To save the exporters: BSP needs to identify real value of the peso

As the strengthening peso against the US dollar continues to threaten the export sector in the Philippines, exporters can only save their businesses from "danger" if they strongly pressure the Bangko Ng Pilipinas (BSP) to truly identify the exact value of the peso today.

University of Asia and the Pacific (UA&P) school of economics director Emilio T. Antonio, Jr. told Cebuano exporters to persistently ask the BSP to change some of its policies to determine the real value of the peso.

Although he said that the strengthening of the peso today is mainly market driven, he said "the market can be wrong."

"There is nothing the exporters can do, except to create noise to pressure and make lobby to BSP to change some of its policies in order to see the real peso value," Antonio said.

"The recent drop in the peso-dollar rate has elicited contrasting reactions. According to the government, this development signifies an improvement in the economy's health. However, other parties argue that this development actually foreshadows a weakening economy. Behind this disagreement is the assumption that there is an "appropriate" peso-dollar rate. This is difficult to pin down but if this controversy is to be resolved, an attempt must be made to determine what the "right" price is," Antonio said.

Antonio, together with UA&P professor Vic Abola was here in Cebu recently upon the invitation of the PhilExport-Cebu to brief the exporters on "The other Side of A Strong Peso."

He said skeptics are warning about the "evils" behind the decline in the peso-dollar rates. Their implicit judgment: the present price of the dollar is inappropriate and, if it persists, another foreign exchange crisis may occur.

According to Antonio "this is a valid point. The same indicators of strength, viewed from a different perspective, may be interpreted as vulnerabilities."

He said it is true that the stock of dollars in the BSP's vaults may look respectable when viewed against our past records. Having gone through past periods of low levels of reserves - net reserves were even negative during the Aquino period - the present levels could indeed look more than enough for our typical need.

Nevertheless, viewed in comparison with how much other countries keep, these levels easily look puny. Having learned their lessons from the Asian financial crisis episode, other countries have been beefing up their dollar reserves to ward off possible speculative attacks on their currencies.

While it is also true that the country is adding more dollars to the reserves. This is what a surplus in our balance of payments show. Nevertheless, there are some worrying trends in the sources of these surpluses.

Part of the surplus was due to a mild reversal of the capital outflow that we have been experiencing over the past five years. This is a welcome but tentative development.

"Given the volatility of the Philippine political landscape, it would not be wise to pin our hopes on the sustainability of this trend," Antonio added.

A more significant part of our surplus is due to the excess of our dollar incomes versus our dollar expenses.

Behind this, however, is another worrisome trend - our expenses on imports have again exceeded our earnings from exports.

"Therefore, the surplus that we have posted has been due more to the surge in OFW remittances. Although this is fairly reliable, there are serious concerns on whether this type of development should be encouraged," he stressed.

Two weeks ago, PhilExport-Cebu invited BSP executives to a forum with Cebuano exporters on the "threatening" effects of a strong peso to the export sector. BSP executives on the other hand left no assurance to hold off the upward development of the peso, saying it is largely market driven.