External factors affecting peso, say

THE Philippine economy needs to diversify and not rely on remittances and business process outsourcing alone to prevent the peso from depreciating too much whenever uncertainties arise from advanced economies, the Department of Finance (DOF) said.

In an economic bulletin on Asian currencies, Finance Undersecretary Gil Beltran said the Philippine peso was among Asian currencies that appreciated eight years before the global financial crisis in 2008.

Citing the Bloomberg and Asian Development Bank, data showed that the currencies of 12 Asian economies appreciated by 9.3 percent (%) from December 2000 to December 2007.

The most appreciated currencies were the Korean won (26%), Thai baht (22.1%), Singapore dollar (16.9%), the Philippine peso (16.8%), the Indian rupee (15.7%) and the Malaysian ringgit (12.9%).

But nine years after, as the international economy started to recover from the global financial crisis, Asian currencies reversed and depreciated by 14.6%.

Except for Singapore dollar and the Thai baht which continued to appreciate, the same currencies that appreciated were among the most depreciated.

These were the Indian rupee (62.1% depreciation), Indonesian rupiah (35.4%), Malaysian ringgit (27.2%), Philippine peso (21.9%), and Korean won (20.7%).

“Currency movements in Asia are a complex product of external and internal economic factors. But in the case of movements from 2008 to 2017, these are mostly accounted for by external factors, mainly the Fed QE [quantitative easing] policy,” Beltran said.

Beltran said regression results show that Fed QE policy accounted mostly for currency movements from 2008 to 2013, with domestic inflation accounting for less than 10%.

Beltran said significant diversification of the economy lead to lesser influence from external factors.

“This is what the Philippine economy aims to achieve in the medium term,” Beltran said.

Earlier, Finance Secretary Carlos Dominguez III said the government would not intervene in the foreign exchange market despite the weakening of the peso against the US dollar.

Dominguez also assured the public that the peso’s decline was not a cause for alarm as the economy has become more resilient against the adverse impact of a weakening currency.

Dominguez said a weak peso, on the contrary, benefits more Filipinos, particularly the families in the country of Filipinos working overseas and those employed in the business process outsourcing industry.