MANILA, Philippines – The Philippine stock market rally is one of the biggest factors driving the peso to appreciate further against the US dollar, threatening the jobs of millions of Filipinos, experts said Tuesday, January 8.
Former Budget Secretary Benjamin Diokno and Philexport President Sergio Ortiz-Luiz warned that while the Philippine Stock Exchange’s (PSE) surge to all-time highs is a welcome development, it contributes to the peso’s fast rise, affecting the country’s dollar earners.
When the peso appreciates, the biggest losers are exporters, business process outsourcing (BPO) firms, and overseas Filipino workers (OFWs).
On Tuesday, January 8, the PSE index hit its 5th all-time high this year, closing at 6,048.90, while the peso closed at P40.85 per greenback.
“The rise in PSE index is the result of unmitigated entry of hot money,” Diokno said. “The rise in PSE index is a short-term gain with adverse short-term and long-term consequences once the market corrects.”
Ortiz-Luiz explained that many exporters have decided to downsize and close shop because of the strong peso. He said with the peso nearing the P30 level, something that has not been seen since the 1990s, more exporters are bound to lay off employees this year.
Many exporters, he said, have also decided to stop taking orders to cut their losses. This is being done at a time when export growth is still on the way to recovery from the declines of 2011.
He added that the peso is also now preventing foreign firms from outsourcing work to Philippine firms. Ortiz-Luiz said India and Vietnam are now proving to be more attractive investment destinations for outsourcing because of lower costs.
Apart from these industries, Ortiz-Luiz said OFWs and their families are already feeling the significant reduction in their purchasing power.
“There are 1,001 ways to correct it but they (monetary authorities) have to do it. Government needs to make a decision, they have enough arsenal in their possession to influence a plus or minus P5,” Ortiz-Luiz said.
“They will not do it for exporters but they could do it for OFWs. There are 12 million OFWs, 4 million exporters, if you multiply by 5 [the average size of Filipino families], there are 80 million Filipinos who are dependent on dollars. Anything that triggers the dollar to weaken affects them negatively,” Ortiz-Luiz added.
Diokno said monetary authorities must step in to regulate “hot money” inflows or funds that go into the stock and bond markets. He said the government must be more “pro-active” in discouraging “hot money” into the country.
Ortiz-Luiz noted that the Philippines is the only country that has no regulations on fund inflows and outflows. This has made it an ideal location for foreign portfolio investments.
He said this system must be changed to one that encourages foreign direct investments, the kind that will result to real job generation. Ortiz-Luiz said the only jobs that a stock market rally creates are the temporary jobs provided by the real estate sector.
“Government authorities should be more pro-active and effective in discouraging the entry of hit-and-run money. This is to avoid the appreciation of the peso which leads to lower exports and higher unemployment and deeper misery for families of overseas Filipino workers,” Diokno said.
If it has disadvantages, the peso’s appreciation also has benefits however.
A strong peso means the government will spend less to pay for its foreign debts. It also makes imported goods such as oil and foreign food items more affordable. – Rappler.com
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