OFW generosity after Ondoy fuels strong peso a year later

Damage to households from typhoon Ondoy, which flooded Metro Manila and nearby provinces on Sept. 26, turned out to have spurred “unusual" financial liquidity for the Philippines as overseas Filipino workers (OFWs) sent money in aid of family and friends. As it turned out the devastation brought about by one of the deadliest typhoons in the Pacific had far-reaching multiplier effects, according to Rizal Commercial Banking Corp. senior vice president Marcelo Ayes. People affected by the typhoon “have replaced their cars, they’ve refurbished their houses or bought new ones. And the government [was spurred] to spend on infrastructure rehabilitation," Ayes said in an interview with GMANews.TV. Ondoy was a killer-typhoon but in its aftermath its positive outcomes proved “endless and enormous," he said, pointing out that some of the country’s 8.7 million to 11 million OFWs responded to the destruction by contributing money for rehabilitation of properties at the grassroots level. “This is certainly one reason experts are looking at for the unusual strengthening of the peso against the US dollar," Ayes said. As of July, money sent home by OFWs totaled $10.679 billion. The remittance volume this year could even reach $18.735 billion, Deputy Gov. Diwa Guinigundo of the Bangko Sentral ng Pilipinas (BSP) said in September. Last year, remittances amounted to $17.348 billion, according to BSP data. Dollar devaluation The continued appreciation of the peso, as well as other currencies against the US dollar — the currency most used in international transactions — is also attributable to the general weakness of the US economy. “The US dollar was breaking through its record lows" after the US had dropped its interest rates and earmarked funds to its financial system, Ayes said. Low interest rates hindered foreign investments in the US, thus allowing investors to look for other countries or emerging markets with attractive interest rates, Ayes elaborated. “One of the emerging markets is the Philippines." With investments pouring into the country, domestic liquidity sets in, he added. For one, the deluge of investors to the market reflects how liquid the country is. The Philippine Stock Exchange noted that the average daily value turnover during trading sessions from January to December went up to P4.6 billion from P3.5 billion in the previous period. Rosy economic picture The appreciation of the peso value in the region goes along with other currencies in Southeast Asia but “the peso is still behind," Ayes pointed out. Still, global investors look at the Philippines to have a rosy economic picture. “Global market takes note of the Philippines," Ayes said, noting the surprising economic growth of the country in the first half of the year at 7.9 percent. Banco de Oro Unibank Inc. first vice president Jonathan Ravelas now sees the peso dropping to P43.50 to P43.70 against the dollar for the year. There is also a chance that the peso could reach P39.50 to the dollar by 2012 or a “modest" appreciation of P2 per year, Ravelas said in a separate interview with GMANews.TV. “We’re looking at an adjustment of 50 basis points in overnight rates [by] 2011. That means that from the current overnight rates of 4 percent, by yearend 2011 we’re looking at 4.5. The major adjustment will come in 2012 when we’re very sure that the world recovery is underway," Ravelas explained. He said, “The time to invest is now. If you have borrowing requirements, this is the time to borrow." France-based retail banking group Credit Agricole shared similar sentiments, noting that more gains are expected to come to the Philippines. Asia has been very resilient even during the worst fiscal crisis since World War II, said Mitul Kotecha, the bank’s corporate and investment bank head of global foreign exchange strategy. Part of the reason why Asian countries like the Philippines have been resilient is because of their proximity to China which is driving growth in the region, he said last week during the press conference of Financial Executives Institute of the Philippines. Exporters Week-on-week, the peso rose anew by 0.48 percent to 43.88 as the greenback continued to weaken against major currencies particularly the Euro, Ravelas said in a report Friday. He noted that the week’s close at 43.88 implies further tests towards the 43.50 to 43.70 levels. Any pullback, if any, is limited to the 44.00 levels, he added. With a stronger peso, Philippine exporters are hurting, which is why Philippine Exporters Confederation Inc. president Sergio Ortiz-Luis wants the BSP to take serious measures to protect exporters. The government should pay off its dollar debts to stimulate demand for the greenback, Ortiz-Luis said in an interview with reporters. Although drastic, another measure is to lower the interest rate on peso deposits to encourage people to buy dollars, he added. “There should be a conscious effort to target an accurate exchange rate and accept that the peso is overvalued," Ortiz-Luis underscored. He pointed out that massive layoffs and closure of enterprises of exporters, domestic-oriented manufacturers, and agricultural producers are at stake should the peso continue to strengthen against the dollar. “More than half of the economy depends on dollar earners like exporters. There is a lack of effort to bring the peso to its proper exchange rate," said Ortiz-Luis. —OMG/VS/HS, GMANews.TV