UP economist bats for gov’t intervention against strong peso


Raul Fabella: For less strong peso PHOTO FROM ECON.UPD.EDU.PH

MANILA, Philippines—University of the Philippines economist and national scientist Raul Fabella has called for collective action against a sharp peso appreciation against the US dollar, which he warned could otherwise spoil the country’s economic momentum.
In a position paper carried by the Foundation for Economic Freedom, Fabella supported the “more assertive attitude towards the value of the peso,” which was part of the resolution submitted by the Philippine Chamber of Commerce and Industries (PCCI) to Malacañang in a recent business forum. He urged Filipinos “not to leave it to the bureaucrats” and push for government intervention to keep the exchange rate from appreciating past 42 to the dollar.
As of last week, the peso closed at 41.18 against the dollar, gaining from 43.928 at end-2011.
Fabella recalled that in 1994, when a group of economists including himself, Noel de Dios, Benjamin Diokno, Cayetano Paderanga and Calixto Chikiamko called for the deliberate weakening of the peso—a cause carried in a speech by the then Senate President Edgardo Angara at the first plenary session of the 1994 National Economic Summit—this group was “treated worse than lepers.” He noted that this was after the People’s Republic of China (PRC) devalued its currency by 40 percent in early 1994.
The yuan then stayed at about 8.30 per US dollar for 10 years despite ever larger trade surplus and howls of protest from the West. “One did not need atomic physics to glean that PRC’s move would devastate Philippine manufacturing and employment. This was a plea for economic survival,” he said.
Fabella said the CB governor then responded to his group’s call with the defiant “over my dead body” stance while the prescription to businessmen’s complaints of high domestic interest rate (to support the overvalued peso) then was to instead borrow in dollars.
“It was a counsel for disaster. Borrow with vengeance they did, especially the banks. After all, with appreciation a one-way bet, you get low interest rate and a sure appreciation gain!…And this omen of an impending debacle was hailed a success! In other words, the Philippine economy got poison disguised as medicine. Two years later, the Asian Financial Crisis, the bitter harvest of private over-borrowing and asset bubbles, wiped out the gains slowly built up the last five years. The CB’s strong peso policy had aborted the Ramos growth momentum,” he said.
Such “rebuff of common sense,” Fabella said, was a source of personal great sadness for him. The Filipino people then failed a massive collective action test by letting “ignorance” among central bankers and among the business community short-change the country’s future, the economist said.
“Had we moved the exchange rate as proposed, there would not have been excessive private foreign borrowing and the Asian Crisis would have spared our shores. The banks would have remained whole and the Ramos growth inertia would have continued into the next decade. Instead, we experienced a decade of painful curettage to sweep away the poisonous residues of that abortion. Our romance with sado-masochism marched on. Such is the power of the CB: it can shatter a budding future. In this case, the strong peso was the sledgehammer,” Fabella said.
And that was not the first time that the CB officiated in the abortion of a potential breakout in the post-EDSA era, Fabella said, noting that the sledgehammer in the first was the interest rate cure administered through the high-yielding Jobo Bills that shrank the economy to fit the overvalued peso.
At present, Fabella said the economic situation is promising with the signs all pointing in the right direction.  However, Fabella added, “the same abortive sledgehammer of sharply rising peso” is posing a threat.
“Will we overcome the collective action challenge this time—now that the players and the economic realities have changed, now that there is a new and more open dispensation in the BSP [Bangko Sentral ng Pilipinas], now that even such sworn enemies as the PCCI has switched lanes, now that overseas Filipino worker remittance is the country’s lifeblood, now that BPO [business process outsourcing] is the sunshine industry and the big conglomerates have dollar earning assets, now that the old global monetary consensus has become tired and misguided,  now that the challenge—keep the exchange rate from dipping below P42/1$—is much simpler than in earlier times?” he said.
For its part, the BSP has slashed key interest rates by 100 basis points this year to temper the peso’s sharp appreciation.

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Disclaimer: The comments uploaded on this site do not necessarily represent or reflect the views of management and owner of We reserve the right to exclude comments that we deem to be inconsistent with our editorial standards.

  • Robby

    a strong peso should also reciprocate on lower prices on goods and services. for me it’s ok our peso would appreciate as long as our market goods and services are also being lowered. the only people who hates this peso appreciation news are the OFWs and USD hoarders. i believe everything will fall into places when the peso managed to be a consistent strong currency against all other currencies. invest on strong peso. yun lang. Philippine peso is our pride. i hope peso will be back at 26pesos so that i could buy imported goods at a lower price ;). imagine, our peso has a value in India, Indonesia, Syria, Sri Lanka, i bought some Indonesian goods like kitchen utensils for only 8-10 pesos each! Dumarami ang bumbay dito sa Pinas kasi they could exchange our peso to rupees. they’re investing on our peso. and ofws felt offended because dollar earner sila and they felt their earnings are being minisculed. ang sarap mag shopping ngayon sa Duty Free! 

  • investor888

    If we look at the economic growth of our country, the main contributors are OFW remittances, exports, BPO & less than 2% in  mining.  A sharp rise in peso will definitely have a negative effect on these sectors such as remittances with less buying power, BPO with less dollar earned,exports getting expensive, etc.  On the foreign debt side, it will be beneficial for short term debt but not on long term debt as we would not be able to sustain the economic growth.  If we retire the foreign debts on both long & short term then we realize the gain as what we are doing now through the global peso notes offering thus turning to local credits.  Certainly, we could not pegged the peso to dollar rate as we would be labelled as ” currency manipulator”  & alienate us from the international community. A gradual appreciation of the peso will enable us to achieve our goals and make adjustments accordingly! 

  • RMJ1417

    I hope that all your comments can be a good source of idea
    to help stabilize the basic needs of every Filipino.  I salute every one
    of you for your creative thinking. God bless us! Pinoy!

  • sinagbayan

    Bilang isang “developing economy”, dapat ang balor ng ating piso kontrolado ng pamahalaan. Ang mga Intsik nga napaka-undervalued ng kanilang yuan kaya  palagian ang “export surplus” sa ibang bansa. We cannot afford to have a very mobile peso-value, it makes businesses more cautious in investing, at kahit maglaan sila ng pera sa ekonomiya, liquid naman thru the stock market, so kahit anong oras they can pull out their money.

    It is true that every increase in the value  of the peso saves the government 1 billion USD in interest payments sa ating utang, pero babawiin din naman ito in the long run and in the wider context sa ating export competitiveness and market attractiveness. In the bigger picture, whatever savings na makukuha natin sa interest payments on our debts is negated by our decreased competitiveness in the global market. In the end, mas mainam pa rin na we fix our or keep our peso within P45-47 to the dollar.

    • Robby

      correction, the Philippines has been out of the developing country list since 2009.. get your comments rectified. the Philippines is now a ‘newly industrialized’ country. filipinos arent reading that much info nowadays and yet theyre still stuck on the old times were the Philippines was left behind. Not anymore

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