PESO STILL UNDERVALUED - BUENAVENTURA

MANILA
, June 1 , 2004
 (MALAYA)
By PEARL O. BANTILLO -  BUENAVENTURA SAYS CURRENCY SHOULD BE NEARER 55 TO THE US DOLLAR

Bangko Sentral ng Pilipinas Gov. Rafael Buenaventura yesterday said the peso has not fully recovered from the battering it got at the height of uncertainty before the elections.

"Right now the peso is somewhat undervalued at closer to 56 level. We should be closer to 55 average for the year," Buenaventura said. "The average of 54 this year is kind of whistling in the dark," he added.

The peso yesterday closed at 55.755 to the US dollar, up from 55.86 last Friday.

Buenaventura said improved prospects for exports and foreign investments in the second half of the year will allow the peso to edge closer to 55 to the dollar.

The inter-agency Development Budget Coordination Committee (DBCC) assumed a P2 range for the exchange rate this year as factoring in the expected volatility in an election year.

The peso dropped to the record low of 56.45 to the US dollar last March on fears that popular actor and presidential bet Fernando Poe Jr. will emerge the victor.

Not until the survey polls showed President Arroyo in the lead did the pressure come off the currency in the weeks before the elections. Arroyo appeared to be the market favorite among the five presidential bets.

Buenaventura said the likelihood of an additional six-year term of the Arroyo administration seems to give some comfort to investors based on market feedback.

The speed at which priority economic structural reforms are carried out will determine the flow of foreign capital investments into the country. It is possible given Arroyo's party controls majority of both houses of Congress.

"They have a very strong working majority. Therefore, there is greater expectation that legislative economic reforms will be put in place. That is the assumption of foreign investors and analysts," Buenaventura said.

"That is what the investors are looking forward to," he said.

An Arroyo administration represents continuity and consistency in the policies adopted in the past three years that should draw more foreign investments, which, in turn, would be good for the peso.

"If those began to bear fruit then we will see foreign direct investments," the BSP chief said. "Most investors would like to stay with us if we are competitive."

With fresh influx of foreign exchange, along with better export receipts, the peso is adequately supported. "Then the peso will improve," the BSP chief said.

The BSP is meeting with the exporters today to assess whether the 10-percent growth target is attainable given a 6.3-percent average growth in the first quarter.

Buenaventura said the exporters are bullish over the sector's prospects seeing opportunities in the economic rebound of major markets such as Japan and the United States.


Reported by: Sol Jose Vanzi

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