PESO PROBLEMS AGAIN

The Philippine Star
11/27/09

There are definitely big changes happening: The U.S. and other developed countries reported economic growth in the third quarter of the year, a first since the financial crisis struck in 2008. With resurgent optimism, there is now a big debate on whether economic stimulus fund programs should begin their exit strategies.

This is going to be a careful balancing act since withdrawing emergency support measures to support fragile economies too soon or too late all have their beneficial and harmful effects.

The European Central Bank, for example, is raring to implement appropriate exit strategies, while warning that not to do so would only lead to another crisis. On the other hand, the IMF is cautioning from executing a general exit of the stimulus programs as the overall situation still remained fragile.

The ECB, even the U.S. and Japan, understandably are edgy about the current situation. The continued presence of almost zero interest rates in developed economies is only encouraging investors to borrow, but with the intention of reinvesting in higher yielding instruments, mostly in developing economies.

Many economists fear this is leading to another crisis, in particular, an asset bubble since the increased flow of investments is creating an artificial rise in the actual value of the properties or financial instruments.

Weakening dollar

The continued maintenance of the stimulus programs, more particularly for the U.S., is also causing the dollar to weaken. In recent weeks, the drop in the dollar value has been progressing consistently, a development that is now being seen as a signal to a gradual change of the US dollar as the reserve currency for international transactions.

The preferred replacement currency, given the weakness of the European and Japanese economies, is the Chinese yuan. Even if the Chinese government continues to protect the yuan, some of their recent policy statements are pushing for their currency to take the place of the dollar.

Favorably seen

International analysts are talking about the value of a weak U.S. dollar for the American economy, which is why there is general belief that the currency will continue depreciating within the next 12 months.

A weak dollar is seen to promote inflation in an era when imports are declining. Given the massive deflationary pressures caused by falling wages and declines in the value of commercial and residential real estate in the U.S., this is seen as positive for their economy.

A weaker dollar would also promote exports for companies that have multinational presence. This also supports the labor force by making it more attractive for companies to keep jobs as opposed to opening factories or sending work overseas.

It is generally accepted that debt-laden countries that choose to pursue a devaluation of their currency end up improving their economies. And recent pronouncements by the Fed seem to point to a policy direction favoring a weaker dollar.

Strong peso

For the Philippines, this will mean that the peso will appreciate at a rate that would pose more problems than benefits. Some are talking about a P43:$1 exchange rate next year, which our overseas workers and exporters find less palatable.

A stronger peso means less money for every dollar remitted to the country. For many Filipino families wholly dependent on the earnings sent by their kin working abroad, several pesos lost from every remitted dollar could mean less food on the table.

For exporters, mostly those in the handicraft industry, every dollar that they earn is immediately diluted. And because they price their products almost at bare prices in consideration of the strong competition from countries like Thailand and China, profit margins are perilously squeezed.

Prepare for the worst

Developing countries like the Philippines have in reality little say in how the world’s more powerful government should decide on the issue of how their stimulus funds are to be managed now that the global economy seems to be on its way to full recovery.

What we can do however is to keep ourselves insulated, either through government policy interventions like providing for more financial assistance in research & development of new products that our small entrepreneurs can sell abroad.

For our OFWs, once again, there is a need to help them manage their earnings – either by encouraging savings and improving their investment portfolios or by bringing them to the mainstream of the micro and small business entrepreneurship.

This means, however, that the cost of doing business for these SMEs must be reduced. How about starting at eliminating “petty corruption” at the licensing and permit issuance at local government levels. 

2009 Philippine Collegiate Championship update

There will be no back-to-back Philippine Collegiate Champion this year. De La Salle Green Archers, 2008 PCCL champion, was dethroned by Letran Knights in the first round of “Sweet 16” Finals. The race for the national collegiate title is now wide open with the Ateneo Blue Eagles (UAAP champion) and the San Sebastian College-Recoletos Golden Stags (NCAA champion) seen as favorites to forge the title showdown.

The remaining games in the “Sweet 16” Finals first round are:

November 28 at FilOil Flying V San Juan Arena:  the UE Warriors vs. the University of Cebu Webmasters, followed by the University of Visayas Green Lancers vs. the Mapua Cardinals.

November 30 at Ormoc Dome, Ormoc City: the San Sebastian College-Recoletos Golden Stags vs. the University of San Carlos Warriors followed by the UST Growling Tigers vs. the JRU Heavy Bombers.

General Admission at the San Juan Arena is free while the courtside & ringside seats are available on first-come first-served basis at nominal fee of P50.00 for PCCL Development Fund.

ABS-CBN covers all the “Sweet 16” games live at Studio 23 with replay in the evening at the Balls channel.

PCCL is also inviting collegiate basketball fans and students to join for free the two contests recently launched. “Pick the Final Four” contest is now open and simply log in at www.CollegiateChampionsLeague.net to submit your choices. Those with the correct “picks” will be awarded with surprise gift items. Deadline for entries is December 1, 2009.

The other contest is for amateur camera enthusiasts who may submit their action shots of players during the games of the “Sweet 16” Finals. Log in at the PCCL website for details.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net