IMF: Let peso rise vs dollar

Bigger inflow of foreign investments, remittances


The International Monetary Fund has urged Philippine monetary authorities to allow the peso to appreciate with the expected increase in the inflow of dollars this year. AFP PHOTO

The International Monetary Fund has urged Philippine monetary authorities to allow the peso to appreciate with the expected increase in the inflow of dollars this year and avoid measures to reverse market trend.

This is particularly if the foreign-exchange inflow would come in the form of foreign direct investments and an increase in remittances from overseas Filipinos.

“The exchange rate should move in line with structural flows,” Rachel Van Elkan, chief of the IMF mission to the Philippines, told reporters last week following the visit of IMF officials to assess the country’s economic conditions.

The IMF believed that efforts to keep currencies artificially weak or measures against currency appreciation have adverse consequences on the global economy.

Economists said efforts aimed at making currencies artificially weak cause the so-called “global imbalance.”

In particular, if emerging markets like the Philippines would make their currencies artificially weak and thus make their goods, labor and capital cheap, industrialized countries could further lose in the competition for exports and investments. Moreover, full recovery of industrialized countries could take much more time.

The IMF said the continued weakness in the advanced economies such as the United States and the eurozone could eventually have a more significant impact on emerging economies given the interrelation of economies.

Commonly criticized for making its currency artificially weak is China, which last year overtook Japan to become the world’s second-biggest economy after the United States.

Based on the IMF’s view, Van Elkan said the Bangko Sentral ng Pilipinas has so far not resorted to implementing measures aimed at reversing the trend of a rising peso.

The IMF said it would be prudent for the BSP to keep its current stance on the exchange rate amid an environment of rising foreign-exchange inflow.

“Policymakers [in the Philippines] have responded in a timely and flexible manner to the difficult global conditions. We commend the BSP for utilizing a variety of instruments to help insulate domestic monetary conditions from the abundant liquidity abroad,” Van Elkan said.

The peso, which closed at 41.05:$1 in end-2012, was the second-fastest appreciating Asian currency against the dollar last year.

BSP officials have said that the central bank would allow the peso to strengthen further against the dollar, but only if the appreciation pressures would be due to structural inflow like FDIs and remittances. Officials said, however, that the BSP would move against a potentially excessive rise in the value of the peso, saying too much volatility of the exchange rate was bad for the economy.

They also said the BSP would not tolerate appreciation pressures brought about by portfolio investments.

Some of the measures done by the BSP so far to avoid an excessive appreciation of the peso and to curb currency speculation were the imposition of a higher capital requirement on banks’ holdings of  nondeliverable forwards (NDFs), setting a limit on banks’ NDF exposure; and prohibition of investing foreign funds in the BSP’s special deposit accounts.

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  • Joey

    the rise of the peso should be moderated. allow the local economy to adjust to the gradual appreciation of the peso against the dollar. wag masyadong makinig sa IMF, they have other people’s interest to protect.

  • edmanuel

    It’s ok for the peso to appreciate if the domestic buying power is increasing as well.  We do not see that happening.

    As an OFW, I would control my remittances to bare minimum.

  • johnvforeighner

    You better be careful what names you call these other countries, all they have to do is tax all those millions being paid every month by the OFW’s to send here, and then you will be screwed, no more holidays sitting on your arses counting rooster fathers and complaining about everybody else. You will have to work or starve….

  • n

    I think that BSP should do more math in doing its dollar buying and see at what extent the peso should appreciate. I mean, at what rate the peso will be more destructive than constructive. Who knows, China can be playing the game of appreciating the peso to weaken our economy. Well, they bought a lot of US bonds to control them; China controls their own currency to make it weak and cheap. They might be leading the demise of Japan and South Korea as well. Money is really the root of all evil. I’m not an economist anyway so someone should please say to me that all these are wrong.

  • Joseph

    China has been keeping their currency artificially low and the IMF has done nothing about them! Truth be told, the current financial crisis is the fault of their governments and their central bankers, not ours.

    Tetangco KNOWS what he is doing. Peso appreciation under conditions. Rather than “weak” or “strong” currency, what we need is stability. If the Thai and Malaysian currencies are stronger, but they export more than we do, then clearly it is not just a matter of having a “weak” currency.

    • marithefrancois

      passing the buck to the philippines forget about it…let us be stable as joseph said…intelligent stability not an imf based prodding…

  • Halo

    Naku huwag kayong makikinig sa IMF.  Gusto nila mag mura ang products nila para maibenta sa atin. Samantalang gusto nilang ibalik sa bansa nila ang mga bpo at call center business.   Dapat gawing 45 or 46 ulit ang piso

  • barry p

    I’m sure the government is aware that we should not necessarily follow this ‘suggestion.’
    China and other Asian nations like Thailand vigorously like to control the appreciation of their currencies in order to protect their competitiveness.

    Our call center industry which employs massive number of Filipinos recently expressed concern with anymore appreciation of the peso.  Our OFWs constantly voice concern about the exchange rate. Our export industries are just starting to gather momentum after years of stagnation.

    The Philippine economy is just a speck in the global economy to really make any impact on what they call “global balance.”

    Let the IMF bug the richer, bigger nations.  Let the bigger, more developed and more mature economies worry about that.  

    Our national interest dictates we should concentrate first on achieving maximum progress as we possibly can…that will arrest our chronically high jobless rate, reduce our chronically high incidence of poverty, build our dilapidated infrastructure, strengthen our weak industries, etc.

    We are just starting to get back on our feet again, it’s wrong to think of joining in the marathon at this stage.

    We are chronically faced with poverty and hunger…now that we can somehow work to put a few rice on the table…let us not go running to join an art gallery.


  • kismaytami

    Ginugulo na naman tayo ng mga sindikato sa IMF.

  • Spike

    what nonsense letting the peso appreciate will decrease the value of the windfall from OFW remittances

    go back to basic economics IMF bit h!

  • Hayek_sa_Maynila

    What economic principle says “the exchange rate should move in line with structural flows.” I don’t think there’s any structural basis for a country with an income per capita of just $2,500, or a 30% poverty rate allowing more currency appreciation. Even the mighty Singaporeans who are rich at $42,000 per capita in 2012 only allowed their currency to strengthen by 5% last year (tayo 7.0%). What right do we have to give away more jobs? Look at Japan, the JPY has depreciated by 12% against the USD the last year? Why? Because they want to revive their ailing economy? Just because we grew 6.5% in 9M2012 vs. ~3.7% in 9M2011 means we should give away jobs abroad?

    I’ve noticed that this is the standard line that the BSP and the IMF use to justify the peso’s strengthening. None of us should buy it! It doesn’t have any logical economic basis.


    • marithefrancois

       wow this is an enlightened comments thanks a lot

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