Visayas, Mindanao exporters press for ‘proactive’ forex stance

CEBU/DAVAO — Restless over prospects of more “hot money” weighing on the foreign exchange rate and forex-sensitive sectors of the economy, businessmen and exporters in the Visayas and Mindanao have resumed pressing policymakers to drop their wait-and-see stance and adopt active measures to shield the peso.

They noted that many other Asian governments have slapped capital controls to shield their currencies from a flood of funds fleeing western economies’ low interest rate environments in search of better yields, leaving Philippine markets increasingly vulnerable.

The peso last Friday weakened slightly to P42.70, but that level was still the highest since it closed at the same rate on May 15, 2008.

A strong peso hurts not only exporters, but also other forex-sensitive sectors like overseas Filipino workers and business process outsourcing firms, said Eric N. Mendoza, president of the Mandaue Chamber of Commerce and Industry. Difficulties in these sectors will dampen demand in the retail, housing and other sectors, he warned.

“They [Bangko Sentral ng Pilipinas, or BSP] assure us that they are being vigilant. But I wish our policymakers will not just be vigilant, but be prepared to act and be proactive. Every second counts. This is not business as usual,” Mr. Mendoza said.

Benson U. Dakay, president of the Seaweed Industry Association of the Philippines, called on the government to impose taxes on speculative portfolio investments to stem inflows and shore up revenues at the same time.

“The income of foreign funds in the stock market should be taxed 15% if it is held for 365 days or less, 10% if less than 540 days and 5% if less than 720 days. Thailand is already doing this. Why can’t we?” Mr. Dakay said.

Philexport Cebu, or the Confederation of Philippine Exporters Foundation (Cebu), Inc., also sent a position paper three weeks ago to the BSP to push for measures to moderate the peso’s rise.

Apolinar G. Suarez, Jr., Philexport Cebu chairman, said export companies have been readjusting their prices as the peso continues to strengthen.

“At the end of the day, the question is ‘are the customers still buying?’ We have a situation now. Government should think and act now,” Mr. Suarez said by phone.

Exporters usually pay 30-60 days after a shipment is delivered. By the time payment is made, a different exchange rate is in place and exporters end up getting fewer pesos for their dollar earnings, Mr. Dakay explained.

But in a letter to Mr. Dakay last month, BSP Deputy Governor Nestor A. Espenilla, Jr. said monetary policy tools are in place to moderate the peso’s movements. These include the buildup of international reserves, prepayment of BSP’s foreign currency-denominated debt and easing of forex flow restrictions.

Mr. Mendoza said his furniture company, Mastercraft Philippines, has been very reluctant to take orders from buyers. His factory currently produces only seven containers a month, roughly a quarter of his production capacity of 25-30 containers. “We are hesitant to commit (to buyers) because the uncertainty is very high,” Mr. Mendoza said.

Mr. Suarez, who exports silver jewelry, has to contend not only with the strengthening peso but also the strong global metal prices and high interest rates.

In Davao City, Vicente T. Lao, chairman of the Mindanao Business Council, said the island’s exporters, including the banana industry that ships out an estimated $700 million annually, are currently hurting from the appreciating peso. He estimated that a P1 rise in peso value results in a P700-million reduction in annual sales for this industry.

“(The strong peso) is good for importers, but a big problem for our exporters. The government, through the BSP, must strike a balance,” Mr. Lao said in a phone interview over the weekend. — Marites S. Villamor and Carmelito Q. Francisco, Businessworld