INQUIRER.NET - March 24, 2009

<< back to news

Peso a shelter in the financial storm

MANILA, Philippines -- The peso has outperformed most emerging market currencies so far this year and is likely to prove a store of value in 2009 as the economy is less vulnerable to the factors hammering markets elsewhere.

The country is likely to be the only nation in Southeast Asia to post a sharp pick up in its balance of payments surplus in 2009, partly the result of loans and privatization proceeds.

The economy is also less dependent on exports compared with its Asian neighbors, an unexpected bonus when world trade is shrinking and big markets are in recession.

The country's banks have little exposure to the credit problems being experienced elsewhere and the government's finances are far less reliant on overseas debt than in the past.

The big unknown is remittances from Filipinos working abroad, a driver of domestic consumption and pillar of the country's balance of payments. But even in this sector, the Philippines may be better off than many other countries.

"I think what is making it an outperformer is really because of the fact that our number one export, which is really people as reflected in the remittance numbers, will probably be resilient," said Wilfred Song Keng Po, managing director for fund management at AIG Investments in Manila.

"I'm looking at 10 percent decline for remittances as a worst case scenario," he said.

The peso has held its ground so far in 2009. It is down just 1.0 percent against the dollar, when other emerging market Asian currencies are down an average of more than 3.0 percent. Emerging currencies elsewhere are down an average of 5.0 percent.

At 48 per dollar on Tuesday, analysts said the currency might drop to around 50 in coming months if remittance flows disappoint -- a modest fall compared to those already seen in other currencies. The Korean won, Asia's worst performer, is down almost 9.0 percent and has been far more volatile.

NURSES, DOCTORS, HELPERS

The central bank expects 2009 remittances to match 2008's record level of $16.4 billion. Analysts say that is optimistic.

A Reuters poll forecast a 6 percent drop, the biggest fall in nine years and the first drop since 2001.

Remittances are the biggest source of overseas income in the Philippines, generating over a tenth of gross domestic product.

And as the fourth-largest recipient of remittances in the world behind Mexico, China and India, the 14th, third and 12th biggest economies in the world, the Philippines punches well above its economic weight as the 45th biggest economy.

A report prepared for the World Bank sees remittance flows from overseas workers to East Asia and the Pacific falling as much as about 8.0 percent this year, in line with its forecast for developing countries in general, after rising about 7.0 percent in 2008 and by double digits in 2007 and 2006.

Still, the forecast of a drop in remittances for the Philippines this year appears less gloomy compared with an official estimate of a 10 percent fall in such inflows to Indonesia, where remittances reach about 4.0-6.0 percent of GDP.

Filipinos are spread out overseas and hold varied jobs -- from nurses and lawyers to domestic helpers -- providing some resilience in remittances.

"Overseas Filipinos are well diversified geographically. This is unlike overseas Mexican workers, who are almost all in the US," Cem Karacadag, analyst at Credit Suisse, said in a note.