GMA SAYS NO TO CURRENCY CONTROLS
MANILA, September 29, 2004 (STAR) By Marichu Villanueva and Des Ferriols - President Arroyo said yesterday the government will let market forces determine the peso-dollar exchange rate and will not impose a control mechanism "because it will just drive investors away."
"We will not resort to any control mechanism because this will send investors away. The only control we can adopt is against speculators and this is for the Central Bank to attend to," Mrs. Arroyo said.
The President made this remark following the peso’s fall to a record low of 56.45 to the dollar on Monday.
Analysts attributed the latest weakening of the peso to strong seasonal demand for the dollar from importers and the weakness of regional currencies.
At yesterday’s trading, the peso managed to recover, closing seven centavos higher at 56.380 to the dollar. Trading was thin with only $155 million changing hands on an average rate of 56.410 to the dollar.
Presidential spokesman Ignacio Bunye the country’s economic fundamentals are steady and strong. "The peso dip is a result of transient market vagaries and poses no threat to the economy."
Bunye remarked that the local stock market was still doing well despite the recent weakness of the peso and that investors had been cheered by the government’s effort to control the budget deficit.
"Investor confidence is strong, what with the vigorous and serious efforts of the President to stabilize the budget, as well as the positive gains being made in national unity and reconciliation," Bunye said.
For its part, the Bangko Sentral ng Pilipinas (BSP) warned yesterday that it is closely monitoring the currency market against excessive speculation.
The BSP said its examiners were watching the peso-dollar exchange rate, specifically watching out for speculators that could be violating its currency rules and regulations.
BSP Deputy Governor and officer-in-charge Armando Suratos told reporters that monetary officials did not think the peso depreciation would last but currency traders were still under watch anyway.
"We expect this deprecation to be short-lived," Suratos said. "We believe it was mainly on account of seasonal factors, including higher corporate dollar demand."
According to Suratos, corporate dollar users were buying dollars from the spot market to cover their import payments.
Suratos said there was also added pressure from month-end and quarter-end foreign exchange obligations and all these contributed to the demand for dollars that were being sourced from the market.
Suratos said there were also attributions to concerns over the country’s fiscal situation as contributing to the downward pressure on the peso.
"But we expect the peso to recover and stabilize during the fourth quarter," Suratos said. "The rate would still be broadly in line with the government’s expectation of 54 to 56 to the dollar."
Suratos admitted, however,that the BSP’s expectations depended heavily on the projected increase in remittances from overseas Filipino workers (OFWs).
Suratos said OFW remittances were projected to grow by six percent this year. Combined with the projected 10 percent increase in import receipts, he said this would be enough to cushion the peso against normal demand pressures.
BSP’s veiled threats prompted immediate reactions from bankers who said BSP examiners were already constantly on their backs, watching their currency trading.
Aside from sending out examiners, the BSP has also been threatening to require banks to comply with the international mark-to-market practice when selling long-term investment instruments to further tighten the supply of funds that go into forex trading.
The BSP said it was planning to remove the six-month period where banks were allowed to trade these instruments without booking them in their trading account and making the necessary provisions for losses. –with Ding Cervantes
Reported by: Sol Jose Vanzi
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