The seeming currency war and the Philippines: Some insights

Dr. Conchita L. Manabat“Independently, every country is looking at their own weak economies but all are failing to grasp nettle of structural reform.” –Michael Every, Rabobank, Hong Kong

IN August China depreciated the yuan by nearly 2 percent.  While the United States is about to unwind its quantitative easing (essentially printing money to prop up demand and revive growth) once the unemployment target is secured, the dollar is strengthening in anticipation of rising interest rates. As the world’s largest economy is expected to grow by 2.5 percent this year, economies that hope to ride the buoyant tide of American demand are gearing to gain more by further depreciating their already depreciated currencies. This seems to have started talks and, perhaps, worries of a global currency war, a term that,  in recent memory, was made popular by Brazilian Finance Minister Guido Mantega in 2010 during the heat of the global financial crisis.

But, what do all of these mean for the common Filipino?

Since the beginning of the year, the peso depreciated against the dollar by 5 percent, from P44.9 to P47.10 to a dollar. This is good news for exporters and remittance recipients, but bad for importers, dollar-denominated borrowers and those about to invest in large capital expenses by buying from abroad. Sure, the Philippines is a net goods importer, but this is countered by our large receipts of overseas Filipino workers and business-process outsourcing inflows. Those who bought foreign assets could easily make some money by selling them even if the price of the asset remained the same.

A currency war aimed at depreciating the peso has a short-term effect of boosting exports but will open the economy to excess pesos in the system, which will fuel inflation (may not be a problem, thanks to low oil and commodity prices) and possibly, cause asset bubbles to form. Artificial competitiveness lasts only so long as with all artificial things, but might begin larger problems like an asset price bubble. So, why bother?

After years of reading about and to a certain extent observing financial crises, I opine that fundamentals matter more. Rather than risking a property or stock market bubble for short-term gains from buoyant US demand, we may be better off focusing on things that really boost competitiveness, those that fundamentally reduce production and service costs in the Philippines. Arangkada Philippines listed some of them down—build durable infrastructure, cut red tape, reduce power costs by encouraging competition, and build an educated and healthy workforce. These reforms have been offered, proposed and talked about.

I believe we should be one of the countries that stood by their currency’s fundamentals and did not join this short-sighted game of devaluing the currency.

Instead, let us use the time to discuss real policy options and put appropriate ones in place. Will an income-tax cut that causes a P30-billion loss in tax collections boost GDP through consumption? How do we address corruption effectively (beyond words) but expedite government spending on infrastructure? How do we prepare for the time when mineral prices go up that we have a comprehensive resource use plan that protects the environment but allows the country to benefit from God-given resources? How can we cut red tape such that we encourage more business locators?

One can only opine, ask the questions and hopefully influence the powers that be to see the light.


Dr. Conchita L. Manabat is the president of the Development Center for Finance and a trustee of the Finex Research & Development Foundation. A past chairman of the International Association of Financial Executives Institutes, she now serves as the chairman of the Advisory Council of the said organization. She is also a member of the Consultative Advisory Groups of the International Auditing & Assurance Standards Board and the International Ethics Standards Board for Accountants. She can be reached at


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