Weaker peso expected under Duterte admin

Dollar buffer needed to support PH’s infra growth

THE INCOMING Duterte administration’s plan to further ramp up infrastructure spending would push the peso to a weaker but “more competitive” level of 50:$1 due to the expected higher demand for the US dollar to finance projects, economists at Bank of the Philippine Islands (BPI) said.

“A potent mix of external factors combined with the public deficit spending-induced surge in the country’s import bill is likely to push the Philippine peso to a more competitive level against the US dollar,” BPI said in a note to clients authored by lead economist Emilio S. Neri Jr., economist Nicholas Antonio T. Mapa and research officer Robbin Ivory P. Brillantes.

The peso’s depreciation to the P50 level “by year end until next year” meant the new administration needed to keep a dollar buffer to fund its aggressive infrastructure buildup, the economists said.

BPI also took note of a possible Fed policy shift of gradually increasing rates to support the US economy and the dollar.

Last week, a statement from the transition team of incoming Finance Secretary Carlos G. Dominguez said part of the proposed 10-point socioeconomic agenda of President-elect Rodrigo Duterte included “accelerating annual infrastructure spending to account for 5 percent of the gross domestic product (GDP), with public-private partnerships playing a key role.”

Incoming Budget Secretary Benjamin E. Diokno had said the annual budgets of the Duterte administration would prioritize high- er public expenditures on vital infrastructure, equivalent to about 7 percent of GDP, noting that “the economy is deficient in all types of infrastructure—highways and bridges, ports and airports.”

“There will be increased demand for the US dollar by the next administration for infrastructure spending and will likely have preference for domestic borrowing to fund deficits (which means no USdollar financing flows for government, less of US dollars),” the economists said.

“Our estimates are about $145 billion will be needed in the next six years to fund this [infra program], assuming that threefourths of the spending are from imported equipment and materials for construction,” BPI added.

In a text message last week, National Treasurer Roberto B. Tan said he already briefed Dominguez on the country’s borrowing plan for the rest of the year as well as the reform initiatives being pursued by the Bureau of the Treasury. Tan had said domestic sources would likely still account for the bulk of borrowings in the near term.

This year, domestic borrowing had been programmed to hit 84.5 percent of the total.

“Incoming President Duterte’s aggressive infrastructure spending plan will definitely invoke a sharp increase in importation of capital machinery, which would lead a bump up in dollar demand, also causing the peso to weaken. Traditional sources of dollar liquidity may remain, such as remittances flows and business process outsourcing receipts, but these may not be enough to compensate for the surge in importations,” the BPI economists said. TO SOLVE the hellish traffic in Metro Manila, the call recently got louder for the next Congress to give the next President, i.e. the motorcycle riding Duterte Harley, emergency powers.

That seemed to be, at first glance, some desperation move in the business sector. Even the Makati crowd was suspiciously overly vocal in its favor. There seemed to be a sustained campaign to push for the emergency powers.

That would mean the next President could do anything at all in whatever that had anything to do with traffic, such as giving away railway contracts left and right, and he could do it all legally.

Everybody, of course, would love to see the government doing something, finally, about the lengthening commute time in the metropolis, now said to take between two and four hours—one way.

But do we really know what we need to do to solve the traffic problem?

Think tanks in urban planning always applied the “four E’s” of traffic management— namely, enforcement, education, engineering and economics—and in all these four areas, Metro Manila seemed to be a miserable failure.

Question: In what area in traffic management would the next President, already said to possess immense power more than any other chief executive of democratic governments in the whole world, really need some fearsome emergency powers?

Based on the noise in the business sector, he would need them to hurry up the “engineering” part of the solution–i.e. infrastructure.

In other words, it would mean, “no questions asked” on multibillion-peso contracts between the government and the private sector on infrastructure projects.

The last time that our government used the “no questions asked” approach to enter into some huge fat contracts with private companies was more than 20 years ago during the power crisis of the 1990s,

At that time, the government entered into “take or pay” contracts with so-called IPPs, those lecherous independent power producers, guaranteeing that the government would pay the IPPs for their plant capacities, whether or not we used them.

Thanks to the “no questions asked” method of awarding contracts, we, the tax-saddled public simply got fried, toasted, and grilled in the past 25 years.

Moreover, because the government incurred mountains of debts due to those contracts, experts said we would still pay for them many years from today.

For, when it came to private sector involvement in utilities—whether in power or telecom or mass transport—in other progressive countries, they would always look out for this