Peso now said to be undervalued

Finance Secretary Cesar Purisima believes that the peso, which has depreciated from its 2013 average despite the country’s “sound” fundamentals, is now undervalued.

Purisima said the weakening of the peso was a result of external factors affecting emerging economies in general.

It is not an accurate valuation of the country’s economy in particular, he pointed out.

“I believe there is no fundamental reason why this depreciation should occur. I would even say the peso is undervalued given the Philippines’ impressive growth and macroeconomic environment,” Purisima said during a forum held in Singapore last week.

The peso, which averaged at 42.45 against the US dollar last year, broke into the 45-to-a-dollar territory in January and averaged at 44.93 during the month.

This came about soon after the United States Federal Reserve decided to scale back its stimulus measure, triggering a flight of portfolio funds from emerging markets toward the American economy.

Purisima, who served as a key lecturer in the forum organized by the International Institute for Strategic Studies (IISS), took the opportunity to spread the word about the favorable developments in the Philippines.

The country, which grew by 7.2 percent last year, is estimated to have recorded the second fastest growth rate in Asia last year next to China.

Purisima expressed confidence that the Philippines would sustain the rapid growth rate over the medium term.

“Our strong current account position and fiscal situation can support our consumption and infrastructure investment, which are primary drivers of growth,” Purisima said.

Driven by continually rising remittances and foreign investments in business process outsourcing (BPO), the country’s current account stood at a surplus in the past few years. A surplus of $3.2 billion was recorded in the third quarter of 2013—up from the $2.2 billion of the same period the previous year.

The current account surplus beefed up the country’s total reserves of foreign exchange, which currently stands at about $80 billion. This is enough to cover the country’s import requirements for a year.

Purisima said if the peso were valued based solely on fundamentals, it would not have weakened to levels seen recently.

“There is a sentiment against emerging markets wherein individual countries are lumped together as if there was only one kind of emerging market country. As a result, the Philippine peso has been depreciating,” Purisima said.