‘Economic diversification to shield peso from uncertainties’

The Department of Finance (DOF) said the Philippines should not rely too much on remittances and the business- processing outsourcing (BPO) industry to prevent the peso from depreciating too much whenever there are uncertainties in advanced economies.

According to Finance Undersecretary Gil S. Beltran, the Philippine peso was among Asian currencies, that appreciated eight years before the global financial crisis in 2008.

In his economic bulletin on Asian currencies which cited Bloomberg and Asian Development Bank (ADB) data, the currencies of 12 Asian economies appreciated by 9.3 percent from December 2000 to December 2007.

Beltran said the currencies that appreciated the most were the Korean won at 26 percent; Thai baht, 22.1 percent; the Singapore dollar, 16.9 percent; the Philippine peso, 16.8 percent; Indian rupee, 15.7 percent; and the Malaysian ringgit, 12.9 percent.

After nine years, when countries started to recover from the global financial crisis, Asian currencies depreciated by 14.6 percent. With the exception of the Singapore dollar and the Thai baht, the currencies that strengthened were among those that depreciated the most.

Beltran noted that the Indian rupee depreciated by 62.1 percent; Indonesian rupiah, 35.4 percent; Malaysian ringgit, 27.2 percent; Philippine peso, 21.9 percent; and the Korean won, 20.7 percent.

“Currency movements in Asia are a complex product of external and internal economic factors. But in the case of movements from 2008 to 2017, these are mostly accounted for by external factors, mainly the Fed [the Federal Reserve] System QE [quantitative easing] policy,” Beltran said.

According to Beltran, regression results showed that the Fed’s QE policy accounted mostly for currency movements from 2008 to 2013, with domestic inflation accounting for less than 10 percent.

Compared to other Asian currencies, the Hong Kong dollar depreciated by only 0.1 percent from 2007 to September 2017, while the Taiwan dollar appreciated by 7.4 percent in the same period.

Significant diversification of the economy, as in the case of Taiwan and Hong Kong, would insulate the Philippines from adverse impact of external factors, Beltran said.

“This [economic diversification] is what the Philippines aims to achieve in the medium term,” he added.

Remittances and BPO receipts together account for around $50- billion inflows annually, which boost the country’s external payments position. Last year remittances reached around $26 billion, which accounted for 10 percent of the country’s GDP.

Earlier, Finance Secretary Carlos G. Dominguez III said the government would not intervene in the foreign-exchange market despite the weakening of the peso against the greenback.

Dominguez also said the peso’s decline was not a cause for alarm as the economy has become more resilient against the adverse impact of a weakening currency.

He said a weak peso benefits more Filipinos, particularly the families of those working abroad and those employed in BPOs.

The DBCC earlier adjusted its foreign-exchange assumption for the years 2018 to 2022 to P48 to P51 per dollar, due to the resumption of the Fed’s monetary-policy tightening, which could put more pressure on the peso.


Image credits: Bloomberg


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