Manila, Feb. 9, 2003 -- President Arroyo yesterday said government will do everything in its power to maintain the stability of the peso.

The peso plunged to an 18-month low of 54 to the dollar last Friday due to the looming war in Iraq.

Arroyo, in her weekly message, said the Bangko Sentral ng Pilipinas (BSP) is closely monitoring the foreign exchange situation.

"There are also concerns about the exchange rate ... We will do all within our power to keep the rate stable and I ask the cooperation of the financial sector in this effort," she said.

Budget Secretary Emilia Boncodin said the drop in the peso's value might result in higher prices and interest rates.

"Maliit ang impact sa budget pero kailangang bantayan ang impact sa inflation. Ang tendency noon ay tataas ang interest," Boncodin said in a radio interview.

She said the lower peso value would not affect payment of government debts because most of these are domestic and are not dependent on the exchange rate.

Boncodin gave assurance that the government has enough funds for operations.

BSP on Friday warned banks and foreign exchange traders against dollar hoarding to discourage speculative activities on the currency market.

BSP said penalties could include the publication of the names of dollar hoarders.

The BSP re-issued two circulars ordering banks to strictly comply with reporting rules for foreign exchange trading. Under BSP rules, dollar transactions over $5,000 must be fully documented.

"We are also re-activating our roving team of examiners to audit active forex traders on a daily basis until necessary," BSP Deputy Gov. Alberto Reyes said.

Reyes said the tense atmosphere in the market brought about by the Iraq situation made the market very nervous, prompting heavy dollar purchases on the spot market.

The peso opened weak at 54 to the dollar on Friday morning from the previous day's close of 53.98.

Late buying saw the peso end the day at 53.94 per dollar, stronger than Thursday's close of 53.98, after it was quoted around 54.09 about 20 minutes earlier.

"That was a last minute move and the market does suspect that the liquidity was provided on behalf of the central bank," said one dealer in Manila.

Traders said the BSP sold some of its dollar holdings to stop the peso's fall.

Volume turnover at the Philippine Dealing System totaled $156.60 million, almost twice Thursday's volume of $81.5 million.

"They (banks) are trying to cover their positions, that's why they are buying dollars immediately. Everybody is very tense and worried about the Iraq crisis," Reyes said.

Asked whether BSP had intervened, Deputy Gov. Amando Tetangco said: "Let me say that our exchange rate policy remains allowing market forces to essentially determine the value of the peso."

"Nevertheless, the BSP can, if needed, participate in the foreign exchange market to smoothen sharp movements in the exchange rate," he said. (By REGINA BENGCO, Malaya)

Reported by: Sol Jose Vanzi

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