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By Chino S. Leyco, Reporter
THE Bangko Sentral ng Pilipinas (BSP)
has expressed partiality for a strong peso against the dollar,
citing the beneficial effects this has on the overall economy.
In a position paper, the BSP said
a strong peso helps dampen inflationary pressures arising from
increases in the world price of oil, metals and certain agriculture
commodities.
It estimates that a peso
appreciation results in a 0.04 percentage point reduction in the
average annual inflation rate due to lower import costs.
Department of Energy data showed
that if the exchange rate averaged P51.30 to the dollar, prices of
unleaded gasoline and diesel would have risen by P2 a liter in the
11-month period of last year.
The BSP also said the
stronger peso allowed power producers to save on the cost of
imported oil and coal, helping bring down the generation charge
component of consumers’ electricity bills.
Water rates were likewise
lower last year, the BSP said, adding a strong peso was reflected in
the foreign exchange assumptions used by the Metropolitan Waterworks
and Sewerage System.
The BSP said the strong position
of the local currency also decreased the peso equivalent of foreign
liabilities and the amount of pesos required for foreign debt
servicing.
“The national government,
other government entities and private corporations can realize
savings from foreign debt servicing when the currency
strengthens,” the central bank said.
The Development and Budget
Coordinating Committee said that for every P1 appreciation, P2.2
billion is saved on foreign interest payments.
The inter-agency body also
said strong foreign exchange inflows enable the central bank to
build its gross international reserves to more comfortable levels,
thus allowing the prepayment of the country’s dollar denominated
obligations.
Despite the benefits mentioned
above, the BSP admitted that exporters, overseas Filipino workers’
(OFW) beneficiaries and import-substituting producers have suffered
from a stronger local currency.
The central bank said exporters
have been losing billions of pesos as they become less competitive
in the global marketplace.
A strong peso also adversely
affects OFW remittance beneficiaries since they receive a smaller
amount of pesos when they convert their dollar receipts.
In January to September
last year, incurred foreign exchange net losses amounted to P23.3
billion.
Domestic producers of import
substitutes likewise suffer as consumers take advantage of imported
products, which have become cheaper.
The tourism sector is similarly
hit because foreign visitors find it less attractive to spend in the
Philippines. “[The] hotel industry will receive less pesos
for the equivalent US dollar charged for hotel accommodation paid by
foreign tourists,” the BSP said.
The appreciation of the
peso also affected the revenue of dollar-earning business process
outsourcing (BPO) firms because more dollars are needed to pay for
their peso expenditures like salaries and wages.
The central bank, however,
said it is mindful of the potential impact of a strong peso on
various sectors as it expects the local currency to maintain its
strength this year despite the risk posed by volatile oil prices,
the possible unwinding of global imbalances and volatility in the
financial markets.
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