Peso resilient but exporters not pleased

In the 1990s, Philippine exporters would burn an effigy of the central bank governor when the peso was too strong. While it hasn’t yet come to that, companies say the currency’s resilience is harming their competitiveness.

Supported by ample foreign-exchange reserves and remittances from Filipinos living abroad, the peso has weakened only 1.2 percent this year, compared with drops of 3.6 percent for Thailand’s baht, 7.2 percent for Indonesia’s rupiah and 7.9 percent for Malaysia’s ringgit. Philippine shipments trailed estimates to fall 17.4 percent in May from a year earlier, the biggest decline since 2011.

“It certainly erodes our competitiveness,” said Sergio Ortiz-Luis, president of the Philippine Exporters’ Confederation, whose membership accounts for about 70 percent of overseas sales. Although the drop in exports can’t be blamed on the peso, “the slump would be mitigated if our exchange rate was competitive,” he said.

The peso’s resilience to the prospect of US interest-rate increases is coming just as signs China’s economy will slow more than expected threatens the exports of countries throughout Asia. Over the last 12 months, only the Hong Kong and Taiwanese dollars and the Chinese yuan have performed better than the peso among 24 emerging-market currencies tracked by Bloomberg.

The Philippine currency has strengthened 20 percent against the euro, 22 percent against the Australian dollar and 18 percent against the Japanese yen over the same period.

“The dollar value of our exports to those destinations would naturally shrink,” said Emilio Neri, an economist at Bank of the Philippine Islands in Manila. “To some extent, the peso is overvalued.”

While economic growth slowed to a three-year low in the first quarter as government spending faltered, the Philippines saw its current-account surplus double from a year earlier on strong remittances from Filipinos working overseas and call center growth. Gross domestic product still increased 5.2 percent from a year earlier, compared with 4.71 percent in Indonesia and 3 percent in Thailand.

Business-process outsourcing, which includes call centers, is also making a bigger contribution to the Philippine economy. BPO revenue will rise 18 percent to $21.3 billion this year, according to the IT & Business Process Association of the Philippines.

The peso is in a good position to weather external disturbances, said Leslie Tang, a foreign-exchange strategist at Malayan Banking Bhd. in Singapore,

“The healthy surpluses in the current account, strong growth fundamentals supported by healthy overseas remittances and ongoing domestic reforms, especially in the fight against corruption and cronyism” are aiding the peso, said Tang.

Maybank forecasts the currency will weaken just 0.1 percent from its current level of 45.25 a dollar by the end of the year. That compares with the median estimate for a 0.5 percent drop in a Bloomberg survey.

“We become more competitive under a strong dollar scenario,” said Alfredo Yao, chairman and president of Zest-O Corporation, which makes fruit juices and ships product to North America and Europe.

Not all local exporters are uncomfortable with the peso’s relative resilience.

“I suppose we don’t feel much disadvantage,” said Jackson Laureano, president of Fitrite, Inc., which exports fruit preserves, noodles and coffee. “What we prefer is for the exchange rate to be stable so we can plan better,” he said in an interview in Manila.