MANILA, December 25, 2005
 (STAR) By Des Ferriols - Exporters are complaining they are losing competitiveness due to the appreciation of the peso, but monetary officials said productivity gains should be the measure of competitiveness and not the strength or weakness of the peso.

Amid increasing complaints from exporters, the peso has been strengthening steadily against the dollar, setting new two-year highs after dropping to as low as P56 to the dollar for the most part of the year.

According to the Bangko Sentral ng Pilipinas (BSP), the peso has been the best performing currency in the region, bolstered by record-high remittances from overseas Filipino workers (OFWs).

The BSP reported yesterday that the peso had already appreciated by as much as 4.7 percent from January to November. The strengthening currency has helped ease the country’s foreign debt burden, but at the same time has reduced the country’s competitive edge over comparable currencies in the region.

A stronger peso means Philippine products would be more expensive when exported abroad, local export-based industries have started to complain of the immediate impact on their bottom line.

But monetary officials said the appreciation of the peso is doing more good for the country’s macro-economic fundamentals and the long-term effect would benefit industries as well.

"It is true that we are losing competitiveness as the peso appreciates, but I think it should be interpreted more broadly," said BSP Deputy Governor Diwa Guinigundo.

According to Guinigundo, competitiveness of Philippine exports should not be nailed to the strength or weakness of the peso against other currencies but instead be based on more fundamental factors.

"Competitiveness has more to do with productivity gains, not just foreign exchange rate," Guinigundo said.

BSP Governor Amando M. Tetangco Jr. said that the peso’s appreciation was also remarkable in that its rise had been steady but sure, prompting market analysts to tag the peso as this year’s best performing currency in the region.

Tetangco said the peso had one of the lowest rates of volatility in the region at 1.4 percent. This, he said, compared well with the volatility of the Singaporean dollar at 1.38 percent and close to the volatility rate of the Korean won of 1.51 percent.

In contrast, the Japanese yen was the most volatile currency in the region at 4.45 percent while the Thai baht followed with 2.79 percent volatility rate and the Indonesian rupiah at 3.58 percent.

"The peso continues to gain ground because of favorable factors such as the sustained inflows from portfolio investments and OFWs," Tetangco said. "On the other side of that is that this time of year, corporate demand for dollars is relatively moderate."

Tetangco said the peso is likely to remain strong for the remainder of the year, bolstered by OFW remittances. "Remittances might actually continue to be strong until the first quarter of the year," he said. "It’s conceivable that the peso would be able to sustain its momentum."

The BSP has forecast remittances to hit a record high of about $10.3 billion this year, up about 21 percent from $8.5 billion in 2004.

Chief News Editor: Sol Jose Vanzi

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