MANILA, January 2, 2005 (STAR) By Des Ferriols  -  Despite the depreciation of the peso that brought it to record lows against the dollar this year, the Bangko Sentral ng Pilipinas (BSP) said the local currency was still less volatile in 2004 than in the previous year.

The BSP said the peso, in fact, managed to gain some degree of competitiveness compared to the currencies in competing countries.

Compared to the 2002 average peso-dollar exchange rate, the BSP said the Philippine currency was more volatile between 2002 and 2003, when the peso was exchanging for an average of P51.6 and P54.2 to the dollar, respectively.

This year, the peso averaged at P56.03 from January to November compared to the P54.1:$1 average over the same period in 2003.

"Amid recent weakness, the pesoís volatility remains highly manageable," the BSP said.

BSP Deputy Governor Amando Tetangco Jr. said the recent weakness in the peso was due to market fears of a possible sovereign credit rating downgrade and persistent concerns over the countryís fiscal situation.

Despite these fears, however, Tetangco said the peso was less volatile compared to the prior year, depreciating only slowly over the course of the year instead of fluctuating wildly like it did in 2002 and 2003.

Tetangco said the BSP expects the peso to retain its stability and manageable volatility provided there will be no extreme shocks to disrupt the normal movements of regional currencies.

Monetary officials would not quantify the factors that affected the movements of the peso but the currency also benefited from the historic weakness of the dollar, a factor which has somewhat abated what would have been an even weaker peso.

This is expected to continue in 2005 although monetary officials said the market would remain jittery over the outcome of the credit rating actions currently under way.

Monetary officials said economists are also still trying to get a grip of the economic impact of the devastation in Southeast Asia caused by the tsunamis that killed over a hundred thousand people in at least six countries.

Reflecting its caution, however, the BSP has already downscaled its 2005 balance of payments (BOP) projections from a surplus of over $500 million to a slightly lower surplus of about $460 million due to the expected slowdown in investments.

The BSP said that based on its latest estimates as well as projections made by the Board of Investments and the Philippine Economic Zones Authority (PEZA), both foreign direct investments and portfolio investments would slow down in 2005.

As a result, the BSP said the countryís BOP surplus would be lower than expected as the BSP reviewed the investment accounts in the BOP for the whole of 2005.

According to Tetangco, the BSPís BOP projection for 2005 is based on the estimated inflow of investments, remittances from overseas Filipino workers and borrowings of the government for the refinancing of its maturing foreign currency-denominated obligations.

"There was no implicit assumption of government borrowing proportions, we just made calculations based on the amount of foreign-denominated maturing obligations," Tetangco explained. "We just assumed that the NG (National Government) will borrow from the foreign market what it needs for its foreign obligations."

Tetangco, however, said the assumptions for the 2005 BOP already included the borrowings of the National Power Corp. (Napocor).

The Arroyo administration has only recently conceded to officially adjust its borrowing program for 2005, increasing its foreign borrowing up to 50 percent of its total borrowing.

Reported by: Sol Jose Vanzi

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