22 February 2004

--A Physician's Meek Prescription for the Sinking Philippine Peso

In deciding to write this piece, I had to overcome a lot of butterflies in my stomach because I still think the economy is best left to the economists. Lately, I have grown weary of the measures undertaken by so-called government economic experts. The final blow was yesterday's top business news that the Philippine peso has plunged to a "new historic low of 56.35" to the US dollar.

I am a medical man. I have only taken one subject in Economics (during my MBA) in the state university under an Economics professor (God bless him) who is now part of FPJ's 19-man economic team. For my foreign friends reading this, FPJ is Fernando Poe Jr., an action movie star (much like the present California governor) who many see as the likely winner in this year's presidential elections, effortlessly thrashing incumbent President Arroyo.

This article should not be taken as an expert opinion because an economist I simply am not. I am just writing to express an opinion and to see, amidst a background of my good professor being displeased with me, if I can offer some contributory solutions to our prevailing problem.

Basic economic theory has taught me that if demand for a good increases, the price of that good increases and conversely, if supply for a good increases, the price of that good decreases. The same holds true for currencies like the peso and the dollar. In a peso-dollar exchange, more supply of pesos relative to the dollar means a lower peso value. In order to increase the peso value, demand for it should increase and its supply should diminish. Therefore, factors that influence both the supply and demand of the Philippine peso should be analyzed and the problem solved from that perspective.

The previous record low of the peso to the dollar was last February 3 when it closed at 56.20, and last January 29, when it had an intra-day record low of 56.22. Last Friday's value of 56.35 was alarming. Friday's trading was heavy at $195M, up from Thursday's $95.50M. Despite the heavy trading, peso still plunged.

Taking into consideration our basic economic theory, I can offer the following postulations regarding the plunging peso value relative to the US dollar:
1. Peso supply has increased relative to the US dollar - it is campaign and election time, hence politicians are unloading a filthy amount (read: billions and millions of pesos) of money to bribe voters in their attempt to win their votes.
2. US Dollar supply has decreased relative to the peso - exporters, overseas contract workers (OCWs) and their relatives have decided to hold on to their dollars in anticipation of a further fall of the peso in the future. Are they waiting for an 80pesos US dollar exchange?
3. Politics - the business community is spooked and anxious over FPJ's hesitation to give the details of his economic platform, lack of formal education, and inexperience in public service. This further fuels uncertainty and distrust in the business market. The businessmen likewise keep their US dollars locked in their vaults and play the waiting game.

If the peso sinks further, expect higher gasoline and commodity prices in the days to come. Higher gasoline prices may mean increased transportation fares, increased Meralco power distribution bills, lower peso buying power, inflation, companies closing down, higher unemployment rates, more peace and order disturbances in terms of crimes and kidnappings.

Also, all dollar-based government debt (which I believe is mainly dollar-based) doubles or triples in amount, making it more difficult to pay. The Philippines' credit rating will then go down and even if we attempt to borrow again from foreign banks, they may no longer let us, or they may, but at exorbitant interest rates. Life becomes harder for every Filipino.

1. Central Bank Governor Buenaventura - "Even if the exchange rate hit a new all-time low of 56.35 to $1, this number was not significant from the standpoint of volatility." The Central Bank's position is to let the peso find its own level. (Argh. What if that level is a 100 to $1? Will they just sit and wait for that to happen?)

2. President Arroyo has called Buenaventura and Finance Secretary Julita Amatong to a meeting tomorrow to map out strategies to arrest the peso's fall. The incumbent president is resolute to halt the slide in the currency. Why? Because it is widely perceived as an indication of her failure to reinvigorate the economy and that could be bad publicity for her presidential bid.

....doesn't hinge on economic tools and theories but more on a basic personality trait even an elementary pupil should know.

Everyone should help out --- the candidates first, if they want to win good points with the voters, then every Filipino citizen who can.

What's that, again?

Everyone should help out.

The government has limited options in propping up the peso. President Arroyo, who has a Masters degree in Economics, knows fully well the imprudence of wasting foreign exchange reserves in an attempt to artificially strengthen the peso. And as we have noted, CB Governor Buenaventura is unlikely to go along with such a policy. With limited options, MY PRESCRIPTION IS FOR EVERYONE TO HELP OUT.

During the 1997 Asian financial crisis, weeping Thais were caught on CNN donating their gold and other jewelry to the Thai Central Bank to help stabilize the baht during the last Asian crisis. The Koreans, I think followed with the same move when their Korean won was under attack, too.

With everyone unloading their US dollars, their gold and jewelry, we can possibly tip the balance of supply and demand in currencies. More dollars mean a lower dollar value and a consequent Philippine peso appreciation.

Easier said than done, I know.

As I have said, all I will write down here is an opinion and possible solution.

When you analyze our economic problems, you will see the solution rests mainly on the Filipinos' attitude, and not really on "economic tools."

So, what will it be for us, Filipinos?

Greed or patriotism?

Leaders, or possible leaders, should lead us to patriotism, I think…or was that a no-brainer???

Hahaha. You tell me.



Yesterday, the Sassy Lawyer devoted an entry in her weblog to yours truly. Check it out if you do not believe me. Click on her link on the left side of this webpage.

I told her I was deeply flattered....I still am.

I hope I continue to please you and her in the future.
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