MALAYA EDITORIAL: APPRECIATING THE PESO
MANILA, OCTOBER 19, 2009 (MALAYA) ‘Their cries for help do not make economic sense.’THE peso has been strengthening, closing the previous week at P46.33 to the dollar. It will likely continue appreciating, so we will not be surprised if we will be hearing cries for government to cap the rise in the value of the peso. The good thing is that monetary officials this early said they will not go along with such nonsense.
Those who want a cheaper peso are, of course, those who earn dollars. These are mostly overseas workers and the recipients of their remittances, their families, and exporters. They used to get P50 for every dollar. Since then they have lost 7 percent of the value of their dollar earnings. That’s a significant drop in income. Their cries for help, thus, are understandable but which, again, do not mean they make economic sense.
Exporters, for example, claim that a stronger peso will make them uncompetitive. That’s textbook economics. They point to the fact that merchandise exports fell 30.3 percent for the first eight months of the year to $24 billion. There are signs of a recovery. The decline in August was 21 percent, against 40 percent some months back.
But the reality is that the plunge in exports this year is not caused by a strong peso. It is the result of the drop in demand in the United States and other major trading partners due to the global economic slowdown.
A policy of depreciation obviously will not work.
In any case, almost 70 percent of the country’s exports are electronic parts. The added value is via labor which is only a very small component of the price of these products.
On the other side of the divide are those who stand to benefit from a stronger peso. There are the locally oriented manufacturers using imported materials and, ultimately, the consumers of their products. There are also the households who benefit from lower power rates and commuters who need a break from ever-rising fares.
In short, more people benefit from a stronger peso, including the very same families of OFWs who depend on remittances.
As BSP Gov. Armando Tetangco said:
"The BSP’s foreign exchange policy remains the same whether the peso is on an appreciating or depreciating trend. We follow a market-determined exchange rate with scope for official action to contain excessive volatilities in the rate’s movements or when the currency either appreciates or depreciates too fast.
"We have found this policy to be rational and fair. It is unwise to go against fundamentals."
Some win, some lose. And government should not have a hand in dealing out the winning hand.
Chief News Editor: Sol Jose Vanzi
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