Pressure on peso mounts as market awaits unfolding of events

The fate of the peso continues to hang in a balance this week as the market awaits the unfolding of events related to the presidential race, prompting the Bangko Sentral ng Pilipinas (BSP) to urge the presidential candidates to unveil their economic platforms as soon as possible.

The peso closed at a new all-time low last Friday and pessimists have been speculating that the exchange rate would go down to as low as P56.50 to the dollar before a new president is elected into office in May.

This week the market will also have to contend with the expected downgrade from Moody’s Investor Service which put the Philippines under review for a downgrade late last year.

There are mixed expectations but a downgrade is widely speculated, with some traders saying that it was only a question of whether Moody’s will decide on a two-notch or one-notch downgrade.

BSP Governor Rafael Buenaventura told reporters over the weekend that much of the uncertainty in the market stemmed from the fact that none of the presidential candidates have made any clear statement indicating the direction of their economic agenda.

"As far as investors are concerned, they want the democratic processes to run the full course," Buenaventura said. "We all want to see a clean and orderly election to take place that would give a clear mandate to whoever wins the presidential race."

Buenaventura refused to speculate on Moody’s possible decisions, but other official sources said that the best the country could hope for is a one-notch downgrade in the country’s foreign borrowings and possibly a two-notch downgrade on domestic borrowing, with the outlook firmly at "stable."

According to a source, if Moody’s decide on a one-notch downgrade on both foreign and domestic borrowing, the outlook would likely be at "negative" which would mean that another downgrade could still happen in the immediate future.

"The bad news on the political side has not affected our macro-economic numbers but they are preventing us from achieving better economic results," Buenaventura said. "So we are missing out on the leapfrogging because of the hesitation of the investors."

Buenaventura said the election campaign should instead focus on the discussion of economic platforms. "We have to make investors more relaxed in the knowledge that candidates have the economic interest at heart," he said. "Fear of the unknown is more dangerous."

Buenaventura added that while economic agenda was less important to the voting masses, it was the focus of most investors. "Unfortunately, there is absence of appreciation for economic programs," Buenaventura said. "Investors must be convinced that any administration has the same resolve because of the gestation period of investments."

Buenaventura explained that investments that came in this year were decided upon two or three years ago. "Therefore investment decisions for 2005 and 2006 are being made today and in the next six months," he said. "If investors are not convinced that they have a future here, they can choose Thailand, China or other countries."