Prepare for a stronger peso

“We can’t please everyone”, our forefathers said so, then. Centuries past and the same admonition remained true and real. Certainly, as generations come and go, it will forever stay. However, this line’s popularity will again shoot up in the coming days as President Benigno S. Aquino III boldly predicted (in his remarks at the 115th anniversary of the Office of the President in Malacañang last Thursday) “that the peso will sustain its appreciation versus the US dollars and may possibly breach the PhP40 level next year against the backdrop of improving economic condition of the country”. Apparently, it (the famous line) shall be used as shield from a barrage of complaints and, possibly, invectives that shall be thrown by the so called “aggrieved sectors”.

Indeed, as has always been customary among professionals and businessmen, whether in the board room, coffee shops or barbershops, the peso’s strength and the perceived economic growth will either top or end their discussions. Same is true among peddlers and street vendors, as they try to think and argue otherwise, to justify their existence in sidewalks and gutters. Amusingly, almost everyone had become instant economic pundits brandishing their in-depth analysis on the nation’s current financial health.

In fact, for quite a time now, whether in barbershop talks or economic briefings, we didn’t hear anything but complaints about the strength of the peso. As if, nobody is happy, not anyone gained. In fact, when it was at its strongest on February 28, 2008 at PhP40.40460 to a dollar (per OANDA), calls for civil disobedience were even floated. Likewise, almost six years ago (on July 17 2006), when the exchange rate was a seemingly uncontrollable PhP54.8620 to a dollar, both educated and unschooled critics became instant prophets of doom. Doomsayers, as they have always been, were trumpeting here and there that the country was holed into a bottomless pit, a hopeless situation.

Generally, strength is always viewed as power, a strong point. Weakness, on the other hand, is taken as powerlessness, a flaw. While this maybe true in most situations, in currencies, perceptions are different. Some rejoice in its weakness while others embrace its strength. Undeniably, recipients (exporters) and users (importers) of foreign currencies have different preferences. There is just no universal remedy that can please both. Either way, there will always be advocates and critics.

This is not something unusual though. It doesn’t mean too that we are hard to please.   The fact is, wherever our peso goes, we will always hear complaints. In every abrupt fall, a sector gains and another losses. When it goes up sharply, more often, the sector that rejoices in its fall complains. Frankly, Erap aptly said it, “weather-weather lang”.  

These reactions are not difficult to understand. We don’t even have to earn an MBA or a doctorate degree in economics to really comprehend it. It all boiled down to preferences. Similarities can be attributed to a saltbed owner and a rice farmer. They have different preferences. A saltbed owner rejoices in el niño (long droughts) but gripes in la niña (extended rainy seasons) because long dry spell give him tons of salt while wet seasons melt it. The rice farmer, on the other hand, feels exactly the opposite because droughts empty his barn and rainy days bring him bags of grain. Again, let’s remember Erap, “weather-weather lang”.

So who really are rejoicing in a strong peso? Importers? Yes, but not all of them.   Importing companies that export their finished products are not benefiting from it. Likewise, companies inside export processing zones are not. So, who really have benefited? On top of the list are importers of surplus items. Surplus items like dump trucks, heavy equipment, generators, AUVs and even SUVs. Importers of used clothing (ukay-ukay) have very much enjoyed it too. Apparently, there is one thing common among these importers, they import and sell their wares in the local market. Which simply means, they spend dollars and earn in pesos. Simply put, a company is in an advantaged position once it earns in a stronger currency and spends in a weaker one. 

Inversely, companies that are earning in dollars and spending in pesos are in a bad shape. These are the companies you now hear shouting to high heavens about their predicament. They are exporters that are sourcing out their raw materials and labor in the local market like furniture makers, dried mango processors and the like. In fact, reportedly, some furniture makers are severely hit that they folded up. Call centers have also felt the impact of a stronger peso. Not long ago, you heard them voice out their sentiments. They too are similarly situated with our exporters. They are also earning in dollars (the weaker currency) and are spending in pesos (the stronger currency). OFWs too, depending on the amount of their remittances, have become a few hundreds or thousands poorer with the peso’s rise.

Seemingly unbearable (as early as in the middle of 2007), exporters then expressed their desire to be given due consideration by asking Bangko Sentral ng Pilipinas (BSP) to peg the exchange rate at PhP47.00 to a US dollar. Likewise, a petition was also sent to then President Arroyo asking her to consider the plight of the 8 million (now, over 10 million) OFWs and their more than 25 million dependents by instituting measures that will alleviate the peso’s adverse impact on them. They further asked for the establishment of a “Special Exchange Rate” exclusively for them. They petitioned for a fixed 10% premium above the exchange rate prevailing in the market or a flat rate of PhP50 to a dollar. Since the government established a hedging fund for exporters with the Development Bank of the Philippines, they too have petitioned the president to put up a stabilization fund for them.   In fact, these so called “aggrieved sectors” found an ally in the former Budget Secretary Benjamin Diokno, who strongly suggested a fixed exchange rate of PhP55.00 to US$1.00 in June, 2010.

Unquestionably, exporters’ contribution to our economy is enormous.It is unquestioned and will remain unquestionable. Undeniably, it did not just help stabilize our economy but strengthened it too. They, however, ironically felt that the currency they helped achieve gains is the same currency perceived to give them pains. 

Let us not be hypocrites though. Generally, we all have benefited from it too. With the rise in prices of crude oil per barrel in the world market today, the prices of gasoline in the local market could have easily breached PhP60.00 or even near PhP70.00 per liter if it were not for a strong peso. Jeepney strikes should have been the order of the day. Undeniably, government saved a lot too from its international debt servicing. With its rise, payments required lesser amount of pesos than when it should have been PhP50.00 or PhP54.00 to a dollar. With the BIR’s shortfall in collection, it was also a welcomed relief.

However, while it may sound counterbalancing considering that in either scenario some benefit and others agonize, we can’t just simply be content and drifts with Erap’s “weather-weather lang”. While we may be glad hearing a lot of rejoicing from some, their loudest cheers cannot compensate for the agonies of the companies (and their employees) that are folding up. It is a sad truth that some businessmen are inadequately capitalized and couldn’t speculate. Truth to tell, speculation is a domain that is handily available to the big capitalists. These are the businessmen who can easily stretch their budget while waiting for the bounty to fall into their laps. 

Therefore, what is important right now is for our government executives to use all available options to having a stable peso or a manageable exchange rate. Moreover, they should put in place meaningful cushions that can mitigate whatever negative impact the peso’s movements bring on the “aggrieved sectors”. This way, instead of worrying so much on a very erratic currency, companies will rather spend time in planning ahead and formulate responsive strategies. Instead of spending time predicting the peso’s appreciation or devaluation, they’d rather busy themselves improving the quality of their products and services and find ways in outwitting global competition.

Indeed, we need to find a WIN-WIN situation, or else, we find ourselves like drifters who fondly embrace the “weather-weather lang” syndrome.

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