Stronger peso may dampen RP's economic recovery

Stronger peso may dampen RP's economic recovery

By Martin Abbugao

MANILA (AFP): A surging Philippine peso against the US dollar has eaten into the corporate earnings of blue-chip firms, battered exports and could dampen Manila's economic recovery if the brakes are not applied, analysts said.

Higher foreign exchange remittances from Filipino domestic, professional and other overseas workers, as well as increased foreign equity and portfolio investments, have resulted in a dollar glut, allowing the peso to gain strength.

The local currency is now trading below 27 pesos from a 28.82- peso average last year, overwhelming attempts by the Central Bank to decelerate the sprint by buying back dollars from the financial system -- an effort criticized as inflationary.

The stronger peso has already taken its toll on the earnings of Philippine National Bank (PNB) and telecommunications behemoth Philippine Long Distance Telephone Co. (PLDT).

State-controlled PNB, the country's largest bank, reported net profits of 719 million pesos (26.63 million dollars) from January-May, down 25 percent from 967 million pesos in the same period last year.

Its revaluation gains declined 33.33 percent on an annual basis to 250 million pesos in January-May.

Analysts attribute this to the resurgent peso, pointing out that PNB handles the bulk of the money sent home by Filipino overseas workers which totaled 6.8 billion pesos (251.85 million dollars) for the first quarter.

PLDT, which says 60 to 70 percent of its income derives from international calls, is also forecast to post lower earnings this year due to the appreciating peso and a costly expansion plan, which have made potential investors jittery.

PLDT slumped 28 percent to 1,680 pesos per share last Friday from a high of 2,340 in January. PNB was down 40.6 percent to 427.50 a share last Friday from 720 pesos last year.

But what concerns many economists and businessmen is the widening trade deficit caused by imports continuing to outsprint exports -- the latter touted as the vanguard of President Fidel Ramos' medium-term economic program.

The trade gap grew 28.8 percent annually to 2.477 billion dollars from January-April.

Paul Joseph Garcia, an economist with the private Center for Research and Communications, said that while a weaker dollar may have slightly pushed down the import component of production, it has wrought greater havoc on Filipino exporters.

"They (officials) expect exports to outgrow imports for the next five years, but if this trend continues, this target will be imperiled," Garcia said.

But, he added, the peso was expected to weaken by the third quarter as the dollar supply is reduced by increased imports for the Christmas holidays.

However, Mario Lamberte, an economist with the semi-official Philippine Institute for Development Studies, said that he does not see a "major depreciation" in the near future and blamed the peso's rise on a tight monetary policy.

The policy, he explained, spawned higher interest rates at 15 percent and boosted the dollar glut by attracting large amounts of foreign funds into "speculative investments" in government securities.

"People would not be putting more money in good use but more in speculative instruments, so you get less output. Our exporters are losing competitiveness so, yes, it could affect our overall growth," Lamberte said.

Filipino business executives last week called on the Central Bank to slow down the peso, suggesting that Manila offer dollar- denominated treasury bills to siphon off excess foreign currency from the system and lower bank reserve requirements to cut interest rates.

But Central Bank Governor Gabriel Singson shot down the proposals, saying they were ill-timed. Trimming reserve requirements would further push inflation, pegged at 10.1 percent in May from 9.8 in April, he said.