EDITORIAL - Shooting ourselves in the foot

President Arroyo is right – pre-election political instability is contributing to the fall of the peso. And she’s also right in pinning part of the blame on speculators. The analysis may sound self-serving for a President who’s running for election in May, but you don’t need a doctorate in economics to see a grain of truth in what the Chief Executive is saying.

There are other factors pulling down the currency to record lows, but political jitters have to be among the key reasons. It may be unfair to blame any particular presidential candidate for capital flight. What could be useful are efforts to discourage currency speculation especially by Filipinos.

Forget foreign investors; money is a cowardly commodity, and you can’t stop hot money from fleeing at the first sign of trouble. Asia learned this in a painful way in 1997. Malaysia implemented controversial measures to prevent currency speculation. Other affected countries allowed free market forces to take their course, but citizens did their part by turning over their gold to the government and reducing local demand for dollars to build up their reserves.

Due to market reforms implemented at the time, the Philippines escaped the worst of the Asian financial crisis. But the next years saw the peso slide behind other currencies in the region, dragged down by political instability, peace and order problems and a general slide in competitiveness. Occasionally another factor came into play: in the worst of times, Filipinos bet against their own currency, contributing to its fall.

There are signs that this is happening again, although local speculation is not the only reason the peso has plunged to historic lows in recent days. This speculation is but another manifestation of Filipino short-sightedness and penchant for making a quick buck without considering the consequences. Such speculators lack the brains to realize that in the long run, they will suffer with the entire nation when purchasing power shrinks. Any profit gained from speculating on your own currency eventually gets wiped out. Yet Filipinos continue betting against the peso, shooting themselves in the foot.