The depreciation of the peso appears inexorable, driven by factors beyond our control. Our currency’s exchange rate is now at the lowest it has ever been. The depreciation threatens to reignite inflation and deepen poverty.
Analysts are quick to point out that it is not that the peso is exceptionally weak; the dollar is exceptionally strong. The American currency has been appreciating against most other currencies the past few weeks.
Wilson Sy, our colleague in this paper, put out a very informative column yesterday. He reproduces tables that show that while the peso’s decline has been pretty dramatic, it is not the worst performing currency. Compared to other currencies, the peso’s depreciation is just about middling. Major currencies such as the euro and the yen declined more than our peso.
The substantial realignment of currency exchange values happened after Donald Trump won a second term as US president. But the realignment is not because Trump has a brilliant economic policy agenda – but because he does not.
Trump’s isolationist and unilateralist impulses create a high inflation scenario for the US. In anticipation, the Fed is likely to postpone any further rate cuts. This is contrary to market expectation.
If the Fed postpones rate cuts, while other countries go on with their schedules for lowering interest rates (having convincingly tamed their own inflation rates), hot money will tend to convert to dollars. It is more profitable to do so. With all the geopolitical crises going on, the dollar is seen as a sanctuary.
Over the medium and longer term, a strong dollar will encourage more American imports. But if Trump goes on to impose more tariffs to rein in this trend, US inflation will tend to escalate. This might require the Fed to reverse course, raise interest rates rather that lower them. That will make the dollar stronger.
The Trump tariff walls that are supposed to be forthcoming will deplete global trade and make it difficult for China to revive its troubled economy. The other trading economies will tend to trade more among themselves than with the US. Protectionism will shield America’s dying industries and slow down innovation. For instance, American cars fall behind the global shift to hybrid and electric cars.
A weaker peso will, in theory, encourage our exporters. The only problem here is that we have very little stuff to export. There are only so many bananas the world will eat.
The failure of our agriculture is glaring. It shrunk rather than expanded the last quarter. We are importing more farm commodities than at any time before. We have become the world’s largest importer of rice – and probably fish.
More food imports will worsen our balance of trade deficit. That will undermine the peso’s exchange value even more.
We are making the strong dollar narrative even more compelling.
No hack
It turns out the story about our passport data bases being hacked is fake news. The DFA and government printing corporation APO assure the public that while there have been attacks on our databases, no breaches happened.
APO invested in the best cybersecurity protection and successfully blocked malicious network traffic. The cybersecurity system detects vulnerabilities and assures immediate remediation. Our ePassport system is safe, according to government’s premier security printing arms.
APO has not only invested in a superior cybersecurity system. It has also invested in cutting edge printing technology that will be used in producing not only our passports and tax stamps. It will also be able to print superior smart cards such as the one now being used for postal IDs. The government security printer is ready and able to produce the national identification cards.
It is not only the rumor of a hack into our ePassport database that is fake news. The APO management reached out to explain that insinuations about the firm’s purchase of modern digital printing technology are fake news as well.
APO recently purchased one of HP’s most modern digital printing machines through its authorized dealer Norde. The said dealer does not sell second-hand or refurbished machines. The total cost for the procurement is nearly half of the P270 billion claimed by detractors.
The procurement of these machines was based on stringent assessment by APO’s technical team. The purchase was completely transparent, having been done in complete conformity with the procurement law. It was the most competitive price and the most financially advantageous terms for government. The procurement easily cleared reviews by the Commission on Audit, the Office of the Corporate Government Counsel and the NEDA.
Also cleared by the review process was the procurement of paper stock for use by the printing unit’s machines. The paper stock will be used by both old and new machines for APO’s current printing projects.
The High Security Printing Joint Venture of APO was created in 2014 strictly in accordance with the guidelines put out by the NEDA. In addition to the usual government review process, all of APO’s management decisions are also subject to the scrutiny of the joint venture partners – who are, after all, stakeholders in the enterprise.
With APO’s state-of-the-art printing capabilities, there will be lesser need for government to turn to foreign printers for its security printing needs. Apart from the obvious security hazards of outsourcing the nation’s security printing needs, doing the printing ourselves will help save on foreign exchange.