DoF: Economy must diversify to lift peso

THE Philippine economy must diversify to prevent the peso from depreciating too much whenever uncertainties arise from advanced economies, Finance Undersecretary Gil Beltran said over the weekend.

Beltran, in an economic bulletin on Asian currencies, said the Philippine peso was among Asian currencies that appreciated eight years before the global financial crisis in 2008. 

Citing the Bloomberg and Asian Development Bank, data showed the currencies of 12 Asian economies appreciated by 9.3 percent from December 2000 to December 2007. 

The most appreciated currencies were the Korean won (26 percent), Thai baht (22.1 percent), Singapore dollar (16.9 percent), the Philippine peso (16.8 percent), the Indian rupee (15.7 percent) and the Malaysian ringgit (12.9 percent).

But nine years after, as the international economy started to recover from the global financial crisis, Asian currencies reversed and depreciated by 14.6 percent. 

Except for Singapore dollar and the Thai baht which continued to strengthen, the same currencies that gained were among the most depreciated. 

 These were the Indian rupee (62.1 percent depreciation), Indonesian rupiah (35.4 percent), Malaysian dollar (27.2 percent), Philippine peso (21.9 percent), and Korean won (20.7 percent).  

“Currency movements in Asia are a complex product of external and internal economic factors. But in the case of movements from 2008 to 2017, these are mostly accounted for by external factors, mainly the Fed QE [quantitative easing] policy,” Beltran said.

Beltran said regression results show that Fed QE policy accounted mostly for currency movements from 2008 to 2013, with domestic inflation accounting for less than 10 percent. 

Compared with other Asian currencies, Hong Kong dollar depreciated just by 0.1 percent from 2007 to September 2017. Taiwan dollar appreciated by 7.4 percent in the same period, he said. 

Beltran said significant diversification of the economy, as in the case of Taiwan and Hong Kong would, however, lead to lesser influence from external factors. 

“This is what the Philippine economy aims to achieve in the medium term,” Beltran said.

The Philippine economy has been relying mostly on remittances and business process outsourcing receipts. These two sectors had been very instrumental for economic growth of over 6 percent for the past couple of years.

Remittances and business process outsourcing receipts annually account for around $50 billion in inflows, which provide strength to the country’s external payments position. 

Economists said the manufacturing sector must be reinvigorated and services sector must be improved further.They said the Philippines must also look for other potential trading partners and not rely too much on traditional trading partners such as the United States.

Remittances in 2016 reached around $26 billion, which accounted for 10 percent of the country’s gross domestic product.

Earlier, Finance Secretary Carlos Dominguez III said the government would not intervene in the foreign exchange market despite the weakening of the peso against the US dollar.

Dominguez also assured the public that the peso’s decline was not a cause for alarm as the economy had become more resilient against the adverse impact of a weakening currency.

“In the past, the exchange rate impacted inflation rate almost immediately. It no longer does it. We are a much larger economy, much more diversified,” he said in a previous statement. 

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