Children, to understand if the Philippine peso is gaining some strength, first we have to review our Economics 101.
Let’s re-learn our basic.
Our PESO becomes valuable because the DEMAND for the peso is greater than the available supply. Am sure everybody knows about supply and demand, korek? When does our peso becomes valuable? Two or three years ago, the exchange rate was 56 to $1. Today, it’s now 45 to a dollar. That 45 exchange rate means that our peso is now valuable compared to that time when it used to be 56. Understand children? Now, it becomes less valuable when there is an over-supply of peso or the demand for the peso is less. Who knows, maybe people are stocking their wealth in other currencies.
Speculation & perception
Now, have you heard about the word speculation? Well, this is almost a given word in the foreign exchange community. Why? There are so many speculative investors and traders out there whose job is to speculate, speculate, speculate on currencies. So when there is an increase transaction on a particular currency, say peso, or an increased speculation on peso, the demand for the peso goes up. When the demand goes up, the value goes up. Where does all these speculation starts? Well, aside from the fact that most of these financial companies have the best financial research teams and models out there, they also rely on perceptions. So, what’s the current perception of the Philippine business environment? It’s positive and upbeat which is good news, why? its spells valuable peso. But here’s what bothers me. If it’s positive and upbeat, then we get splashed on world papers as Asia’s most corrupt economy, does that create a positive and upbeat environment? I’m positively sure that that news do not bring any upbeat and positive news to foreign investors? Right?
Production, Employment
Now, the demand for peso is dependent or correlated with our country’s level of activity – manufacturing, exports, imports, etc. AND employment. It’s like this:
If you have a lot of people out there in the streets – do you still remember about the findings by some government research think tank? 9 out of every 10 Filipinos are employed. Right – the job of those 9 is to look for a job. The one who is employed supports the 9 and is receiving below minimum wage. You remember that?
Ok. Listen children.
So, let’s see the current production results. It says that manufacturing output fell by 7.6% by March, but then again, I don’t have any information as to what’s the manufacturing output numbers to compare it from. I’ll just take it for now as the production level went down. So, if it went down – no production – no goods for sale – no one buying -no money – peso is less valuable. See the correlation? Besides, the news says that it continues to decline. If that is the case, then there is a direct effect on employment – meaning, unemployment should go up.
If you have so many people unemployed, that means these people got no money. If they have no money? They have nothing to spend on. If they have nothing to spend on? No one buys our and their products. If no buys our or their products? No one produces and manufactures. If no one produces and manufactures? No jobs. NO jobs? Unemployment = less demand for money. Less demand for money? Less value of our money. Understand children?
Interest rates and the Central Bank
Let’s go back to currency speculators. I call them manghuhula. Can they deliberately create a demand such that the value of our peso goes up? Of course Matilda. They can. But this is something that Central Bank is supposed to check by way of adjusting interest rates. You see, if you are an investor, what are you looking for? Of course, you would choose to buy a currency with high interest rates so that the return would be high. So – the higher the interest rates? The greater demand for our peso. But by golly, at least we’re not a victim of what happened to Malaysia and Thailand in 1987, are you familiar with what I am talking about?
Inflation
Another important factor – inflation. Our peso will tend to lose its value (meaning from Php45 to $1 going back to Php60 to $1) if we have high inflation. But of course! So, what’s the current situation as far as inflation is concerned? Well, according to this news, the Philippines’ inflation rate dropped to its lowest level in 20 years at 2.2 per cent in March 2007 which would mean that our peso becomes valuable.
Political Uncertainty
I just find it difficult to make a comment as to what we are politically – I mean, as far as the word “uncertainty” is concerned. Why? Political uncertainty has always been with us. This is like a common word, I mean what with Arroyo stealing the elections in 2004, impeachments, coup attempts, yet, our economy has been growing steadly actually – or at least that’s what the media says. We have not achieved the status achieved by our neighbors, I mean, we are still so far behind them, but personally, I’d just excuse political uncertainty from my own unscientific analysis.
Now, there are other important factors that I’m sure I should discuss like interest rates, the Central Bank’s role, government spending specially on infrastructure, IT investments, foreign investments, wages. I’d leave them for now because I can’t get enough information. Corruption? Let’s just pretend we live in a perfect world. So, this would be my last item:
OFW Remittances
$15 billion US Dollars. Think about it. Can you imagine how many shoes Imelda can buy from this many many $’s? We have poured $15 billion twinkling dollars into the economy. What did this $15 billion dollars did? Check out the malls, the realty industry. Check out the condominiums and all the developments all over the country. Need I say more? What it means is that, all these monies have created a spending spree that is driving the local economy. When you have monies like these in the hands of the population – what do they do? Available cash means – spend. That’s why our malls are filled to the rafters. More consumers, more products. More products more output more employment. Or?
So, what I am looking for in what’s obviously conflicting economic reports? I mean, it really depends on what paper and what day you are reading, the reports are conflicting worst, it does not even jibe with reality. I’m looking for consistency.
-
On, speculation & Perception. There are papers that proclaim that business is upbeat but the perception that we are the most corrupt economy in Asia surely impacts negatively. Our foreign investment is so miniscule compared to that of Vietnam. All these news on speculation and perception are very inconsistent. Thumbs down!
-
On production - If we have news that our peso is strengthening, you would expect that our factories are churning out like crazy yet reports have it that output have been falling! Those are in itself conflicting!!! Thumbs down!
-
Unemployment – I don’t even have to check the unemployment rates. I could just go visit my friends at Floodway and there’s unemployment rates smack right in front of your face! You know what I mean? Thumbs down!
-
Inflation – Ok. This is kinda weird. The report I picked up says that inflation has been pretty consistent and it says that we actually have the lowest inflation for the last 20 years? Really? And gas prices? Relatively stable? What about Meralco? Relatively stable? I don’t think so! So, I’d say, thumbs down! Inconsistencies!!!
-
Political uncertainty - The only certain about politics in our country is that political power will continue to be in the hands of the new dynasty in place, it’s all the same banana. What good will this bring us? Who knows. Maybe this will lead us to Political Tralala-land!
-
OFW Remittances - Honestly, this is the only goods news about all the good news. This is the only consistent economic factor out there for many years and has continued to rise! Year after year, after year. And with $15 billion US dollars which is even bigger than the entire US Mining Industry, our remittances has shielded our economy to that infamous Asian financial crisis!
So what is driving the strength of the Philippine peso? It’s all the money that we send back home. This is what’s creating the economic activity in our own turd world kawntri.
Stumble Upon
Del.icio.us
Buzz
{ 2 trackbacks }
{ 15 comments… read them below or add one }
klap! klap! klap! ang galing mo, professor Rainier Manalili hehehe.
inang, whether the current perception of the Philippine business environment positive and uppeat or negative, we are still in the list as one of Asia’s corrupt economies. ganun pa rin.
[Reply]
@bea,
i know! that’s why the news is very inconsistent coz when you get plastered on all the papers in the worls as competing with the most corrupt award, i don’t think winning the award equals more foreign investments!
and as i have found out in my very quick unscientific research, only remittances has been consistent – that’s the money that’s being used in da kawntri spent on goods and services and the reason why some sectors like realty are buzzing.
dutch why the government is really one big employment agency pushing everyone to go abroad and look for a job insensitive to the reality of how difficult it is to be away from hu hu hu! families!
[Reply]
galing ah pards. I never thought that you are a professor-slash-economist pala. Na-impress ako dun ah. Buti di ka natutuyuan ng utak tulad ko hehehe.
BTW, isn’t it bad professor that we are having this rise of our currency, I mean tingnan mo: yes, mataas ang peso pero may bumababa ba ang presyo ng bilihin dito sa pinas ? tumataas ba ang sahod? hindi.
Kung ako ay isang OFW tapos nagpapadala ako sa family ko, pero 45 pesos lang ang palitan, pero di naman nababawasan ang gastos sa bilihin, ibig sabihin ako ang nalulugi dahil yung perang kinikita ko ay nababawasan (ng valor) dito sa pinas? so might as well go back here and work kesa magpagod sa ibang bansa na maliit naman ang pera ko pagdating sa pinas.
My point exactly is, if the peso would not stop from rising, and the commodities are frozen in its usual high, di kaya OFWs will get back to our country? no ofws means no dollar. no dollar means high inflation rate. Viscious cyle ika nga.
This is a dangerous development reynz. I can only see downfall of the economy if madam gloria would not pay attention on the prices here in our country. Kuryente, gasul, telepono, internet, gasolina, pagkain, bigas, damit.. lahat na mataas.. sya na lang ang hindi tumataas.
[Reply]
Hi bluep,
Magaling ka pala sa economics bluep! And I think you hit the mark as far as EARNINGS are concerned. Nag-increase ba ang EARNINGS or SAHOD nang mga Pinoy with the rise in Peso? I mean, it’s bad enough that our Meralco rates are the highest in the region, are gas prices are global prices – meaning, kung magkano ang binabayad namin sa gas here in the US is the same sa binabayad ninyo, but your personal income is not the same as ours. So, yeap – matinding hirap!
You are right again on OFW earnings. If we send money back home tapos ang palit eh pababa nang pababa, why do we still have to work outside of Flippines? Eh di umuwi na lang. But then again, is there a job waiting for us? Nada.
The rise in peso is actually a GOOD thing. But it also spells BAD thing. Depende sa sector na tinatamaan. Now, if we can only weigh kung sino ang majority na tinatamaan nang disadvantages nang pag-taas nang peso, then we could say that this would be a dangerous development.
We may not know it now kung sino talaga ang tinatamaan majority-wise, but think about this – am I right in saying that only about 20% of the population eh mga nakaka-angat? (Can somebody correct me? although I am sure it’s not 80%!!!) So, who takes the hit? Alam na natin yon di ba?
The other point dun sa blog article ko is that, I really believe that the strong peso is dependent on OFW remittances and not on solid economic ground of production and manufacturing. So, eto na nga yong fear ko, if peso continues to appreciate – there will be less OFW – less OFW? less money sent to Flippines. Get the cycle?
But going back to my point: rising peso is not all that bad. Here are the advantage and disadvantage of a rising and/or weak peso:
Strong Peso
Advantages
-Pinoy consumers should see lower prices on foreign goods and services.
-When you have lower prices on foreign goods and services, inflation tend to be low
-Pinoy consumers benefits because they are able to travel to foreign countries.
-Pinoy investors can now invest abroad by buying foreign stocks and bonds at “lower” prices.
Disadvantages
-Pinoy companies especially those export oriented firms and those companies with foreign content will find it difficult to compete with foreign markets.
-Pinoy companies must compete with lower priced foreign goods.
-Foreign tourists will now find it more expensive to visit the Philippines
-It will be more difficult for foreign investors to provide capital to the Philippines given our propensity to borrow from any institution in the world with this word attached to their name – “Bank”.
Weak Peso
Advantages
-Pinoy companies will find it easier to sell goods abroad and export.
-Pinoy companies will find less competitive pressure to keep prices low.
-More foreign tourists can afford to visit the Philippines
-Our stock exchanges will become more attractive to foreign investors.
Disadvantages
-Pinoy consumers face higher prices on foreign goods and services.
-Because of higher prices, foreign products equals high cost-of-living.
-Pinoys will find traveling abroad more expensive
-It will be hard for Philippine companies and investors to expand into foreign markets.
[Reply]
This is a very educational entry. If only I could send this to the economic managers of Gloria Arroyo. No, I don’t think that they don’t know all the facts you have mentioned. I just want them to know that they cannot fool everyone.
Thank you.
[Reply]
hey jef! thanks! you’re right!
i hope you won’t mind if i correct you. ok?
She’s got no economic managers. He He He! and she’s no economist either.
[Reply]
Prof Reynz,
ok ang presentation ng Economics 101…pansin ko dolyar lang ang laging bumababa samantalang ang euro at sterling nasa taas pa rin.
Ang pag lakas ng peso eh hindi namn sya ang batayan ng pag ganda ng ating ekonomiya, tama ba ako Prof?
Ang pag ganda ng ating ekonomiya ay batay pa rin sa tinatawag na “GROSS DOMESTIC PRODUCT”…
paki explain nga po Prof Reynz sa layman’s term tulad ko hinggil d2?
Mejo kinalawang ang aking turnilyo sa pag babalik pananaw sa materyang economics noon…
salamat po!
[Reply]
@ross,
looks like it will be another blog article, am glad you asked, because there’s a lot of factors in computing Gross Domestic Product, eg. consumption, investment, govt spending, exports, imports etc.
but it’s not only GDP, it’s also per capita. e.g., and i’ll try to discuss it next time, kakalkalin ko muna notes ko sa biz school, he he he, magaling yong prof ko, stones sya nang stones (ang tawag nya sa currency are stones)
until next ish na lang anak!
[Reply]
salamat po Prof Reynz…
***umiyak!!
Profffff!! me babolgam dto sa sa teybol!!! nadikitan ako!!
[Reply]
dahil sa pagtaas ng peso, bumaba ang google check ko
[Reply]
mamacee yong online investments ko rin, ang baba na ng balik. lugi pa ko sa capital ko. waahhhh
[Reply]
@ ross
hehehe kami po ni JC nagdikit nam babolgam dyan. tingnan mo o, andito siya sa likod ko nagtatago
[Reply]
he he he!
[Reply]
Prof Reynz!!
How could you say “he he he” eh ang naughty naughty ng mga skulmeyts ko o ***turo kina bea and JC
Prof!!
Pls do something! Naglagay ba sila seo?? magkano?? **corrupt pupil looking at corrupt to- be- Prof!
[Reply]
nakakaloko ang palit ngayon. di talaga senyales ng magandang ekonomiya kung halaga ng isang pirasong sibuyas ay tatlong piso. Kagagaling ko lang ng Pilipinas nung Oktubre. I’m living here in the states and we are trying are best to sustain a small business.
each time i’ll send the money, nakapanlulumo… it’s okey kung maliit ang palit as long malaman ko bumababa ang bilihin ng BASIC COMMODITIES!!
i HOPE PROF ELEYN, U CAN EXPLAIN TO US, KUNG ANG PISO AY LUMALAKAS 4O php RIGHT NOW, BAKIT DI TUMATAAS ANG SWELDO AT TUMATAAS ANG BILIHIN!!
CAN NOT THE GOVERNMENT DO SOMETHING TO RAISE THE SALARY AND LOWER THE BASIC COMMODITIES KUNG MALAKAS ANG PISO.
WHEN WILL BE THE TURN OVER NA, MARARAMDAMAN NG MGA PILIPINO AND LAKAS NG PISO NATIN in the sense di mahirapan ang mga pilipino sa pamasahe at pagkain araw araw. nalula ako dahil ganun ng kamahal ang mga bilihin. i’m reallly shocked!! and i’m dead serious. i wish i can run as a political person so i can run and do something regarding our economy.
IT’S MY FIRST TIME TO OPEN A COMMENT!! I’M REALLY BOTHERED W/ OUR ECONOMY.
MAY ALL FILIPINO PRAY THAT A GOOD LEADER WOULD LIFT US UP FROM THIS BURDEN and all of us be united to take care of our homeland and people.
I DEBATED W/ MY COUSIN, SHE SAID HERE FROM TEXAS, MAHIRAP TALAGA ANG PILIPINAS. MEANING MAHIRAP OR POOR TAYO AS COMPARED TO OTHER COUNTRY and there is no hope that we can recover.
I TOLD HER, I DON’T BELIEVE THAT OUR COUNTRY IS POOR.
OUR COUNTRY IS BLESSED. ALL COUNTRY HAS BEEN BLESSED FAIRLY BY GOD. BUT IT’S UP TO US ON HOW WE TAKE CARE OF ALL THE RESOURCES GIVEN TO US.
HOPE I’M TALKING TO SOMEBODY AND BE GIVEN A VOICE.
I WISH I CAN DO SOMETHING TO HELP OUR COUNTRY.
I’M LEAVING HERE IN LAS VEGAS!!
HOPE TO HEAR FROM YOU! THANKS FOR YOUR ARTICLE!!
[Reply]