PH economy stronger if peso-dollar rate at 50:1

MANILA, Philippines – With exporters hurting from the strong peso, economists and consumer groups are pushing for the gradual depreciation of the peso to around P50 to the US dollar.

In a briefing on Foreign Exchange Management by multisectoral group Competitive Currency Forum, University of Asia and the Pacific (UA&P) economist Victor Abola said the government should allow the peso to depreciate by around 20 centavos every month.

In a briefing on Foreign Exchange Management by multisectoral group Competitive Currency Forum, University of Asia and the Pacific (UA&P) economist Victor Abola said the government should allow the peso to depreciate by around 20 centavos every month.

Abola said this is needed because he believes that the peso is overvalued by 20% to 30%. Export groups said this has caused half of the country’s small exporters to close shop.

“I believe that the peso is 20 to 30% overvalued. The peso should be around 50 to $1 to make the country competitive as India, whose exchange rate is at 55 to a $1,” Abola explained.

Weaker peso, stronger growth

For a consumption-driven economy like that of the Philippines, a weaker currency would be able to drive economic growth. Abola said a 1% depreciation in the currency would translate into a 0.3 percentage point increase in gross domestic product (GDP).

This means that if GDP growth is at 3% and the peso depreciates by a percent, this would increase the actual growth rate of the economy to 3.3%.

Abola cited data provided by former dean of the University of the Philippines Raul Fabella during the forum showing India’s depreciated currency allowed it to continue being competitive, particularly in the business process outsourcing business.

“I’m not saying depreciate it now. All I’m saying is gradual but you declare to the market that you want it to be competitive, the exchange rate,” Abola said. “As Dr. Fabella has shown, we can afford to depreciate the currency with little inflationary effects, India cannot do it because it has a lot of debt.” – Cai U. Ordinario, Rappler.com