YEARENDER: EXPORTERS REELING UNDER WEIGHT OF STRONG PESO
MANILA, DECEMBER 24, 2007 (STAR) By Elisa P. Osorio - At the beginning of the year, with the peso trading at over 52 to a dollar, no businessman expected the exchange rate to move to the current level of a little over 41 to a dollar.
When the local currency began appreciating to 46 against the greenback, exporters immediately expressed concern over their tightening margin. Alarm bells rang as the peso continued to gain strength and dollars continued to pour in.
Exporters, together with operators of business process outsourcing (BPO) enterprises, asked the government to intervene. The strong peso is causing exporters to absorb billions in losses each month as locally-made goods become more expensive to foreign buyers.
International real estate provider CB Richard Ellis has warned that the continuing appreciation of the peso against the dollar may be a threat to BPO firms in the country.
“If the exchange rate continues to climb it can potentially be a threat because it makes it expensive to do business here,” CB Richard Ellis general manager Trent M. Frankum said.
“We are losing P4.5 billion every month ever since the peso grew stronger,” Philippine Exporters Confederation, Inc. (Philexport) president Sergio Ortiz-Luis Jr. said in an interview.
Ortiz-Luis said the multi-billion losses come from foregone orders and other missed opportunities. The exporter said the industry is taking a beating as the peso continues to gain strength against the greenback.
“I don’t know how to react. We are all affected. A number of small and medium sized firms have even stopped taking orders,” Ortiz-Luis lamented.
Ortiz-Luis explained some small and medium sized exporters resorted to cutting orders to cope with the exchange rate.
Likewise, the continued appreciation of the peso has resulted in the loss of as much as 30 percent of the jobs in the food and handicraft export business.
“The food and handicraft exporters had to cut down the number of employees as the continued strength of the peso makes selling overseas more expensive,” he added.
According to Ortiz-Luis, the handicraft business has been badly hit by the peso. Most establishments that closed down are exporting handicrafts. A total of 75 small companies have closed shop since the peso moved to 47 against the dollar.
This was followed by the food exporters who have resorted to cutting down orders by as much as 50 percent in order to cope with rising costs brought about by the strong local currency.
Makers of semiconductors, the country’s largest export, have been asking the government to temper the effect of the continued peso appreciation.
Ernesto Santiago, president of the Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI), said the “uncomfortably strong peso” has hit their industry.
He estimated that for a small semiconductor exporter, the loss is $400 for every P1 dip. “It gets bigger as the company gets larger,” Santiago noted. “The companies are just biting the bullet,” Santiago explained.
The government has already lowered the power cost imposed on makers of semiconductors located in economic zones to help the export industry cope with the strong peso.
Since October, the generation cost, imposed on semiconductor firms is only P3.52 per kilowatt hour from P5.00 per kilowatt hour. The generation cost makes up 75 percent of the entire power cost.
Another proposed solution is the creation of a hedge fund facility to be managed by state run Development Bank of the Philippines (DBP).
A hedge fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk. Its primary aim is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions.
Unfortunately, Trade Secretary Peter B. Favila said not many exporters have availed of the facility. “Very few are participating, only the big ones, the small players find it a little complicated. We’ll try to simplify it,” Favila said.
Ortiz Luis noted that although the facility will be a big help in helping exporters fill orders, he said it is not enough to help the entire industry.
“The government should look at non-direct intervention like paying the dollar denominated debt, decreasing foreign borrowing and strengthening the reserves of the country,” Ortiz-Luis added.
Even Consumer and Oil Price Watch Chairman Raul T. Concepcion has issued a call for the government to put a cap on the peso dollar exchange rate in order to avoid volatility which causes businessmen to stop investing in the country.
“I think that somehow or another, the central bank will have to intervene and maybe increase the interest rates and put some sort of cap on the peso,” Concepcion said..
As an exporter himself, Concepcion said his company has been losing money ever since the peso started to gain strength against the greenback. The peso reached recently a 6.5-year high. “We can tolerate maybe P47,” he noted.
Concepcion feels the present exchange rate is too low and that it should settle anywhere between P47 to P48 against the dollar.
“You can not continue to have those rates. It’s going to affect exports, it’s going to affect competitiveness, it’s going to affect remittances of overseas workers,” Concepcion explained.
“Sure the consumer is happy because the peso has appreciated, but that’s short run,” he explained.
Chief News Editor: Sol Jose Vanzi
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