THE local currency continues to fall against the dollar and many are apprehensive about it. Some are blaming it to the tirades of President Duterte against the Western powers.
But there is no point to such blaming game at all because as a lawmaker explained, the peso’s depreciation is positive overall for the Philippines. In fact, a weak peso is good for our exporters who earn in dollars. It is also beneficial to our overseas workers and their families here.
What’s more, according to Surigao Rep. Johnny Pimentel, is that the peso fall is helpful to our booming and highly labor-intensive outsourcing sector that generates income in dollars.
“As long as the peso’s decline is driven by market forces, and the drop is not too big and not too sudden, it is generally favorable to the country,” he said.
So all the negative things being said by these doomsayers against the President are really crap if not stupid. In Pimentel’s words, “It is foolish to attribute the peso’s recent weakness to the purported political volatility created by President Duterte’s outbursts against Western powers.”
Actually, banks saw the peso fall coming and Duterte has nothing to do with it. It was revealed that two weeks before Duterte assumed office, the chief economist at the Bank of the Philippine Islands (BPI) released a report projecting the peso to hit 50 to a dollar before the end of 2016, as the US Federal Reserve prepares to start raising interest rates.
“Actually, the peso is not fundamentally weak. The dollar is simply gaining relative strength because there is growing expectation that after years of zero interest rates, the US Federal Reserve will soon start raising rates,” Pimentel said.
The US Federal Reserve, the solon said, is widely expected to start jacking up interest rates shortly after the November 8 presidential elections in America, or before the end of the year.
“Owing to this anticipation, investors around the world, including Filipinos by the way, are starting to park some of their money in dollar-denominated assets, thus, the rising need for dollars. And as the demand for the dollar increases, its value also climbs against other currencies, including the peso,” he explained.
The lawmaker said the peso’s depreciation would provide multinational business process outsourcing (BPO) firms operating in the Philippines additional incentive to expand their operations here and step up hiring of Filipino staff.
Like exporters, BPO firms in the country sell their services to overseas clients. They generate revenues in dollars, but spend for their operations here, including the wages of their employees, in pesos.
Philippine exporters of merchandise goods as well as BPO firms have gained progressively because of the peso’s steady decline against the dollar over the years.
Based on Philippine Dealing System figures, the peso averaged 42.44 to a dollar in 2013; 44.39 to a dollar in 2014; and 45.50 to a dollar in 2015. From January to September this year, the peso has so far averaged 46.95 to a dollar.
Pimentel played down the potential domestic inflationary impact of a weaker peso. “Fortunately for us, crude oil and energy prices in general are still somewhat depressed, so even our fuel suppliers have to spend a bit more pesos to buy every dollar they need to import petroleum products, the impact on local pump prices is negligible,” he said.
Now, aside from the decline of the peso, people, especially those carried away by the Duterte scare, are also worried about the decreasing exports of the country.
But even such is not causing any discomfort to the Bangko Sentral ng Pilipinas. Yes, the peso reached another seven-year low against the dollar and exports went down for the 17th straight month but the BSP calls it a situation “leading to greater external competitiveness.”
The peso settled at 48.52-$1 at the opening of the Philippine Dealing System the other day, eclipsing the 48.29-$1 mark it registered two weeks ago. Exports, on the other hand, remained down since mid-2015 due to some what critics describe as waning markets for Philippine products.
But BSP deputy governor for monetary stability sector Diwa Guinigundo said other matters are equal despite the fall of the local currency and exports. “One expects that a weak currency should lead to greater external competitiveness. All other things being equal. That may be the case except when the global markets continue to be weak. This is now the general situation of the peso and Philippine exports,” Guinigundo said.
So common, stop worrying, the economy is fine.
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