Domingo For ‘Managed’ Peso Appreciation

November 29, 2012, 6:59pm

Trade and Industry Secretary Gregory L. Domingo yesterday admitted that the peso could further strengthen to P39 against the US dollar but cautioned against “irrational” and “drastic” appreciation warning this would weaken the competitiveness of  Filipino exporters.
“The strengthening of the peso is difficult to stop because the government does not have enough resources to the control the volatility of the peso,” Domingo said. He, however, said that the Bangko Sentral ng Pilipinas has done a good job at managing the peso.
While a strong peso is a indication of confidence on the economy by foreign investors because it is inward inflow so it is a stamp of approval on the country but unfortunately it also weakens the competitive position of our exporters.
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He said that up to P39 level, all sectors of the economy would still be able to handle their businesses but exporters will be put more under pressure depending how the government can manage the local currency appreciation.
“If in two to three years, we can manage the R39 level but if happens in a 6-month period then that would be very difficult,” he said.
Worse, breaching the R39 level would be more difficult to create further complications to foreign investors.
“As we become more, it would be more difficult to buy companies here, provide services and valuations become more expensive too so it will diminish our attractiveness as an investment destination,” he stressed.
Domingo noted that exporters were doing pretty well at R45 and even with the 15 percent appreciation of the peso.
At R42 to R41, companies have been willing to pay a premium to the Philippines because the strength is largely the people, who are productive, creative and technically proficient.
In fact, he said, the Philippine BPO is more expensive than India but because the Philippines has better productivity land efficiency, BPOs are willing to pay the premium. (BCM)
Domingo, however, stressed that such premium cannot be so much because the human resource advantage is also limited.
“A 15 percent depreciation is something that can be handled but a 20 percent or more would be difficult and would require major restructuring of the local industry,” he said.
Thus, a managed appreciation should be able to give time for local industries enough time to adjust. (BCM)