The Philippine peso appreciated to its highest value in three years. The appreciation of currency yields some positive and negative effects to the economy of the country. Some economists have asserted the fact that a strong peso is clear evidence that the confidence of the business investors have returned to the Philippines. The influx of foreign portfolio investment was the direct cause of the remarkable performance of the country’s currency according to the Central bank of the Philippines. According to BSP Deputy Governor Diwa Guinigundo, the reason of the increased foreign investment was due to the preference of most investors to invest their business in emerging Asian economies like the Philippines. This preference for an Asian market is due to the recent global recession and the high debts that the United States and European nations are undergoing.
"Advanced economies appear to be moving backward.. Any logical direction of investment inflows is toward the more robust and promising emerging markets," Guinigundo stated this during the launching of the latest World Investment Report by the United Nations Conference on Trade and Development (UNCTAD) on Tuesday.As of June 17, the net inflow of foreign portfolio investment is US$ 136.68 million which is comparatively high than the net inflow of only US$2.40 million during the same period in 2010.During Tuesday the trading closed at 42.225 Philippine pesos against 1 U.S. dollar, up by 16.5 centavos from Monday's finish of 42.39: 1 dollar.The Philippine pseo peaked to 42.11: 1 dollar, the highest value that was ever recorded since May 2008.
Guinigundo said that besides the faster economic growth rates in the region, higher interest rates in Asia also helped entice foreign portfolio investors to put their investment here.
Interest rates in emerging Asia are rising while those in the West, led by the United States, are still at record lows.
During the past two years, the Philippine peso has been one of the strongest currencies in Southeast Asia.
Aside from the inflow of portfolio and foreign direct investments, the rise in the peso was also caused by increased dollar remittances from overseas Filipino workers (OFWs) and the deterioration of the U.S. economy, the Philippines' number one trading partner.
According to Sen. Ralph Recto, chairman of the Senate committee on ways and means, the peso could even appreciate up to 34 pesos to 1 U.S. dollar this year.
A situation like this would put the Philippine government in a quandary. Peso appreciation would mean a reduction of the country' s debt servicing as well as reduction of prices of imported commodities.
However, this appreciation will also reduce the purchasing power of the dollars that OFWs send to their families in the Philippines. It would also mean that Philippine exports would be less competitive abroad and the income of exporters would be diminished.
Already, exporters from all over the country have cautioned about the implications of a strong peso on the export industry.
An earlier report by the state-run Philippines News Agency quoted Roberto C. Amores, president of the Philippine Food Exporters and Processors Organization (PHILFOODEX), as saying that a strong peso is "bad for the exporters and bad for domestic manufacturers."
"Definitely, we will again lose competitiveness vis-a-vis our Asian neighbors. This will cause massive unemployment, factory shutdown and serious displacement as cheaper imports flood the local market," Amores said.
Amores also said that portfolio investment is not a reliable gauge of economic growth of the country because it can be withdrawn from the market anytime.
Earlier, President Aquino has announced the release of 100 million pesos (2.36 million U.S. dollars) in export support fund ( ESF) to help the export industry cope with various pressures like the strong peso.
Philexport President Sergio Ortiz-Luis has said that in spite of the decline in May exports, they are not changing their export target growth of 10 percent for 2011, adding that they "expect higher figures starting the third quarter."
But in an earlier briefing, Ortiz-Luis also bewailed the government's peso-dollar exchange rate policy. "A major stumbling block in sustaining export growth is an exchange rate policy that has always been biased in favor of a strong peso," Ortiz-Luis said.