The central bank’s balancing act


    THE central bank has lately been paying particular attention to public concerns over the peso-dollar exchange rate, with the governor issuing statements obviously aimed at soothing any perception that the recent weakening of the peso is a bad thing.

    The latest patter Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. gave business reporters on Friday ruled out an economic calamity: “Definitely, we are not in a foreign exchange crisis.”

    Since the peso and the dollar have been squaring it off at the rate of 51:1, a level unseen since August 2006, importers on the other hand have been fretting about the fact that they now have to shell out more pesos for every dollar worth of imported goods.

    Businesses and families with an economic lifeline from abroad—exporters, business process outsourcing companies and families of overseas Filipino workers—are naturally happy because their spending power has grown without requiring additional capital or work hours. A family who receives $1,000 a month from the mother or the daughter who works as a nurse in Chicago, Illinois would have around P51,080 using the exchange rate last week, compared with P49,720 during the last week of December 2016.

    At the end of the day, it’s a zero-sum situation: You win some, you lose some.

    But Mr. Espenilla, as the central bank chief, is in a not-so-enviable position. He has to deal with the local public perception portending a crisis and quick-talking-slow-thinking politicians who could make life difficult for him.

    Come to think of it, P51 per dollar is not such a bad exchange rate. We’ve lived through more than P56 to a dollar in 2004-2005. The prevailing exchange rate is, in fact, in line with the push of the current administration to wean the economy from consumer spending that borders on the frivolous. That could include, for instance, buying three smartphones which basically offer similar platforms for making voice calls, text messaging, and surfing the internet, and buying two cars to avoid the coding restrictions.

    Since the beginning of the year, the peso has lost something like 2.5 percent against the greenback and Mr. Espenilla seems confident enough to say “that the BSP is in full control of the exchange rate” and that the monetary authorities “allowed the peso to adjust moderately and gradually.”

    Mr. Espenilla likely felt compelled during the weekend to pacify the markets and the agitated politicians after the peso plumbed the 51-per-dollar level during the morning trade on Friday, August 12.

    That was the week when tensions between Pyongyang and Washington flared, after North Korea threatened to launch an intercontinental ballistic missile toward the US Pacific territory of Guam.

    The BSP governor sent out text messages with two emphatic phrases for all to digest: “Calm down” and “no free-fall.” The message was to the point. Don’t panic because the peso was not going to crash headlong and disintegrate even before the nuclear threat from North Korea should happen—so far nothing has happened and Pyongyang backed down on its threat.

    The foreign exchange strategy espoused by Mr. Espenilla seems sound, his goal of striking a balance among the major components of economic growth—foreign trade, consumer spending, and government spending—highly objective.

    Lessons may as well be learned from the China experience of an overdriven economy that peaked at 11 percent and elicited global fears of a hard landing and causing turmoil in the stock and foreign currency markets.

    The Philippine economy is growing at a decent pace of between 6 and 7 percent. Using all monetary tools available to it, the central bank is trying to make sure, as it must, that growth treads on that manageable and sustainable path for the long run, especially now that the country is on the verge of massive infrastructure spending that could inundate the economy. Mr. Espenilla must be on top of that balancing act.


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