Weak peso

The peso has hit an all-time low against the US dollar, falling to P55.75:$1 at close last Friday.

In the absence of any other news that might affect the exchange rate, the event has been correlated with the Comelec’s decision that day junking the disqualification suit against actor Fernando Poe Jr. The prospect of yet another inexperienced showbiz personality leading government spooked investors.

That much has been admitted by the Central Bank governor no less.

There is, as well, building anxiety over the Comelec’s ability to conduct a manual electoral process and proclaim winners in time for the constitutional deadline. This after the Supreme Court voided the computerization contract entered into by the poll body.

Already, there are threatening voices in the electoral terrain. Those voices aggravate the intrinsic uncertainties associated with the manner we exercise electoral democracy in this country.

Poe, who is leading in the voter preference surveys, is not leader of a political party. He is the object of personality cult. His base of support is strongest among the least informed.

Those endorsing his candidacy have convinced themselves of their candidate’s invincibility. They threaten violence in the event he loses the election.

All the irresponsible utterance emanating from the Poe camp does little to relieve the anxiety. Nothing about this candidacy helps strengthen our currency and foster confidence in our country’s economic future.

The weaker peso happens at a time when the dollar is itself weak against other major currencies. All of the major currencies have appreciated against the dollar. Even the Thai baht and the other Southeast Asian currencies have appreciated against the dollar.

The really bad news lies in the exchange rate tables measuring the peso’s value against the euro, the yen and the pound sterling. This means that our imports from Europe, Japan and even Asean will cost more in peso terms.

The weakened peso has already exerted pressure on the price of vital imports like oil. Recent adjustments in pump prices has, in turn, driven transport groups to demand an increase in fare rates.

Over the weekend, I was in General Santos city to, among other things, look at aquaculture enterprises and new packing facilities in the area. Operators of aquaculture farms complained about the rising costs of imported components of fish feed. Fortunately, they are still able to compensate for those added costs because they export the bulk of their produce, earning enough from those exports to hold down prices for the domestic market.

This is the intrinsic beauty of a trading economy. It allows us enough flexibility to subsidize domestic prices through export earnings. If we were a closed economy, as the protectionists want us to be, food prices would have risen to the detriment of the poor.

A few days ago, we experienced an unprecedented "pork boycott" when hog raisers protested the rising price of imported feed. Since we export very little of our pork output, we enjoy very little flexibility in this sector. The bulk of increased costs for imported inputs will have to be passed on to the consumer.

The weakened peso is not totally bad, of course. Some sectors do benefit from a depreciation of the currency. It magnifies the peso value of the repatriated incomes of overseas Filipino workers. It makes our exports and our tourism industry more competitive. It brings down the comparable costs of Filipino wages and should attract more investments – but only if the business climate were less uncertain and our infrastructures a lot better.

But that is not the point at this time.

The erosion of the peso’s value is an indicator of the negatives plaguing our economic growth.

The principal negative is the political uncertainty haunting our economy at precisely the time that the rest of the region is recovering from the 1997 Asian financial crisis. For instance, the Thai baht – which is most closely compared to the peso and whose collapse in 1997 was the initial triggering event for the regional crisis – has been appreciating against the dollar, joining most other currencies moving upstream at a time when the US fiscal and trade deficits continue the mount.

Shortly before the 1997 crisis happened, the peso and the baht traded nearly at par. Today the baht is recovering much of the value it lost against the dollar when the crisis broke out while the peso continues to deteriorate.

A secondary negative inviting adverse speculation against our currency is the ballooning debt and chronic fiscal deficit we seem unable to cure. The debt load and the inability to dramatically improve government revenues make the deficit a long-term problem and a source of weakness for our economy.

A third factor is the trade and payments deficits currently characterizing our economy. Those deficits, due mainly to the weakness of global demand for our electronics exports, threaten to erode our international reserves.

We could earn enough dollars to cover our import costs if our tourism industry were as robust as Thailand’s. But it is hard to attract more tourists if communist guerrillas continue their attacks, the heavily armed kidnap groups such as the Abu Sayyaf and the Pentagon remain active, and if the Poe fanatics continue threatening riots in the streets.

All of the above are strategic problems without easy solutions.

It should have been immensely helpful for our own welfare if the political process functioned to build consensus on strategic approaches to the long-term problems plaguing our common wellbeing. Unfortunately, far from being a prism to clarify our nation’s options, our electoral process blurs questions of policy and questions of personality.

As the problems mount, the political system serves not as a means to build consensus on a common line of march towards a better future. From recent experience, it seems, that the more complex the problems we confront, the more our voters veer towards investing our fate in a messiah who will solve our problems by a mere wave of the hand.

I am not confident that all the "voter education" efforts over the next few weeks will solve that cultural flaw.