and traditionally used exchange rate basis. Two Factors that contribute to the strengthening of the Philippine Peso is the sustained investment an inflow in the country in which brings in more US Dollars and other currencies as well as the remittances of the OFW’s. An advantage of a strong Philippine Peso which benefits the general welfare of Filipino’s residing in the country is that a strong currency dampens the inflation pressures arising from imported commodities which in most third world countries, there are more imports than exports due to the lack of competitive advantage in producing and manufacturing the goods that are currently being imported. An important commodity being imported by the country is oil which is a very valuable and indispensable to the country.
In the last quarter of the year 2005, domestic prices of diesel and gasoline were rolled back 6 times which one factor of such decline was the appreciation of the Philippine Peso. The prices of oil is very vital in the economy especially in the Philippines since higher oil prices leads to higher costs of operations which could affect prices of manufactured goods and would severely be a handicap since our manufacturing industry is not that strong compared to our neighboring countries in Asia like Thailand which is starting to be a manufacturing powerhouse attracting global brands especially tire manufacturers since Thailand has developed a competitive advantage of producing rubber which is a very tedious process and also having higher costs of oil would turn off foreign investors in investing since a sound businessman would like to minimize costs and maximize profits. Having oil prices limited to a tolerable price would be a compensation to say the least to the manufacturing handicap that our country is into since in terms of electricity prices, the country is 2nd in the region with soaring electric prices at the same time labor in the country cannot compete with china’s labor force.
Taking note of the period in which the appreciation of the Philippine peso affected price roll back of oil imports, we could confidently conclude that the last quarter of every year is the start and peek of the remittances from the OFW’s and by being able to bring down oil prices and to curb up inflation as a whole, one could just imagine how much impact the remittances give. The trend of the last quarter last year is also happening as of late in the country wherein every week gasoline companies declare price cuts on oil. The second advantage of a strong Philippine peso which benefits from a strong foreign exchange rate is the savings it brings to the debt servicing of the government which is really hurting the country and a factor in hindering the company to move forward. The appreciation of the Philippine Peso would mean that it would decrease the Peso equivalent of the country’s liabilities with other countries.
According to the BSP website, for the year ended 2005, the strengthening of the Philippine Peso led to monetary savings of about PHP 1.6 Billion and for the current year, experts forecasts that for every PHP 1 appreciation would yield PHP 2.2 Billion in savings from debt servicing. The country should capitalize from the year 2005’s strong performance this year since potential savings percentage rose because of the closing strength of the Philippine Peso during 2005. For the first months for the year 2006, the Philippine Peso has been averaging PHP53.67 to $1 and as of the end of November; the peso is already playing around the PHP 48/PHP 49 level. Basing the assumptions given by the BSP, an average of PHP 3 appreciation has already been incurred and it could possibly have yield PHP 8.8 Billion in debt servicing savings. This advantage is very pivotal not only economy wise but social wise since savings from debt servicing would be infused to other projects like health and education which ideally should get the biggest chunk of the budget but sadly it only gets the crumbs since majority of the budget goes to debt servicing alone which could really mean stagnant progress to the other aspects of society.
The debt problem of our country has been an age old problem and the side effects of which are now being felt by sectors being sacrificed to prioritize the debt problem. Education quality has gone down exponentially in terms of quality percentage. Another advantage of a strong Philippine Peso is that it would reflect a robust economy for the country which could leverage itself to attract foreign investors in the country which could provide significant inflows for investments to the country furthering improving the economy. A positive outlook is very important to a country to seek investors to show confidence in investing to country since their outlook would be one of the considerations investors would consider. The first thing that an investor would want to know is that if they would get their desired rate of return at a certain period of time. Facing uncertainties and risks, investors would like to gather as much information to aide them to their decision making minimizing uncertainties and factors such as oil prices, stability of the government and the economy are some of the preliminary facts to consider. If from these preliminary factors as country fails to impress investors, important investment inflows would be going to some where else.
It affects the foreign exchange since as we have stated earlier, foreign investments helps the Peso appreciate. The Philippine Daily Inquirer published in their December 1 2006 paper that business confidence, which reflects foreigners outlooks to the country, has soared to a 5 and a half year high of 49% compared to just 22% a quarter ago. Another outlook factor that could affect the foreign exchange market is the credit rating by firms such as S&P and filch. These firms are respected firms and reliable so anything that they publish would be taken seriously by interested parties. A credit downgrade by these agencies affects the Peso negatively as it gives of a bad image of the country to interested investors but at the same time a positive rating would help the Peso strengthen. Just like the OFW’s, investments from foreigners improve and help peso appreciation and generally the economy as a whole. Having superb Dollar inflow allows the BSP to increase international reserves of debt curbing down Peso devaluation and aiding to Peso appreciation. Government and politics can also affect how the Peso will perform in the financial markets where their action immediately affects the strength of the Peso.
The destabilization plot, rallies and the hello Garci scandal are some of the political events wherein such negative events immediately dragged the Peso down the next trading day. on the other hand, when congress approved the EVAT law, a positive effect was created to the Peso since this shows the government’s commitment to avoid a fiscal deficit and at the same time improve the country’s finances which resulted positively since the government has been consistent in meeting their target of eliminating deficit. This news of improved fiscal condition creates a positive image to the country and boosts the economy. Another event which politics have contributed to a positive image which increases confidence from investors is the RATE and efficiency of tax collection which again has been very positive. For the first 9 months of the year, the government has posted significant amounts of surpluses, meaning income is greater than spending, and at the same time has been consistent with meeting its collection targets.
Investors consider political stability as a vital cog in decided whether to invest in the country or not because they would want to know if the needed laws that benefits the economy and business as a whole are being looked upon. Like the RVAT which immediately addressed a crisis, the politicians acted using political powers vested with them to answer the need of such law to benefit the economy. In current setting, government and politics are to help boost the economy with the signing of the bio fuel act. By mere passing of this law, the government can boost the economy and further boost the Peso’s strength in in two ways. First is that it helps the agriculture industry by creating demand for agriculture products specifically coconut. It also would affect the stock market since companies to be benefited by the law would become hot items on the stock market given the law would give them a profitable outlook thus making the market active. The bio fuel law would require major all gasoline producers be mandated to blend their products with 5% bio ethanol for the first three months gradually increasing the blending ratio by as much as 30% after 5 years.
Bio ethanol is one of many alternative fuels being looked at to answer rising oil prices. In the country, coconut is the main proponent of bio ethanol fuel which maximizes the countries abundant resources of such. Although coconut as a proponent of bio ethanol is the 2nd most expensive among all the alternatives ( palm oil is considered the cheapest form of alternative fuel which Malaysia has already perfected in producing), it could still ease up on oil imports making goods more cheaper and making us more competitive. A strong Peso is generally favorable to the economy as a whole but there are certain sectors of the industry and society that are affected by a strong Peso. The export industry is weakened by a strong Peso since their good would become more expensive since the Peso appreciates which makes them less competitive in the export market. Although they may be affected, all is not lost since there are financial solutions to at least mitigate the handicap they are facing because exporters could enter into hedging agreement or derivatives where in they could enter into a contract to protect them from the Peso appreciation.
The tourism industry weakens as well since a strong Peso makes staying for a vacation in the country would make it more expensive. The effect of a strong Peso on the tourism industry also affects the Hotel industry since it is some what related as a strong tourism industry means move bookings with hotels for a place to stay. An ironic disadvantage of a strong Peso is that the beneficiaries of the OFW’s, who contributes significantly in making the Peso strong, get less of the remittances that their relatives send them since the Dollar looses its purchasing power by the peso appreciation. And finally a sector which for us is really getting the worst out of the situations are the domestic producers since a strong Peso would make imported goods cheaper since the Peso appreciates thus making it purchase imported goods more. This industry is for us the most affected due to two things. First is that as Filipinos’ , it a known fact that we posses a colonial mentality that we patronize more imported goods than local goods and by imported goods being cheaper, the more the Filipinos could afford such imported goods snubbing the domestic goods. Another disadvantage is that there is no hedging or derivatives to be available of which cannot help in mitigating the Peso appreciation. RECOMMENDATION
From the data gathered and the group’s analysis, the country and its economy are very much on a high note. All factors pointing to an emerging economy are in the country’s favor. We recommend that officials in charge to bank on this positive outlooks and translate them and use them as leverage to further move this country forward and be lifted out of whatever hindrances of economic and social progress it deserves and has been clamoring for.
Monetary Stability Sector of the Bangko Sentral ng Pilipinas (2006). The Exchange Rate. Retrieved November 29, 2006 from http://www.bsp.gov.ph/downloads/Publications/FAQs/exchange.pdf
|News Analysis: Philippine authorities mulling effects of stronger peso on economy | | |
|English.news.cn 2012-07-04 16:26:35 | |
By Alito L. Malinao
MANILA, July 4 (Xinhua) — The Philippine peso closed on Tuesday at P41.72 to a U.S. dollar, the strongest closing rate in four years, prompting Philippine monetary authorities to evaluate its effect on the economy and the export industry.
The last time the peso showed its strength vis–vis the U.S. dollar was on April 9, 2008 when it closed at P41.725 to a dollar.
Even if the Bangko Sentral ng Pilipinas (BSP), the country’s central bank, has assured the public that it would continue to let the market determine the peso-dollar exchange rate, some revealed that the BSP actually intervened in the trading on Tuesday, otherwise the peso could have appreciated more.
BSP Governor Amando Tetangco said that the appreciation of the peso was just a reflection of the positive developments in the country, citing “improved fiscal position as well as the continuing external liquidity of the economy, plus of course the robust GDP growth that we experienced in the first quarter.”
The country’s gross domestic product (GDP) grew by an unexpected 6.4 percent in the first quarter, second only to China in the region.
The gross international reserve of the Philippines, which indicates capability to pay for imports and service foreign debts, stood at a huge 76.016 billion dollars in May.
In fact, out of its dollar reserves, the Philippines was able to lend 1 billion dollars to the International Monetary Fund (IMF) for its standby fund.
Tetangco said he believes that the Philippine peso is probably ahead in terms of value in relation to other currencies but “that’ s how the market perceives the currencies and we are just allowing the market to determine the rate.”
He also said that the recent peso movement is broadly in line with those in other emerging markets in Asia.
Jonathan L. Ravelas, chief market strategist of Banco de Oro Unibank, was quoted by reports as saying that the positive developments in the euro zone continued to boost risk appetite among market players.
Ravelas said foreign investors favor the Philippine peso and other local assets given the country’s strong economic fundamentals.
For his part, Tetangco said that although at the moment monetary authorities are not yet so concerned with the appreciation of the peso, they are nevertheless watchful that ” that no unnecessary incipient pressure points build up.”
“The exchange rate movement is only one of many factors we consider in setting policy interest rates. We will take these into consideration during our next meeting, factor these into our forecast models and see how these feed into our growth and inflation forecasts,” Tetangco said.
“We will then see if there is any need to make adjustments to policy,” he added.
The central bank’s policymaking Monetary Board is expected to set its next overnight borrowing and lending rates on July 26. In its June 14 meeting, the board set at 4 percent and 6 percent its borrowing and lending rates respectively.
While a strong peso makes imports cheaper, it will also push up the prices of the country’s exports and make them less competitive in the world market. A strong peso would also mean that the Philippines would spend more in the repayment of its foreign loans.
Sergio R. Ortiz-Luis, Jr., president of the Philippine Exporters Confederation, Inc. (Philexport), told reporters Tuesday that peso’s appreciation has already worried some exporters.
“Some of our exporters…have already stopped accepting orders, ” Ortiz-Luis said, adding that some exporters have reported losing money whenever the peso appreciates beyond P42.50 to a dollar.
Ortiz-Luis said that Philexport is hoping that they could recover this year. “But this trend continues, we might revise our target,” he said.
Merchandise exports grew by an annual 5.5 percent to 17.512 billion dollars as of April this year. Last year, shipments contracted by an annual 6.9 percent, worse than the expectations of the government and industry players.
Another sector that could be hit hard by the appreciation of the peso would be the millions of overseas Filipino workers who are earning in U.S. dollars but are spending pesos in the country through their remittances to their families.
POSITIVE, NEGATIVE EFFECTS OF STRONG PESO ON PHILIPPINE ECONOMY
Last Updated: 2011-07-28
MANILA, July 28 (NNN-Bernama) — The appreciation of the Philippine peso to its highest level in three years has both good and bad effects on the country’s economy, reports Xinhua news agency.
Certainly, as some economists have pointed out, a strong peso is a clear indication that investors’ confidence, particularly from foreign sources, have returned to the Philippines.
According to the Bangko Sentral ng Pilipinas (BSP), the country ‘s central bank, the strong performance of the Philippine peso was a direct result of the influx of foreign portfolio investment in emerging economies like the Philippines.
BSP Deputy Governor Diwa Guinigundo said that foreign portfolio managers have preferred investing in Asia given the uncertainties and challenges confronting the United States and some European countries saddled by
“Advanced economies appear to be moving backward.. Any logical direction of investment inflows is toward the more robust and promising emerging markets,” Guinigundo said during the launching on Tuesday of the latest World Investment Report by the United Nations Conference on Trade and Development (UNCTAD).
Foreign portfolio investment yielded a net inflow of US$138.68 million as of June 17 compared to a net inflow of only US$2.40 million for the same period in 2010.
In Tuesday’s trading, the Philippine peso closed at 42.225 against 1 US dollar, up by 16.5 centavos from Monday’s finish of 42.39: 1 dollar.
On Wednesday, the peso peaked to 42.11 to 1 US dollar, the highest so far since May 2008.
Guinigundo said that besides the faster economic growth rates in the region, higher interest rates in Asia also helped entice foreign portfolio investors to put their investment here.
Interest rates in emerging Asia are rising while those in the West, led by the United States, are still at record lows.
During the past two years, the Philippine peso has been one of the strongest currencies in Southeast Asia.
Aside from the inflow of portfolio and foreign direct investments, the rise in the peso was also caused by increased dollar remittances from overseas Filipino workers (OFWs) and the deterioration of the US economy, the Philippines’ number one trading partner.
According to Sen. Ralph Recto, chairman of the Senate committee on ways and means, the peso could even appreciate up to 34 pesos to 1 US dollar this year.
A situation like this would put the Philippine government in a quandary.
Peso appreciation would mean a reduction of the country’ s debt servicing as well as reduction of prices of imported commodities.
However, this appreciation will also reduce the purchasing power of the dollars that OFWs send to their families in the Philippines.
It would also mean that Philippine exports would be less competitive abroad and the income of exporters would be diminished.
Already, exporters from all over the country have cautioned about the implications of a strong peso on the export industry.
An earlier report by the state-run Philippines News Agency quoted Roberto C. Amores, president of the Philippine Food Exporters and Processors Organization (PHILFOODEX), as saying that a strong peso is “bad for the exporters and bad for domestic manufacturers.”
“Definitely, we will again lose competitiveness vis-a-vis our Asian neighbours. This will cause massive unemployment, factory shutdown and serious displacement as cheaper imports flood the local market,” Amores said.
Amores also said that portfolio investment is not a reliable gauge of economic growth of the country because it can be withdrawn from the market anytime.
Earlier, President Aquino has announced the release of 100 million pesos (US$2.36 million) in export support fund ( ESF) to help the export industry cope with various pressures like the strong peso.
Philexport President Sergio Ortiz-Luis has said that in spite of the decline in May exports, they are not changing their export target growth of 10 percent for 2011, adding that they “expect higher figures starting the third quarter.”
But in an earlier briefing, Ortiz-Luis also bewailed the government’s peso-dollar exchange rate policy.
“A major stumbling block in sustaining export growth is an exchange rate policy that has always been biased in favor of a strong peso,” Ortiz-Luis said. — NNN-BERNAMA
Investments boost peso to four-year high, reaches P40.87:$1 mark
November 27, 2012 7:38pm
Boosted by remittances from overseas Filipinos and strong portfolio investments by foreign fund managers, the peso breached the 41:$1 mark to end the trading session at 40.87 to the dollar – a four-and-a-half-year high.
Intra-day, the Philippine unit reached 40.85:$1 on the Philippine Dealing and Exchange Corp., where foreign currencies are traded. Tuesday’s turnover totaled $899.52 million, PDEx records showed.
The peso last traded below 41 to a dollar on March 10, 2008 when it closed at 40.81, according to Central Bank data.
“The peso has indeed appreciated faster than regional currencies have, but the volatility of the peso has been maintained at the middle of the range [compared with those of key currencies in the region],” Bangko Sentral Gov. Amando Tetangco Jr. told reporters Tuesday.
For his part, BDO Unibank chief market strategist Jonathan Ravelas said in a separate text message that he is expecting peso levels to reach P41.70 = $1 by the year’s end “mainly due to remittances and portfolio flows.”
Remittances reached $17.3 billion as of end-September, up 5.7 percent year-on-year, according to the Central Bank. In September alone, remittances totaled $2 billion.
Apart from remittances, Tetangco noted that investor confidence remains buoyant especially on news that debt-riddled Greece is about to get another bailout package from the European Union.
Meanwhile, hot money or foreign portfolio investments plunged to $40 million in October from $402 million posted in September. There was a lot of profit-taking in the stock market, the bank noted, with the main index reaching its 30th all-time high this year on Tuesday largely on the strength of foreign funds.
Tetangco said the Bangko Sentral will closely monitor the forex market and step in if the exchange rate movement needs policy action.
Dealers, who asked not to be named as they were not allowed to talk to the media, noted the peso would have been stronger if not for Bangko Sentral intervention.
The Bangko Sentral policy largely allows market forces to determine the peso rate of exchange against the dollar, but the central bank can also exercise the option to buy or sell currencies in the market to avoid potentially destabilizing movements of the peso.
Extreme volatility in the currency exchange rates can have a detrimental impact on the economy, according to the Bangko Sentral.
The BSP is continuously intervening in the market in a moderate way, dealers noted. — With Rouchelle Dinglasan/VS/YA/BM, GMA News
3. Peso at new 4-year high as OFW remittances pour in
By Michelle V. Remo
Philippine Daily Inquirer
9:11 pm | Thursday, November 8th, 2012
MANILA, Philippines—The peso inched up slightly further on Thursday, even as some other Asian currencies fell, as remittances from overseas-based Filipinos rose in the approach to the Christmas season. The local currency closed at 41.05 against the US dollar, up by one centavo from the previous day’s finish of 41.06:$1, thus registering a new four-year high. Intraday high hit 41.05:$1, the same as the day’s close, while intraday low settled at 41.12:$1. Volume of trade reached $1.037 billion from $968 million previously. Traders said the rise of the peso came as overseas Filipino workers sent more money to their families following the entry of the Christmas season. The appreciation, however, was minimal given the drag caused by concerns over the US “fiscal cliff” and an unfavorable outlook for the eurozone. In the United States, some spending cuts and imposition of certain taxes are scheduled by the end of this year. Moreover, the debt ceiling of the US government must be raised before the end of the year to avoid disruption of state operations. In the eurozone, concerns over its economic performance linger as the European Commission said the region might barely grow in 2013. Traders said problems confronting the US and eurozone economies led to the decline of some emerging market currencies and dampened what could have been a sharper rise of the peso.
P/$ rate closes at P42.94/$1
March 7, 2012, 1:57am
MANILA, Philippines — The peso exchange rate closed lower at P42.94 to the US dollar yesterday at the Philippine Dealing & Exchange Corp. (PDEx) from P42.90 the previous day. The weighted average rate depreciated to P42.913 from P42.821. Total volume amounted to $1.090.72 billion.
Rice Import at 500,000 MT
The Philippine government is keeping its rice import plan this year at 500,000 metric tons compared with 860,000 tons in 2011, Agriculture Secretary Proceso Alcala said yesterday.
“We are very optimistic that agriculture will be a major contributor to economic growth this year and in the coming years,” Alcala said, citing government investments in the sector. (Bloomberg)
Crude Oil Assumption At $90-$110/BBL
The Philippines forecasts crude oil to be within a range of $90 to $110 a barrel this year, the government’s Investor Relations Office said in a statement.
The Philippines also expects remittances from its nationals abroad to reach $21.1 billion this year and gross international reserves at $79 billion, the agency said. It has a foreign exchange rate assumption of 42 to 45 pesos to the US dollar. (Bloomberg)
Globe Plans Tech Business Incubator
Globe Telecom is setting up a first-in-the-Philippines incubator focused on helping technopreneurs launch their own businesses. The Globe incubator will partner with aspiring technopreneurs by building an end-to-end support system that marries the “hardware” of big companies with the ‘software’ of mentorship and community partnership.
Globe incubator-supported start-ups will have the advantage of access to various platforms of the telco which are usually open only to large established companies. They could qualify for seed capital to help them launch their company faster and introductions to partner companies within the Globe, Singtel and Ayala networks here and abroad. (EVA)
Dunkin’ Donuts Gets Lebron Endorser
SINGAPORE (AP) – Dunkin’ Brands Inc. says NBA superstar Lebron James has agreed to market Dunkin’ Donuts and Baskin-Robbins ice cream in Asia. Dunkin’ said in a statement Monday that the agreement will last at least two years and is worth at least $1 million.
Dunkin’ said James will promote its brands in China, Taiwan, India and South Korea through advertisements, online media and in-store marketing.