BSP opposes special foreign exchange rate for OFWs

The Bangko Sentral ng Pilipinas (BSP) thumbed down yesterday a proposal for the government to support a fixed foreign exchange rate for overseas Filipino workers (OFWs).

OFWs have been seeking government intervention to cushion the impact of the continued strengthening of the peso against the dollar on their dollar-denominated income.

According to BSP Governor Amando M. Tetangco Jr., however, the proposal to set a fixed exchange rate for an isolated sector is costly and problematic to implement.

“That proposal is fraught with difficult questions and issues,” Tetangco told reporters yesterday.

For starters, Tetangco said such a program would require huge amounts of public funds because the difference between the market-determined foreign exchange rate and the fixed exchange rate would have to be subsidized.

“Who would bear the cost of that subsidy?” Tetangco asked, adding that if the current exchange rate of P45.7 to the dollar is offered to OFWs at, say P50 to a dollar, the difference of P4 would have to be paid by someone.

With OFW remittances expected to reach at least $14 billion this year, such a program would cost over P60 billion a year, assuming a market rate of P45.7 to the dollar and the fixed rate of P50 to the dollar.

The amount would be over 85 percent of the total National Government budget deficit for 2007 alone.

Secondly, Tetangco said access to such a program would be administratively impossible to implement.

“Who will be given this benefit? Just OFWs,” he said. “If you offer such a facility to one sector, why not open it to all the other sectors that also contribute to the economy and are just as affected by the appreciation of the peso.”

The BSP has been on the spot since the peso started to appreciate as a result of strong dollar inflows combined with the effects of an inherently weakening dollar.

President Arroyo has been promising relief to OFWs who have been hit hard by the appreciation of the peso.

The recovery of the government’s fiscal position had opened the floodgates for investments that have been waiting in the sidelines in search of better profit opportunities.

However, the strength of foreign direct and portfolio investments pouring into the country combined with the steady increase in OFW remittances have catapulted the peso-dollar exchange rate into seven-year highs.–Des Ferriols, Philippine Star