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IN what
could be an ironic turn of events, a University of the
Philippines economist warned Thursday that allowing the
peso to appreciate any further at the same rapid pace
may drag the
Philippines into
a fiscal crisis.
In his
lecture, former UP
School of
Economics
dean Raul Fabella said, “While the prospect of another
drastic stumble remains remote for now, its seeds may
already have been sown by the rapid peso appreciation.
Although more distant than in 1996, we do not know when
and how the enemy will strike. In the near-term, it may
manifest itself simply as forgone growth in output and
employment.”
As it
is, he said, “The turmoil in the world economy is
creating a minefield of dangerous possibilities.
Prudence dictates that we re-supply rather than fritter
away our meager arsenal.” He spoke at a lecture in the
first Ayala Corporation-UP School of Economics economic
briefing program in Makati City on Thursday.
Toward
this end, Fabella said the Bangko Sentral ng Pilipinas (BSP)
should aim for a 2-percent peso appreciation rate per
year for the next three years.
“The
goal of at most 2-percent appreciation per year till
2010 appears doable. Indeed, the peso has in the last
few weeks begun to reverse course to reflect global
turmoil and uncertainty,” he added.
However,
Fabella said the BSP should also improve in other areas,
such as its ability to promote price stability that is
conducive to balanced and sustainable growth.
He said
that rapid peso appreciation seeds the potential
asset-price bubbles—similar to plaque in human
arteries—building in the economy. Fabella said that
BSP’s reactions to the dangers surrounding peso
appreciation have been late in coming.
The peso
appreciation, he added, is accorded a “rhetoric of
endearment” by the BSP. This meant the central bank
defends peso appreciation instead of treating the peso
as a hindrance to sustainable growth and that some form
of inflation may be good for the economy.
“Undervaluation plays the role of a ‘second best’
solution. In this view,
the country with the highest cost of power should have
the weakest currency. We did just the opposite in 2007,”
said Fabella.
Fabella
also said the Finance department’s recent move to lower
its first dollar-bond issuance in 2008 by half is a good
start in reducing the supply of dollars, but noted there
should be a consistent follow-through of this effort.
He added
the government should also buy dollars locally to
finance the retirement of dollar debts.
BSP Center
for Monetary and Financial Policy director Francisco
Dakila Jr. responded by saying the central bank is
already taking steps to temper the appreciation of the
peso, among them facilitating worker remittances by
encouraging them to do it through formal channels such
as banks to reduce their remittance charges.
The BSP
is also mulling over the possibility of creating OFW
bonds, which is seen to lump the inflationary impact of
inflows, allow the BSP to borrow dollars from OFWs and
create sufficient saving vehicles for Filipinos working
abroad, Dakila said.
The bank
is also holding information conferences on hedging
facilities that can be used by OFWs and exporters as
well so they can be shielded from peso-appreciation
losses. |
