Bad news for the peso

Amelia HC Ylagan

President Rodrigo Duterte’s first year in office was unfortunately marked by a devalued peso, which fell by 7.33% to P50.53 to the US dollar as of Friday June 30, from P47.08 on June 30, 2016 (freecurrencyrates.com, 07.01.2017).

When the peso declined five percent in September 2015 following China’s devaluation of the yuan, the Bangko Sentral/National Treasury “adopted a managed float that swung through changes in investor sentiments, rather than a dollar peg that is harder to defend in times of distress (The Philippine Star 09.15.2015).” The entire Association of Southeast Asian Nations (Asean) has learned their lessons from the Asian financial crisis of 1997/1998 and the global financial crisis of 2008/2009 as they watched debt service and maturities vis-à-vis foreign exchange reserves, and diluted the effects of currency depreciations (Ibid.).

The exchange to the dollar had been below P48 for many years in the peso’s managed float (from 1993 to present) as it maintained price stability to sustain economic growth while keeping the peso convertible in a changing and increasingly interdependent world economy (The Philippine Star, 10.31.2016). But even a weak peso has both positive and negative effects on the Philippine economy, according to BSP Deputy Governor Diwa C. Guinigundo (xinhua.com, 09.09.2015). While certain sectors, such as exporters, overseas Filipino workers (OFWs), and the business process outsourcing (BPO) sector, would benefit from a cheaper peso, it would at the same time make imported fuel, raw materials, and other imported goods more expensive (Ibid.).

Leonor Briones, former National Treasurer and at that time back-to economics professor at the University of the Philippines (now incumbent Secretary of the Department of Education under President Duterte) said that the depreciation of the peso is “double-bladed” for the reasons cited by Guinigundo, adding that the government would need more funds to pay for the servicing of the country’s foreign debts which are denominated in US dollars (Ibid.). That September in 2015, the peso plunged to P46.93 pesos to the US dollar, its lowest level in more than five years (Ibid.)

But after just more than a year, the peso broke the critical level of P48/$1 and dived to a seven-year low. The peso was the worst performing currency in Asia vs. the US dollar, which was strengthen ing with the prospects of Fed rate hikes in December. The September depreciation of 4.1% was the worst monthly performance since October 2000, at the height of the political crisis during former President Joseph Estrada’s term. The peso was at its weakest in 16 years. (The Philippine Star, 10.31.2016).

Columnist Wilson Sy analyzed whether the peso is weak on its own or a victim of the US dollar’s strength. He concluded that “contrary to popular notion, the peso’s drop in September was not due to a strong dollar. In fact, the peso was a victim of its own weakness (Ibid.).” Foreign funds became jittery due to negative headlines, and pulled out. The peso weakness caused stock prices to fall, bond yields to go up and credit default swaps to rise. Foreign funds flying out and Philippine asset prices plunging across the board prompted investors to reduce their exposure to the Philippines even more, causing the currency to depreciate further (Ibid.). It was barely three months into President Duterte’s incumbency.

Foreign media was more vocal than local media in tying up the depreciation of the peso to Duterte. “The firebrand Duterte, who is often compared with Trump, has sparked concerns in markets not just for his erratic outbursts, which have included threatening China with a ‘bloody’ confrontation over disputes in the South China Sea (note: Duterte position pivoted 180 degrees as he now avoids clashing with China), but also for pursuing a ‘law-and-order’ agenda that has been blamed for a surge in extrajudicial killings. Murders allegedly have been ordered by the Philippine president during his tenure as mayor of Davao city (CNBC 09.27.2016.).”

Ratings agency Standard & Poor’s affirmed its BBB long-term rating on the country but made a significant inclusion: “We believe this could undermine respect for the rule of law and human rights, through the direct challenges it presents to the legitimacy of the judiciary, media, and other democratic institutions. When combined with the president’s policy pronouncements elsewhere on foreign policy and national security, we believe that the stability and predictability of policy making has diminished somewhat (Ibid.).”

The ratings agency’s warning spooked markets, Joey Cuyegkeng, senior economist for Asia at ING, said: “To make such concern an ‘official concern’ reinforced market’s guarded disposition (Ibid.).” Duterte (reportedly) responded with a profanity-laden speech complaining about ratings agencies and promising to create alliances with China and Russia (Ibid.).

And so on June 30, at the close of Duterte’s one year in office, the peso tumbled to around P50.5, threatening to go to P51 (tradingeconomics.com, 07.01.2017). It must have been seen coming, as core inflation rate increased 2.90% in May 2017 over the same month in the previous year, from a record low of 1.40% in September of 2015. Was all the monetary/economic upheaval some market risk-reaction to the declaration of martial law in Mindanao on May 23, and the reported growing numbers of killed, the estimated massive property, and moral damage to the country and to the people?

Outgoing BSP Governor Amando Tetangco said in May that it (martial law) was a “decisive move” for Duterte. “The main objective is to improve security as well as peace and order situation which should lead to even greater confidence down the road,” Tetangco told reporters (ABS-CBN News 05.24.2017).

Good news bears for the Philippine peso? So we pray.

The Tragedy of Marawi for a Chastened Duterte

Criselda Yabes

The destruction of the Islamic city of Marawi has tragically confounded the aspirations of President Rodrigo Duterte, the small-town mayor who became the Philippine President and has discovered that his ambitions outweighed his capabilities.

Based on his experience as the mayor of Davao City, where he had a friendly relationship with the region’s Muslims, Duterte promised during his presidential campaign to deliver an elusive peace in the southern Philippines in his term.

The fighting that raged throughout Ramadan to flush out terrorists pledging allegiance to the Islamic State has reached catastrophic proportions not seen in the recent cycle of violence on Mindanao island.  The Islamists at the very epicenter of his polity say they want to establish a caliphate, with jihadis crossing onto Mindanao’s unguarded beaches from Yemen, Malaysia, Indonesia and other countries.

The president too has not been seen in public – raising serious questions over the 72-year-old’s health –for the most part of the crisis that has claimed more than 400 lives, displacing tens and thousands of Muslims, while the military battled in what was once a heritage city that has gone to ruins, the fighting now tapering off in its sixth week.

Suddenly appearing at the presidential palace for the late celebration of Eid al-Fitr, Duterte said he was saddened and angered and fell back to his default mood of cursing the tragedy of the Maranao tribe in Marawi – whom he had often boasted were among his blood families.

No longer the tough guy

And the tragedy for the president is that his pulse of Mindanao, of which he is a “proud son,” is no better than those of his predecessors who also had to face the rawness of the decades-long conflict. It has dismantled his armor of being the tough guy in the neighborhood.

The map of Mindanao has been scorched with far too many killings, battles, burnings – reaching major proportions seemingly every two years, the last of which was a botched police operation in early 2015, before that a rebel siege in a largely Christian city in 2013, and the killings of scores journalists by a warlord family in late 2009.

The battle for the city of Marawi in northwestern Mindanao, whose population once numbered 200,000 but which is now wrecked,  has defied military logic, with the commanders forced to send in the armor and artillery and to pour down bombs in a series of air strikes, asking help from the Americans that Duterte had scorned, to bear the brutal challenge of the terrorists’ arsenal of high-powered weapons.

No longer fighting and running

It used to be that rebels would fight, withdraw, and fight another day. Not this one.

The president hadn’t realized that the Maute group that he had belittled would strike in such a spectacular show of force. He said himself that if it had been a war against the old guard of the Moro National Liberation Front and its breakaway Moro Islamic Liberation Front, he would have “endured it and pleaded peace with you.”

“What is painful to me is the entry of a fractured ideology and they don’t even know what they’re doing. All they want is to kill and destroy,” he said. “If they went to a forested area, claim a particular mountain and fight there I could have forgiven them.”

That was the specter of Marawi: radicalization choosing Mindanao to make its mark in Southeast Asia from orders in the Middle East. When the fighting broke out on May 23, the terrorists could have taken over, raised the black flag over the hills of the army brigade camp, to establish a wilayat, an  Arab word for a dominion,  that would have been of unimaginable consequences. They were stopped in the nick of time.

The president said it would not have worked anyway, because “we are a Malay race, we are not that brutal and we respect life.” Had he not known that terrorists who had first come to the shores sowing violent extremism in the minds of the local rebel groups were from Indonesia and Malaysia, and were ethnic Malays?

Open park

Mindanao is an open park for the terrorists crossing the waters from neighboring countries in the southern fringes; and without strict identification control and border patrols that are emblem of internal security. it’s a walk to the rebel enclaves.

The plains and the mountains around the borders of Lanao del Sur (of which Marawi is a part) and Maguindanao provinces have been training grounds since the 1990s for Al Qaeda and Jemaah Islamiya. It was then that an Indonesian named Ibrahim Ali was among the first batch of the so-called cadets.

It was Ali, according to one intelligence report, whom the IS had wanted to designate the emir for Southeast Asia but who was killed in a shootout in late 2015 in the Philippines’ Sultan Kudarat Province, that was intended to capture a leader of another rebel group. The military was to discover later that it was Ali the bomb maker who was among the casualties.

Consequently, it was a daring leap for Isnilon Hapilon to be named the emir for the Southeast Asian Caliphate from his Abu Sayyaf rebel base on Basilan island to the mainland’s northwest frontier to join forces with the Maute family – steeped in money and in clan wars – that held fort in a remote town called Butig, about an hour away by land from Marawi.

It was believed the Mautes had previously harbored radicals, one of whom was an Islamic teacher from Indonesia who was killed in late 2012.

Two of the Maute sons became the up-and-coming terror bloc generation, going by the deeds of the Islamic State that were evidently a departure from the main rebel groups negotiating peace with the government. The Maute group was responsible for the bomb attack last September in President Duterte’s hometown of Davao, a blow to what was supposed to be an impenetrable “alternate seat of power.”

Twice in the midst of the crisis in Marawi, the president withdrew from public view, sparking rumors of failing health. He had boldly announced that the siege would come to an end on the Philippines’ Independence Day, June 12, but that didn’t happen as the battle went on to take control of the city while he himself missed the celebration that was expected of a president. His spokesman said he needed to rest.

Meanwhile he had declared martial for the entire island of Mindanao, reminding his guests at the palace gathering for the Muslim festival, seated at ornate tables under bright chandeliers, that the Marawi crisis had forced his hand.

False confidence

“I knew everything,” he said, “I knew the deployment of the snipers and where they hid the weapons. I already had a complete picture and I knew it would be a long fight.”

He had been in Moscow when the fighting struck in the afternoon of May 23, raising the question of how much he really knew, when on his Russian trip he had in his entourage about 50 police and military generals that included senior commanders and their deputies who took their wives along in what became evident as a junket.

Scattered information from the intelligence community had sensed that something was afoot a couple of weeks in advance, sources said, taking notice of a swelling of forces in the Maute stronghold. One intelligence group from the Navy, dubbing their project Target Pocket Bingo, had been following Hapilon for about three years, maybe more.

Eventually crumbs of information led them from the southern islands all the way up to Marawi, where special units of the army and the navy were called in for the hunt. Within half an hour gunfire erupted from the building in which Hapilon was believed to have been staying, triggering a battle that has changed dimensions in the conflict.

The military said Hapilon might have escaped the fighting and that they believe one of the principal Maute brothers has been killed. Weeks on, the president told his audience in the palace that a casualty among the Maute family was a cousin, “did you know that?” – putting himself in a perplexed state of having been deceived, making him a victim among the thousands of Maranaos who had lost what they had because of “this adventure.”

“Ungoverned spaces”

He promised, again, to rebuild Marawi from the rubble, to bring back its prosperity – if by that he meant its shadow economy thriving on guns and drugs and other illegal trades. The city may well be the denouement of things that can’t go back to the way they were before. It was one of those “ungoverned spaces” labeled by the navy’s special operations force that has caused radicalization to fester.

The military was one step behind in having tried averting it, but it wasn’t fast enough to douse the fire of violent extremism.

After it has been destroyed in order to save it, Marawi has to be resurrected with a symbol erasing the past. It will have to start on a clean slate, this crisis being a heartbreaking wake-up call for all of Mindanao. The president may have to stop harking back to his one-dimensional view of the Muslim narrative, because it has to move forward or risk greater failures.

He said he couldn’t bear watching the suffering on television, he would turn it off or change the channel to watching cartoons instead.