Recklessly noynoying a fatally strong peso

By Dean de la Paz

Citing 2013 as the Year of the Eagle and ejaculating as if the stars, the Zodiac and the Chinese calendar had really anything to do with economic governance, some stockbrokers, with their head in the sand, will probably deny a currency crisis exists, celebrating as they do the crossing of the six thousandth mark in the stock exchange index and cheering the economy on as if the capital markets was its best indicator.

Stock market analysts, and below this breed, the stock broker, are among the most mystical, dubious at times and ambiguous at most, and that is understandable as they are hardly predictive and more responsive, finding causes and rationale after the fact if only to justify the market’s movements.

The stock market is indeed an indicator but for the serious investor, it is probably the least indicative of economic governance or investment climate. For one, the index fails to capture the cost of doing business. It does not account for infrastructure development, the level of wages, or the cost of utilities on a sustained basis.

It also does not reflect the quality of economic governance, again on a sustained basis. Industry and agriculture may be experiencing slumps but the index will fail to reflect those on a long term basis. If at all, the spikes in the index will attract margin traders and margin players and thus bloat the index monetarily, but that will hardly be indicative as traders in the exchanges will make money either way the economy develops, or does not develop.

It is in the nature of the market and the concept of investment for those who play it. There is a reason that the so-called investments are labeled “Hot Money”. On a sustained basis, nothing can be more volatile and colloquially “iffy” and uncertain. Likewise, those who advise investing through such cannot be far behind both “iffy” and uncertain.

The real investors, as opposed to margin traders, who are earnestly looking at their long term options and willing to gamble not simply portfolio investments but real capital to build factories and long term businesses are seriously worried. These are not those who gamble. These are also not those who will, in one minute, purchase stock from the exchanges, and in the next minute, divest. These are not the financial browsers and investment tourists. More important, these are not those who give any sort of credence to a stockbroker’s sound bite advice, knowing full well that a broker earns his commission from both a purchase and a divestment, thus covering both eventualities and is characteristically risk free.

The dearth of serious foreign takers of the government’s Public Private Partnership (PPP) program is an eloquent example. Never mind the declarations of interest. Those might be plentiful but when compared to actualities and those who have seriously invested foreign capital, the number is embarrassingly low in contrast to the hype and hullaballoo. Three years into Benigno Aquino III’s incumbency, and the PPP, the original brainchild of former vice presidential candidate Manuel A. Roxas, remains as much a failure as was his unfortunate bid for the two highest elective and executive positions in government.

Failure spawns failure and two-time losers do not necessarily create winners. The arithmetic is as simple as that.

Let us however dig deeper. What is keeping foreign capital from seriously coming in and taking up residency as foreign direct investments (FDI) in the Philippines despite the declarations of a resplendent economy and the hyperbole of stock market brokers?

Let us examine one apparent hurdle.

In the recent weeks prior to the end of 2012, the monetary authorities were seriously intervening in the currency markets through what is called “open Market operations” or the buying and selling of currency to control the value of the peso as against another currency. In the case of the intervention towards the end of 2012, the peso arrayed against the dollar was a matter of serious concern, and in some instances, panic.

Threatening to impose some form of capital controls, either on the inflow of dollars, or the exit of the same, the monetary authorities constantly warned against an undesirable speculation on the peso. The imposition of capital controls, first through threats and then trough the imposition of trading limits of derivative instruments that reflect the peso’s long-term exchange volatility indicate speculators may already be attacking an overvalued peso.

Ironically, the peso is vulnerable to speculative attacks, as luck would have it, because of its apparent strength and the little that government is doing to return it to its rationale levels. Early-warning bellwether indicators have not only been ignored, but by their continued prevalence, a currency crisis might well impact on the profitability of gross domestic productivity (GDP) drivers such as the business process outsourcing sector and the one-off value of overseas Filipino worker’s (OFW) remittances.

Drowned out by the pom-pom cheerleading and girly chorusing of stock brokers who’ve broken out the bubbly over the recent rise in the stock exchange index, few are listening but officials representing the business outsourcing sectors are now complaining of our growing uncompetitiveness.

BPO revenues are not only slowing down but are thinning out as margins are depleted by the detrimental rise in the peso’s values. Note that a recent analyst from one of our creditor banks had forecasted an even stronger peso breaching all time parameters and heading straight into the uncompetitive Php 30’s levels.

When compared to other economies that offer the same BPO service and have in fact better telecommunications infrastructures, more reliable power platforms and a better-educated constituency that might service the technical BPO market, cracks in the local BPO sector are starting to form. While admittedly, we will remain a key player in the global market, our preeminent position is not only threatened but it may not remain for long should the noynoying continue. To validate such concerns, the local associations representing the BPO sector are gradually increasing their criticism of the monetary policies being pursued where the peso is kept inordinately strong.

Echoing those concerns are the associations that represent OFWs, relevant and critical especially in this period when OFW remittances flow into the economy in substantial volumes as compared to any other time of the year.

A major OFW group has begged the government to act aggressively and pro-actively to maintain the value of remittances. One way they suggest is to suspend the 0.05% documentary stamp tax slapped on every US$ 200 worth of remittances. The Aquino government simply replied with its classic callousness and has turned a deaf ear. Its highest official has instead chosen to noynoy and ride a pony while taking the holidays off. Either through a serious lack of discernment and economic comprehension it appears he has not understood the impact of their plight, or he doesn’t care. Heaven forbid that it is both.

The criticality cannot be ignored however, now or in earlier periods. The strong peso has diminished the value of the remittances and when domestic families convert the remittances the actual peso amounts are far lower than expectations.

In the last year the peso versus the dollar exchange discrepancy had slashed the remittance values by as much as 10% thus reducing consumer purchasing power from this one vital source of cash flows for a public whose earning capacities in the local currency is severely limited and worsening under a dispensation unperturbed by worsening unemployment. Add the devaluation of 10% to a historic 30% in the previous years to 2012 and the situation shows why, despite anachronistic partying by stock market brokers and Aquino’s sycophants over GDP growth, OFW families seriously worry.

This is unfortunate on several counts. The remittances are the basis for increased consumer spending which is typically a vital economic driver that feeds into GDP growth. When the effects of the remittances are depleted, then so follow consumer spending and its impact of real GDP. This belies the veracity of Aquino’s 7.0% year-over-year GDP growth statistics. If indeed the economy grew then that statistic does not reflect the realities felt by the OFW families much less by those unemployed and continue to be unemployed.

If Aquino’s continued noynoying and his economic policies are wreaking havoc on the unemployed and the OFW families, then perhaps these are benefiting those with work in the dollar-earning exporting. Look again. Unfortunately, only the suck-ups are toasting and sipping champagne. Let’s look at the realities instead of listening to self-promoting stock market analysts who know little of the sector other than its short-term impact on the capital markets. Let us listen to the actual echoes from the export industry itself.

The Philippine Exporters Confederation is pleading for the Aquino government to stabilize the exchange rate at Php 42.50 to the dollar, determining that level to be the viability threshold to save the export sector. Too late. The prognosis on the exchange rate is far below Php 42.50 for 2013. So much for the Year of the Eagle. The better analogy is a cooked goose.

Against all these, an uneducated media, a number of paid columnists and the army of suck-ups continue to hark on the peso as the region’s best currency performer against the dollar. They should have OFW families. Or they should be a worker in the export sector, be one of the jobless, be a BPO operator or simply be Filipino. Then they would realize how empty and irrelevant such boasts of currency can be.

Let us analyze the heresy behind the hype. Government’s press releases proudly claim the peso as the region’s best performer against a weak dollar by comparing our peso’s upticks to those of the New Zealand dollar, the Turkish Lira, the Taiwanese Dollar and the Singaporean Dollar.

As if these were the economies we competed against. Taiwan perhaps, but as for the rest? It’s a question of coconuts and oranges.

They also cite the strategic devaluation of the Indonesian Rupiah, the Japanese Yen and the Indian Rupee. They seem to have forgotten their macroeconomics or perhaps they never learned it. A devalued Rupiah steals away FDI from the Philippines, a weakened Yen slows down Japanese investments into our economy and a devalued Rupee makes our BPO sector uncompetitive against India’s thus making that economy more viable.

For those sycophants who’ve made it a practice to cheer on the type of governance that has ignored these realities, we suggest they soon finish the bottle of champagne they’ve broken out to celebrate an index that can just as easily fizz out comprised as it is by bubbles and little else. Worse, bubbly like that can quickly turn to vinegar.

Dean dela Paz is an investment banker. He is a consultant in the fields of finance and banking and has packaged some of the most prolific public offerings in the Exchanges. He is a member of the Executive Committee and sits in the Board of one of the oldest financial institutions in the country. He is likewise an energy consultant having served on the Boards of several foreign-owned independent power producers and as CEO of a local energy provider.

He is currently the Program Director for Finance in a UK-based educational institution where he also teaches Finance, Business Policy and Strategic Management. A business columnist for the last fifteen years, he first wrote for BusinessWorld under the late-Raul Locsin and then as a regular columnist for the Business Mirror and GMANews TV. He also co-authored a book and policy paper on energy toolkits for a Washington- based non-government organization. He likewise co-authored and edited a book on management.



  1. manuelbuencamino

    The rise of the peso is a cause for concern. But who is in charge of monetary policy, the BSP or the administration?

    What else can government do besides providing infrastructure, peace and order, minimizing corruption, and giving investment incentives? Maybe it’s not happening fast enough but it’s happening.

    Right now our dependence on foreign investment is not as great as it used to be. We have billionaire businessmen now. So why do they not invest in manufacturing? Why do they put their money in real estate and financial services, in media and public utilities, in extractive industries, and in mergers and acquisitions? What can the government do to push them to put their money in businesses that actually produce goods, goods that use our mineral wealth?

    • @mb:) monetary policy is the BSP turf where it manages and controls the money supply both fx & local cuurency. On the other hand, fiscal policy deals with the revenue and expenditures of our national & local govt to support it’s infrastructure programs and the whole bureaucracy, Hence, both Congress and the executive dept. are responsible to have a balanced budget and to minimize the perennial deficit budget because of over spending and corruption. I agree if only our local billionires invest in atleast medium-size industries which are import-substitute products, then we can create jobs and be competitive world-wide in the long run. Thats how other economies started to grow.

  2. Well, this seems like a complaint with no meaningful proposal for solution. Remove the stamp on $200 worth of remittances is the grand solution? Meanwhile disparaging names like syncophant, heresy and havoc are tossed around like a teen bubbling over with the need to win a chat-room argument at any cost, denying the facts that the Philippines is stable and on the uptick for the first time in . . . um, forever. That’s what we syncophants cheer for, even as our dollar denominated investments edge southward. Of course exporters are whining, and OFW’s, and the syncophants who write on their behalf. As my Pappy used to say, “Son, deal with it.”