The chairman of the Senate Committee on Economic Affairs and economists who the BusinessMirror talked to sought to ease worries in some sectors as the peso breached 53 last week.
On Monday Sen. Sherwin T. Gatchalian pointed out to reporters the strength or weakness of the country’s legal tender is relative to global trade and movements in the financial markets.
The depreciation of the peso was “largely because of rising interest rates in [the US] so this is actually beyond our control,” Gatchalian said.
“The market is very volatile now,” he added, citing upward adjustments in oil prices as the Philippine peso dips.
At the same time, the senator pointed to the trade imbalance, noting that “we are an importing country.”
“Almost 99 percent of [the country’s] oil supply while half of electricity supply is generated through imported coal, so almost all basic necessities are being imported, including rice supply,” Gatchalian said. “So naturally, the peso will depreciate.”
Exports impact
For University of Asia and the Pacific (UA&P) School of Economics Dean Cid Terosa, a weak peso may be good for exports in the near term.
But if there is a low appetite for Philippines products, the sapped strength of the country’s legal tender may also be bad for the country in the long term, Terosa added.
He explained the conundrum applies to agriculture products and even to electronics products, which make up the bulk of the country’s exports.
Terosa told the BusinessMirror that low-end electronic products are more prone to price fluctuations, while high-end electronic goods are more resilient to price shocks.
“The depreciation of the peso can be bad for exports if world markets are not responsive or price insensitive to our products,” Terosa said. “In this case, exports can even decrease.”
Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang, however, told the BusinessMirror that the impact of peso depreciation on exports take time.
Ang said this is because sales of various exported products follow a business cycle that involves various processes to take place before the impact can be felt.
Positive side
NONETHELESS, on average, the impact of a weak peso on exports and remittances by overseas Filipino workers (OFWs) remain on the positive side.
“Peso weakness should be good for exports and OFWs. For OFWs it will have an immediate effect as long as the remittances are not reduced due to the larger amount of the peso value. The higher prices should keep level of remittances the same,” Ang explained.
“Exports, meanwhile, will take time since it requires the whole business process before an order is realized. Tourism should be immediate but we need more tourist spots to benefit,” he added.
Former Finance Undersecretary Romeo Bernardo also said a weak peso can benefit industries, such as business-process outsourcing (BPO), which earns in dollars and spends in pesos.
The weak peso, Bernardo said, will boost the overall competitiveness of exports and the BPO sector, as well as provide some relief to OFW families through the higher peso value of the remittances they receive.
Reserves dip
“Now, there are [also] external factors in the United States that caused the peso to depreciate faster,” Gatchalian added. “If you notice our reserves are also going down, $80 billion to below [$80 million].”
The Bangko Sentral ng Pilipinas (BSP) web site has noted that from $81.224 billion in January, the country’s gross international reserve has dropped to $78.967 billion in May.
Asked about steps taken by the BSP to deal with the situation, Gatchalian surmised that the BSP is moving to “protect the value of the peso.”
“I think right now, they [BSP] are protecting the value of the peso, prompting spending to slow down peso depreciation because if it dips faster, this will prompt price increases, particularly prime commodities,” he added.
Image credits: Nonie Reyes