patindi nang patindi ang daing ng ating mga OFW sa tuloytuloy na pag-appreciate ng halaga ng piso. wala na daw silang naiipon dahil kailangang dagdagan maya’t maya ang ipinapadala nila sa mga pamilya nila dito. bakit parang binabalewala ng administrasyong aquino ang mga bayaning ito, e kung hindi sa kanila, matagal nang bumagsak ang ekonomiya? sino lang ba talaga ang nakikinabang sa pag-taas ng halaga ng piso? OFWs should unite and demand depreciation.
Collective impotence and the peso
By Raul V. FabellaTHE RESOLUTION submitted by the PCCI to Pres. Aquino at the closing of the just-concluded Philippine Business Conference is notable. It called for the arrest of the continuing appreciation of the Philippine peso to safeguard our dollar earning industries. I will not comment on the specific recommendations but only in the general direction — a more assertive attitude towards the value of the peso. When, in early 1994, a group of us (Noel de Dios, Benjamin Diokno, Cayetano Paderanga, Toti Chikiamko and myself together with PHILEXPORT which is celebrating its 20th anniversary on Nov. 30, 2012) called for the deliberate weakening of the peso — a cause carried in a speech by the then Senate President Edgardo Angara at the first plenary session of the 1994 National Economic Summit — we were treated worse than lepers. One mouthpiece of the then central bank governor labelled us the “jukebox economists”: singing any tune the moneybags call. The implied moneybags, IMF and the World Bank, did not even know they were calling our tune; they were, in fact, calling the CB’s tune. They had a catatonic fixation for floating the exchange rate which, at that point of considerable dollar inflow, pointed to appreciation. And PCCI? It was firmly on the CB governor’s side. But even labor unions whose jobs we were trying to save called for our heads. Note that this was after the People’s Republic of China devalued its currency 40% early 1994. The yuan then stayed at about 8.30 per US dollar for 10 years despite ever larger trade surplus and howls of protest from the West. One did not need atomic physics to glean that PRC’s move would devastate Philippine manufacturing and employment. This was a plea for economic survival!
The CB governor himself responded to the proposal with the defiant “Over my dead body!” To the business complaint of high domestic interest rate (to support the overvalued peso), the central bank’s response was: “Borrow in dollars.” It was a counsel for disaster. Borrow with vengeance they did, especially the banks. After all, with appreciation a one way bet, you get low interest rate and a sure appreciation gain! The ‘Over my dead body’ boast being a portfolio inflow come-on and the consequent massive private foreign borrowing forced the peso upwards to ₱24/$. And this omen of an impending debacle was hailed a success! In other words, the Philippine economy got poison disguised as medicine. Two years later, the Asian Financial Crisis, the bitter harvest of private over-borrowing and asset bubbles, wiped out the gains slowly built up the last five years. The CB’s strong peso policy had aborted the Ramos growth momentum!
This rebuff of economic common sense is a source of great sadness for me personally. Toti Chikiamco summed up our collective despondency at the Summit’s rejection: “We lost our balls!” Meaning, we as a people failed a massive collective action test: we let ignorance among our central bankers and among the business community short-change our future. Had we moved the exchange rate as proposed, there would not have been excessive private foreign borrowing and the Asian Crisis would have spared our shores. The banks would have remained whole and the Ramos growth inertia would have continued into the next decade. Instead, we experienced a decade of painful curettage to sweep away the poisonous residues (bank NPAs, etc.) of that abortion. Our romance with sado-masochism marched on.
Such is the power of the CB: it can shatter a budding future. In this case, the strong peso was the sledgehammer. And this was not the first time the CB officiated in the abortion of a potential breakout in the post-EDSA era. The sledgehammer in the first was the interest rate cure administered through the JOBO Bills that shrank the economy to fit the overvalued peso: it found common cause with misguided military elements to abort the momentum of the post-EDSA Philippines. But that deserves its own re-telling.
Fast forward to 2012. The air is once more pregnant with promise. The signs are all pointing in the right direction. As if on cue, however, that same abortive sledgehammer rears its head. Will we overcome the collective action challenge this time? Now that the players and the economic realities have changed. Now that there is a new and more open dispensation in the BSP. Now that even such sworn enemies as the PCCI has switched lanes. Now that OFW remittance is the country’s lifeblood. Now that BPO is the sunshine industry and the big conglomerates have dollar earning assets. Now that the old global monetary consensus has become tired and misguided. Now that the challenge – keep the exchange rate from dipping below ₱42/$1 — is much simpler than in earlier times.
I dare take heart. A new collective consensus seems a-building. We the people should now take the bull by the horns and not leave it to bureaucrats. Would that this time we will not lose our balls. Let not collective impotence again mock our hopes. Even if it should happen twenty years late!
Raul V. Fabella is the chairman of the Institute for Development and Econometric Analysis, a professor at the UP School of Economics, and a member of the National Academy of Science and Technology. For comments and inquiries, please email us atidea.introspective@gmail.com. To know more about IDEA, please visitwww.idea.org.ph.
There is indeed a lack of cohesion among the 8 million or so OFWs and greener pasture immigrants in the diaspora who are helping our economy afloat but has yet to show a collective empowerment to demand prudence in the way our govt should be run. The saddest part is we have mercenary economists among the govt bureaucrats who parrot policy prescriptions prepared by Wall Street investment gurus and foreign aided financial institutions whose interests are diametrically opposed to our national development. Most of these technocrats are already imbedded in strategic departments and has major influence in the policy decision of govt. RV Fabella is correct that it is not yet too late to have a collective consensus to grab new initiative to steer away from economic suicide of currency over valuation since there is a new attitudinal change in our monetary and fiscal authorities. The ONLY draw back is can the crab mentality of Filipinos unite even for this common cause. That’s a wishful thinking, I am really praying for.
I agree with you. I wish the 8M OFWs worldwide would unite and demand from the government who has consistently hailed them heroes but treated them as cash cows too.
hey nyel :) di ba? i think they don’t realize that they have the power.
Actually, the 8mil OFWs worldwide had a great chance of being UNITED with the granting the Right of Absentee Voting in the 2004 national election when for the first time I voted for the pres.,vice-pres.,senators & partylist after so many years of being a non-resident citizen. Unfortunately, the turnout was not enough to show that it had a voter constituency for political power.
btw, this AVR bill was passed after we had a dialogue with Sen. Angara,Lacson, Buth Aquino and Ping Lacson when our group,Calabarzon OFW Org. with the support of our Phil. Embassy, invited them in Riydh,SA. of which I was then a member of the Executive Board
I’m not sure I grasp the point, but then I am just a marketing guy, albeit one who gets richer if the peso is weaker. I thought exchange rates were generally set by the market, or the comparative strengths of the economies of the nations who are exchanging money. When an economy does well, as the Philippine economy is doing, with good growth and modest inflation, versus a world batch of economies struggling to move forward at all, its currency is more attractive to investors. So it gets stronger. Are we wanting the Philippine economy to get worse so the peso weakens? Or do we want to manipulate the rate and say “screw the world”, we play by OUR rules, and you other nations don’t matter because we are poor beggars and need to fend for ourselves? Rather like the Chinese are accused of doing? Myself, I’d rather be poorer and see the Philippines do well economically. It’s best for the future, and the best way to get OFW’s home.
What am I missing here?
hi joe, check this out: Curse of the strong peso by Benjamin Diokno http://www.malaya.com.ph/index.php/column-of-the-day/8012-curse-of-the-strong-peso
I appreciate the link, but I don’t like that guy, either. He writes:
“The Aquino administration would be committing a monumental mistake if it were to claim that a strong peso is good for Juan de la Cruz. Not only is it a mistake, it is also insensitive and insulting.”
Excuse me, “insulting”? All I’ve read is that the Aquino people are also concerned about the strengthening peso, just the opposite of what he is implying. So he puts words in their mouth, and then suggests they are being insulting?
He also takes the view that OFW’s are an “industry”, a commodity, that should be protected and built up to keep strong revenues coming into the Philippines. No no no. The domestic economy should be built up and OFW’s brought home to their families. We ought not be manufacturing babies and shipping them abroad.
“What am I missing here?” What every OFWs or currency exchange speculators should know is that foreign exchange rates of US dollars is NOT dictated by “the forces of market” or the law of supply/demand” but a selective group of currency dealers right at New York financial center where they manipulate or redirect the flow of dollars to have an artificial stock of dollars to push or pull the exchange valuation of weak economies like ours.
Too much of a good thing by Valentino Sy http://www.philstar.com/Article.aspx?articleId=825471&publicationSubCategoryId=
Well, again, we appear to have people believing market forces can somehow be manipulated. I’m afraid that what we have is vested interests concerned that their vested interest is going to get undermined because the Philippines is no longer the weak dog of Asia. They’d rather have the weak dog and their vested interests protected. Nah. Let the markets be free and deal with it.
And his Japan example is like comparing cows to apples.
Peso exchange rate: something to correct by Gerardo P. Sicat http://www.philstar.com/Article.aspx?articleId=840437&publicationSubCategoryId=66
Same thing. He sees the symptom, figures an illness, but has no real diagnosis or treatment. He can’t have. To quote my cousin Angry Maude “It’s the market, stupid.”
JoeA@: Yes, you maybe correct where you define a perfect market mechanism behaves such the true economic value or price of a commodity is equal to the supply and demand all things being equal such as full employment and no artificial supply of resources. I remember a classic joke at our Economics 101 at DLSU made popular by then Ex-pres. Ramon Magsaysay when an adviser told him the reason for high prices was due to the “Law of Supply and Demand” to which he replied why don’t we repeal that law. Since we have not attained that accepted level of full employment and industrialization to mass produce export products, complicated by pegging our exchange rate to the mighty dollar, the true value of peso is structurally weak and open to foreign manipulation as dictated by syndicated financial world currency centers. It will take really a political will to manage our exchange rate to our benefit and to which I suggest to follow what Sen. Ed Angara has previously recommended to peg our exchange rate at Ph-55/dollar, just as India has been doing. cAlling our legislative and monetary authorities to “unite” for this economic cause.
We are asking other nations to support the Philippines because we are poor and don’t have an “accepted level of full employment and industrialization”. Yet, we are responsible for our own lot, the corruption and poor thinking that keep us poor. It is a beggar rationale, to me, that says we are unable to do it, so we need your help. And there is no discipline to it, no point at which we agree to stop sponging off of others.
And I see little difference between “foreign manipulation” and “investing”. Everyone puts their money in (or takes it out) and bears the risks. Unless you know that major players are indeed “gaming” the markets. They would have to be huge players, I’d imagine. And that would be a reason to regulate investments, but not peg the exchange rate.
And at 55P/$, I’d be really wealthy, so I don’t argue for self advantage.
JoeA@: In the economic model of Adam smith, if I am not mistaken,in a capitalist system where investors operate on the principle of “enlightened” individual self-interest and deserves a respectable rate of return on their investment, govt regulation and prudent monetary and fiscal policy is necessary to reduced wealth concentration at the expense of labor and depletion of natural wealth. As the saying goes, you cannot have the cake and eat it too.
That is beyond my knowledge, actually. I would only make the point that it is very important for the Philippines to manage its own way to wealth by being responsible. Reducing corruption, getting long term investments into the country (rather than exchange rate players), restraining its out of control birth rate that makes it impossible to ever get to a job sustaining level, pass good laws, and have a functioning justice system and court system that enforces disciplines of good behavior. The nation ought not expect other countries to make up for its own lack of discipline.
Relevant follow-up, from today, the Administration is doing as various article writers linked to here have suggested, borrowing locally to take down more expensive foreign debt:
http://www.reuters.com/article/2012/11/08/philippines-economy-bonds-idUSL3E8M82RO20121108
It’s an either way ‘I’m damned’ proposition for the BSP, which can either ease monetary policy (lowering interest rates) to bring down the peso, or tighten monetary policy to weaken inflationary pressures that arise from too much (foreign) money coming in.
The peso strengthens because foreigners are optimistic about the domestic economy. That much seems undisputed. Peso appreciation cuts into the wealth of OFWs and local exporters, including BPOs, but then it adds to the wealth of locals who own peso assets and may want to buy imports. This piece of arithmetic is also a given. Joe America is right in thinking that he misses the point of those whose hearts bleed for OFWs.
If the BSP thinks that foreign investors are wrong, then it should lower interest rates to discourage capital inflows. But this would move up the (alreay bubbly) domestic stock and real estate markets, and would also encourage more capital inflows even as it allows the monster of inflationary pressure to awaken with a certain vehemence. Certainly, this would exacerbate what’s already a dangerous situation where the peso continues to strengthen, and just about everyone wonders when it might end, and what kind of crash would ensue.
If the BSP tightens monetary policy to ‘sterilize’ the capital inflows because it worries about domestic asset inflation, then the exchange rate players will have a field day parking excess liquidity in peso assets with little risk of losing on the carry trade (borrowing in foreign currency to buy peso assets). And again, of course, the peso will continue to appreciate, but this time because of the carry trade. This also results in a guessing game as to when the BSP would reverse course to correct a situation where it simply feeds profits to those playing the forex game.
It seems then that, correctly, the BSP probably does and obviously says nothing. We might then ask why the BSP is a bit too tight-lipped. One answer is that, when whatever you do or say can be so easily misinterpreted, silence seems the better part of prudence. Another answer is that the BSP made a mistake in the past year or so with a too-easy monetary policy that boomeranged into a peso appreciation amidst a latent asset inflation bubble, and now its hands are tied. This latter view is perhaps closer to reality, but who will want to explain that to ordinary folks?
Ordinary folks, like dependents of OFW, do not need BSP’s monetary control justification. The reality is that with peso appreciation due tight fx-currency policy, its purpose is to window dress our credit standing and attract fx investments. Fx currency speculators will just park their hedge funds and will run and drop the peso like hot potato after they have salted their dollars in short term bonds and money marke placements. The net effect no palpable development, no benefits to the families of OFWs and exporters.