PESO SEEN TO RECOVER IF SITUATION STABILIZES

MANILA, February 25, 2006
 (STAR) By Des Ferriols - The peso will recover this week provided the market is not confronted by more negative news that would fan speculations of further political unrest, monetary officials said over the weekend.

The peso took a beating last Friday as the market reeled from the shock of Proclamation No. 1017 which put the whole country under a state of emergency, banned all public rallies and directed the armed forces to maintain public peace and order.

This week, however, market players are expected to take another stock of the situation and make their assessment of how recent events would ultimately change the countryís economic fundamentals.

The Bangko Sentral ng Pilipinas (BSP) said over the weekend that it would be a wait-and-see situation at the beginning todayís trade depending on developing events.

"As the market digests the recent events, and if there are no new negative factors to shake confidence, then we may see an improvement from Fridayís outcome," said BSP Governor Amando M. Tetangco.

On Friday, the peso closed at 52.20 to the dollar after opening at

51.85. Transaction volume rose to $797.84 million and dealers said the BSP hand was clearly providing liquidity support for the peso.

As a matter of policy, the BSP never openly owns up to its market operations but Tetangco said the central bank was responsible for keeping volatility rates low and "ensuring that changes in exchange rates happen in an orderly fashion."

Traders agreed with the BSP that Fridayís turn-out was a natural reaction to the presidential proclamation and the market was likely to remain on the defensive until more information filters into the system.

On the other hand, National Treasurer Omar Cruz pointed out that the apparent resilience of the peso on Friday showed that the market was looking for more information since it did not have time to digest the events.

"It will be a weekend wait," Cruz said. "But if offshore markets are any indications, there was an initial sell-down but ROP bonds picked up quickly because investors are happy for the chance to buy."

Cruz said he expected the peso to settle back down although he admitted that a prolonged uncertainty would change the dynamics of the market ultimately.

"Some people took their bets but as long as the situation is peaceful, I think people can wait it out," Cruz said. "Itís not like we want anything else to happen but having said that. This is a good test of the real sentiments and commitment of the market."

However, Tetangco expressed optimism that the peso was not likely to take any more plunge and eventually stabilize once the market gets over its initial panic.

Tetangco said it was possible for the peso to even gain some lost ground although traders were anticipating further weakening unless the crisis is resolved decisively over the weekend before the market reopens next week.

"As the news is further digested, there will likely be a correction,"

Tetangco said. "Weíll be watching."

As the peso dropped back to the P52 level, business leaders expressed confusion over the situation as rumors went through the market that the state of emergency was intended to be implemented as an "undeclared martial law".

The Makati Business Club said in an interview that the issuance of

Proclamation 1017 was confusing, especially since it was based on claims that threats against the administration were destabilizing the economy.

"I donít understand how they got themselves into this situation," Luz said. "I really do not understand why they did it."

Luz, a long-known supporter of former president Corazon Aquino who has called for Arroyo to step down, stopped short of renewing the same call made by the MBC last July.

Luz only went as far as saying that "people want good governance", adding that directing the military to take over ensuring public order was "an open admission that they didnít have the power to maintain order."

According to Luz, the Presidentís use of the economy as one of the rationale for declaring the state of emergency was confusing especially since macro-economic indicators have been good enough for credit rating agencies to upgrade their outlook ratings.

"For once, the economy is running half-decently," Luz said. "The economy has been moderately improving and even the fiscal problem is starting to clear up."

According to Luz, the issuance of P1017 itself would end up causing the very problem that the Arroyo administration was trying to forestall. "At the very least, it will have the effect of putting a break on the economic momentum," he said.


Chief News Editor: Sol Jose Vanzi

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