PESO CONTINUES TO SLIDE; BUENAVENTURA DUE BACK TODAY FROM U.S. TRIP

MANILA, August 27, 2003  (STAR) By Rica D. Delfinado  - The peso hit a fresh 31-month low against the dollar yesterday, a breath away from its record low due to the seasonal rise in imports and a lean period of inflows from overseas Filipino workers (OFWs).

At the Philippine Dealing System (PDS), the peso slipped to 55.60 to the dollar during intra-day trading, its lowest since Jan. 17, 2001 when it hit a record low of 55.75 amid the turmoil of Joseph Estrada’s forced exit from the presidency.

At the close of trading, however, the peso managed to recover to settle at 55.450 against the greenback, still three centavos lower than Monday’s close of 55.420 to $1.

Traders said the continued weakening of the peso against the greenback prompted investors to unload local stocks, causing the Philippine Stock Exchange (PSE) composite index to tumble by more than 13 points to close at 1,248.85 points yesterday.

Dealers said the peso which has lost nearly seven percent since May, was under pressure from a seasonal rise in imports and falling remittances from expatriate workers.

"From here onwards, the next target will naturally be the all-time low of 55.75," a dealer said.

"Concerns over the peso are growing. There are worries about the possible impact it could have on inflation, the economy as a whole and earnings of companies," he said.

Dealers said the peso backed up a bit, after some foreign banks were spotted selling dollars. The move sparked speculation the banks were acting on behalf of the Bangko Sentral ng Pilipinas (BSP).

Earlier, BSP Deputy Governor Amado Tetangco said the BSP stood ready to inject dollars into the market should the situation warrant it.

"We will essentially let market forces determine the exchange rate, but the BSP can provide dollar liquidity if necessary," Tetangco said.

The country’s foreign exchange reserves were put under severe pressure during the 1997-1998 Asian financial crisis, which saw the peso depreciate by nearly 50 percent against the greenback.

"On the economic side, demand for dollars is normally higher during the third quarter due to imports and relatively low level of inflows from Filipino contract workers," Tetangco said.

He said the dollar has also been generally strong amid expectations of improvement of the US economy.

Currency dealers have been citing political and security risks concerns for the peso’s continued slide against the US unit. Corporations continued to hedge their future dollar requirements because of these worries, they said.

They said political mudslinging ahead of the 2004 elections sent jitters down the local financial markets. Weak Investor Sentiment

Market talk that the BSP may tighten monetary policy at its board meeting tomorrow also weighed on investor sentiment. A hike in overnight rates, though viewed as a slim possibility, would hurt banks which use the settings as a key determinant of their own lending rates.

The Lopez companies, including Manila Electric Co. and First Philippine Holdings which have been investor favorites in recent months, were among the main casualties in yesterday’s sell-off. Most of the firms’ controlled or managed by the Manila-based business clan have hefty dollar-denominated debts.

Meralco’s A-shares, traded by locals, fell seven percent to P13.25, while the B-shares open to foreign and local investors, ended unchanged at P21.75 after trading lower for most of the session. First Philippine Holdings ended down 3.9 percent at P18.25, while Lopez conglomerate Benpres Holdings finished down 6.2 percent at 60 centavos

Most leading banks fell on growing fears the BSP would tighten monetary policy to stem the peso’s decline. Metrobank, the country’s largest in asset terms shed 1.5 percent to P31, the second largest, Bank of the Philippine Islands, dipped 1.1 percent to P44.50 and Equitable PCI Bank eased 1.45 percent to P34.

Among less than a dozen gainers, property developer Megaworld Corp rose 2.2 percent to 90 centavos. The company confirmed that it planned to develop a property at the Villamor Air Base in Manila in a project estimated to cost P7.5 billion.

Losers outnumbered gainers, 41 to 11 with 40 stocks unchanged. Volume turnover rose to 341.00 million shares but value fell to P398.05 million from 308.20 million shares worth P539.07 million on Monday. – With reports from Reuters, AFP

Buenaventura due back today; will peso improve? By Des Ferriols (Star)

Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura is scheduled to arrive from his official two-week trip to the US today, prompting most analysts to ask if his return could ease the pressure on the peso which continues to plumb new lows against the greenback.

According to the Bankers Association of the Philippines (BAP), Buenaventura’s ability to calm frayed nerves in the market had already been demonstrated in the past but it remains to be seen whether he will be able to do this again.

"We need a calming effect and he was able to do this before," said BAP executive director Leonilo Coronel. " We will see whether he can do this again although we realize that he will be very distracted by the sheer number of issues that he would be asked to address personally."

According to Coronel, Buenaventura’s reply to the Court of Appeal decision that ordered his suspension was being awaited by the market which was also waiting how the Anti Money Laundering Council would handle the money-laundering charges hurled by Senator Panfilo Lacson against first gentleman Miguel Arroyo.

"I do not envy his position right now," said Coronel. "But the sentiment of the business community is that Buenaventura has the ability to set things back into order."

According to a currency trader from one major bank, the market was waiting for Buenaventura to personally answer to the charges hurled against the BSP by the officials of the defunct Urban Bank of the Philippines which initiated and won their petition to suspend the BSP Governor for shutting down the bank in 2000.

The trader pointed out that although the peso’s weakness was due to a confluence of a several factors, Buenaventura’s presence would ease the tension in the market amid rumors that he was being eased out by Malacanang.

"The BSP governor has a fixed term of office under the law and he could not be easily removed but he could still be pressured to resign if they really worked on it," the trader said.

Although the market recognized the BSP’s capabilities as an institution, traders said Buenaventura "personified the central bank’s powers of moral suasion, " an abstract weapon often used by the BSP in order to keep banks from "straying from the path."

Buenaventura has been known to call bank officials to his office and use "moral suasion" when the peso is behaving too far from economic fundamentals that could easily explain the volatility.

"That’s why it has become very effective in the past," said one veteran banker. "Because banks don’t exactly know what the consequences are if they refuse to yield to this moral suasion. Who wants to find out?"

The BSP has already resorted once to using its "name and shame" weapon in 2000 when it found evidence that banks were speculating on the peso after sending out its examiners to audit their daily forex trades.

On the other hand, Coronel said that in both the local and international business and financial communities, Buenaventura was regarded as the "glue that holds things together."

"Hindi mo maalis talaga yan," Coronel said. "The market had the same attitude towards [US central bank chief] Allan Greenspan at the height of his popularity. He had the same impact on markets."


Reported by: Sol Jose Vanzi

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