ALEX MAGNO: PESO'S ENDLESS PLUNGE

MANILA, February 5, 2004 (STAR) FIRST PERSON By Alex Magno - Plunging: Should FPJ quit the presidential race today, there is near-certainty the peso will recover.

That might seem like an unfair, steeply partisan thing to say. But that is the scheme of things surrounding what seems to be the pesoís endless plunge.

There is consensus among finance analysts that the peso is now severely undervalued. Its real value should hover somewhere around P52:$1, our fiscal and payments woes notwithstanding. The Thai baht, the currency the peso used to be most closely associated with has recovered to B39:$1 from historic lows during the Asian financial crisis.

Adverse speculation against the peso is emotionally driven.

There is extreme anxiety in the markets. Portfolio funds are cashing in on their peso investments and fleeing the country, causing our stock market to slacken. Philippine bonds abroad are being dumped. Our credit rating has suffered a minor but psychologically devastating downgrade.

Although there is no shortage of good business news, everybody seems to be tightly focused on political developments.

Sure, there is a multitude of factors affecting how our currency is appraised. But of these many factors, the possibility of Fernando Poe Jr. becoming appears unduly emphasized. The first major drop in the peso happened when FPJ announced his candidacy, the second big drop happened when a division of the Comelec upheld his candidacy and the third major slide happened when the most recent SWS poll showed the actor leading substantially in voter preference ratings.

The first time the peso dropped, FPJ spokesmen argued that it was merely coincidental with the actorís announcement he was seeking the presidency. But three consecutive instances where drops in the pesoís value coincided with events in the progress of FPJís candidacy tell us there is more than coincidence here.

He isnít president yet; but FPJ is already hurting the poor.

Gasoline prices have risen. There is pressure to raise fare prices. Pork and chicken prices have moved beyond the reach of the poor. There are indications that the pesoís weakening will produce an inflationary spike.

We were assured, days before, that P56 to the dollar stands as a psychological resistance point. But that has been breached the past few days as the peso plunged to unexplored depths.

Psychological thresholds are useless in a currency situation driven by psychological momentum. Panic might be too extreme a word to describe the sentiments now sweeping our markets. But, in time, that might become an accurate description.

The larger factors are not very encouraging. The US dollar is losing ground against every other currency except the Philippine peso. US monetary authorities are now under pressure from their European and Japanese partners to do something to shore up their currency. Should the US Federal Reserve be constrained to raise dollar interest rates in the next few days, the peso could be an even bigger loser.

Government has warned against groups alleged to be systematically undermining the pesoís exchange value. There is, of course, some political benefit to be gained by the opposition in helping make things appear desperate for the Macapagal Arroyo administration. We now see the usual agitators threatening a nationwide strike in order to force government to subsidize fuel prices.

But I suspect those playing the currency market to the disadvantage of our currency are motivated by nothing more than the usual greed.

Things could move from uncertain to dire, however.

FPJ, the current leader in the voter preference surveys, has failed to be reassuring to the markets. He has made no effort to calm the anxieties of those who suspect his winning in the elections could lead to populist and erratic policies. He has offered no clear and convincing economic agenda.

His followers raise anxiety levels even more by threatening to riot in the event their idol loses. Without any basis at all, they indulge in useless tattle about wholesale cheating in the works.

And then there are those irredeemable publicity hogs prone to do anything to grab 15 minutes of fame. They parade naive young officers for photo ops and add to the anxiety by creating the impression military intervention is a factor in the present exercise.

It is as if everybody is out to do something or the other to make this electoral exercise even more strenuous to the economy than it already is.

There is no indication yet on when the bleeding will stop. The peso has plunged lower than the level it deserves to be in. It is being forced down by wild sentiments.

By its very nature, a sentiment-driven event cannot be rationally calculated.

We desperately need some good news to help firm up our currency and prevent a situation where a panic-driven exchange rate impairs the ability of our economy to thrive in the blossoming recovery characterizing the rest of the East Asian regional economy. In the next few weeks, at least, that good news will not likely come from the political sphere.

We have cultivated a political culture that is hazardous to our own economic wellbeing. It is a political culture that lacks in sobriety and reasonableness. It is a political culture where electoral contestation is antagonistic and where voters make choices emotionally.

This thing is certain: as we march deeper into the campaign period, partisanships will become more passionate and scenarios will become a little more extreme. All these things will put great pressure on the pesoís exchange value.

True, the "economic fundamentals" of the country are relatively strong. The fiscal outlook is problematic but not unmanageable. These things, however, matter very little to the short-term (and short-sighted) speculation now going on in the currency market.

From what we could gather, it is not just the big players who are playing the game of adverse speculation against the peso. The banks are now telling us that OCW families are not changing their dollars as yet, waiting for the exchange rate to deteriorate even more.

Against a tidal wave of adverse speculation, there is really very little our monetary authorities can do. We need a respite from bad news quite desperately.

But the way we conduct our politics does not allow much means for that respite to be achieved.


Reported by: Sol Jose Vanzi

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