Strong peso is wrong, asserts exporters, economists, OFWs

Source: PHILEXPORT News and Features

Strong peso is wrong, asserts exporters, economists, OFWs Some of the most prominent economists in the country, export leaders and representatives of Overseas Filipino Workers (OFWs) have told Bangko Sentral ng Pilipinas (BSP) officials that government’s signals in support of a strong peso is wrong and hurts most of the productive segments of the economy. This surfaced during a closed-door dialogue yesterday between Monetary Board member Peter B. Favila and his team of BSP executives and the heads of the different export industry associations under the Philippine Exporters Confederation, Inc. (PHILEXPORT), OFW representatives and leading economists. Among the casualties in the export sectors are those using indigenous raw materials. These include the food, furniture, home furnishings, jewelry and handicrafts. Trustee for the food sector Roberto C. Amores stressed that exporters and local manufacturers cannot compete anymore with cheaper imported goods flooding the domestic market. He cited the case of okra which are contract-grown and sold to buyers at pre-agreed dollar rates. If the peso swings at higher rates, then there would be clear losses for the domestic players in the supply chain. Unfortunately, it is not as easy, especially to micro, small and medium enterprises (MSMEs) to shift to other markets or currencies just to avoid the adverse impact of the dollar to peso exchange rate. Speaking for the homestyle sector, Trustee Luis S. Sicat argued that while other Asian currencies may also be appreciating, Philippine exporters are in a harsher environment where the cost of inputs such as raw materials, power, transportation and labor are high. This makes local exports highly uncompetitive. He likewise cited that if the peso is allowed to further strengthen, about 30 percent of the MSMEs will shut down operations, 20 to 30 percent of their workers would be retrenched, 400,000 indirect workers and subcontractors would lose their livelihood sources and adversely affecting at least three million of their family members. Feliciano L. Torres, which company leads in the export of wiring harness and represents the automotive sector at PHILEXPORT, recommended that fluctuations, if at all, must not be abrupt and should allow adjustments to affected sectors. Meanwhile, if the peso appreciates by three percent more, Dr. Emma V. Teodoro, Trustee for the Information Technology, Products and Services sector, warned that in six years, our business process outsourcing industry will no longer be as attractive. Many have in fact already scaled down their operations or moved their offices to lower-cost areas outside of Metro Manila. Furniture makers have stopped taking in new orders, shared PHILEXPORT Trustee for furniture Myrna C. Bituin, who also sees lay-offs and even closures in Region 3. Dr. Benjamin Diokno, one-time budget Secretary and a noted economist, also pointed out in the meeting that contrary to popular belief, a strong peso is wrong and not necessarily makes a strong economy. Take the case of the Philipines which has one of the weakest economies in East Asia and yet, the peso is allowed to get stronger. Further, most Filipino families are dependent on the dollar earnings of their OFW relatives and other dollar earning industries including export enterprises and call centers. Only those who love foreign goods and foreign travel are beneficiaries of a strong peso, he argued. Dr. Vic Abola from the University of Asia and the Pacific added that an overvalued currency leads to slower growth because it promotes more imports than exports. He also debunked BSP’s fear that more money supply translates to inflation, such that for every ten percent peso depreciation, there is an effect of 0.3%, especially for economies like the Philippines which is highly liberalized. He also clarified that while the BSP’s mandate is to guard against inflation, the BSP must not be solely fixated on this objective. Instead, such mandate should be consistent with another BSP thrust of promoting sustainable growth. “Where is sustainable growth if the productive sectors such as exports and OFWs are penalized with a strong peso?”, he asked. Exporter/economist Calixto Chikiamco noted that the current environment is ripe for a peso devaluation unlike before when the economy was booming on non-tradables. He noted that exporters are the true nationalists since they “plant the Philippine flag on every country where they sell Philippine goods to”. They must be supported with a favorable policy environment to make them more competitive, he said. Beyond simply pining over the strong peso itself, the economists and industry leaders have urged the BSP to stem the further strengthening of the Philippine peso in the wake of the downgrading of the US economy. Diokno warned that with the downgrade, a lot of hot money will be out there floating around for short term investments. If allowed to flow in and out of the Philippines, the hot money may just bring the economy further problems. He said that portfolio investments in government debt papers, bank deposits and the stock market must be assessed “parking” taxes if these are brought in and out of the country for less than two years. Stock transactions must also be taxed. He also suggested that the Philippines must stop from borrowing abroad since there is a lot of money in the BSP and domestic banks. He likewise recommended that government suspend indefinitely any increases in interest rates for loans. OFW representatives in the meeting, Lito Soriano and Susan Ople, stressed that OFWs’ concern mainly revolve around the security of their jobs and sources of income. With the recent peso appreciation, they learned that many salaries of OFWs were reduced, even as their jobs are threatened by negative market conditions in their host countries. Even if their pay comes in other currencies than the dollar, OFW money is remitted to and converted in the Philippines based on the US dollar equivalent, said Soriano. The peso’s strength then means less income for Filipino households of our OFWs, he stressed. In his response, Favila mentioned that the BSP is likewise concerned about the situation and that he will bring these issues to the next Monetary Board meeting which has put the exchange rate at the top of the agenda. –Ma. Flordeliza C. Leong and Abe Belena, PHILEXPORT News and Features