Exporters mull cut in target

The Philippine export sector is poised to cut its three-year growth target, amid concern that last Wednesday’s decision by the Federal Reserve to flood the US market with more money would further spur the appreciation of Asian currencies like the peso. In a press conference, Sergio Ortiz-Luis Jr., Philippine Exporters Confederation Inc. (Philexport) president, said the previous 25-percent annual exports growth target set for 2011 to 2013 would likely be slashed to 10-percent because of the peso’s appreciation.

The public-private Export Development Council is drafting the Philippine Export Development Plan 2011-2013, which President Benigno Aquino 3rd would approve before yearend.

Ortiz-Luis said Philexport has received reports that “a lot” of small and indigenous exporters downsized their operations when the foreign exchange rate was at P46:$1, while some semiconductor and electronics manufacturers “dropped some lines” when the forex slid below the P45:$1 level.

Business process outsourcing (BPO) players are also considering expansion in other locations such as Indonesia, with the forex breaching the P43:$1 mark, the Philexport official said.

No state subsidies

Philippine economic managers however ruled out state subsidies in the form of a development or support fund for exporters.

“I think we will still see net positive growth [of exports next year], but at a slower phase than [with forex at between] P45 to P46 [to the dollar],” Department of Trade and Industry (DTI) Secretary Gregory Domingo said.

“Some products will be less competitive, some not at all,” he said.

If the exchange rate stays at the P42:$1 level for a long time, exporters may have to shift to producing higher-value products and supplying higher-end markets, the DTI chief said, adding that shipments to the US will be most affected by the weaker dollar.

But “I don’t think the government, at this point, can give subsidies,” he said.

Manufacturers should instead tap other markets with which the Philippines maintains a free-trade agreement (FTA), the DTI chief said.

The Philippines has a bilateral FTA with Japan and, as part of the Association of Southeast Asian Nations, has trade pacts with Australia and New Zealand, China, Japan and South Korea.

Invest the dollars

Separately, Socioeconomic Planning Secretary Cayetano Paderanga said the government would best “invest the dollars that are coming into the country in the needed infrastructure, like highways.”

The peso on Tuesday broke into the 42-to-a-dollar level, the highest in two-and-a-half years, before giving way to a correction on Friday.

At the Philippine Dealing System, the local unit slashed 17 centavos to close at 42.70 against the greenback from Thursday’s 42.53 finish.

“The correction came just on time, with dollar holdings expected to accumulate over the weekend. It will help smoothen volatility especially with the strong momentum of the peso,” a trader said.

Analysts attributed the strong momentum of the peso and other emerging market currencies to the overall weakness of the US dollar as a result of the Fed’s second-round quantitative easing.

The exchange rate opened at 42.51, and moved to a high of 42.79 and a low of 42.50.

Traders also noted some offshore demand for the dollar, which helped cap the peso strength.

Trading volume rose from $984 million to $1.172 billion, of which the Bangko Sentral ng Pilipinas (BSP) is believed to have bought $300 million.

Too early to revise

Despite the peso’s appreciation, the Department of Budget and Management (DBM) said the government’s forex assumption for next year is unlikely to be changed.

In a statement, Budget Secretary Florencio Abad said it is “too early” to heed calls to revise the forex assumption for next year.

“Let’s not count our chicks before they’re hatched. While having an exchange rate at the P42-per-dollar level throughout 2011 is a favorable scenario in terms of improving our fiscal state, nobody can certainly say it will really be the case,” he said.

“If we are going to revise our exchange rate assumption, it is better to do it by the second semester of 2011 after having seen the actual performance of the currency,” he added.

For 2010 and 2011, the Development and Budget Coordinating Committee (DBCC) assumed that the forex would range from P45 to P46 for every dollar.

Even with the likely savings the government would incur from cheaper debt, Abad said the Aquino administration is exercising prudence when it comes to allocation and spending of public funds to contain the fiscal deficit below P290 billion next year, or 3.2 percent of gross domestic product. –WITH DARWIN G. AMOJELAR, LAILANY P. GOMEZ AND LIKHA CUEVAS-MIEL, BEN ARNOLD O. DE VERA REPORTER, Manila Times