P50.30

This is not the best of times for the Philippine peso. Its exchange rate slid below the psychologically important P50:$1 threshold.

I will not dare predict how low the peso will go. Some analysts are predicting a low of P52:$1. That might be a conservative estimate.

There is very little going in the peso’s favor lately. Our exports have been declining. Now our mineral and tropical fruit exports are in peril, thanks to Gina Lopez and Paeng Mariano. Trump’s protectionist outlook is holding back BPO investments. Our monetary authorities are not inclined to raise interest rates.

On the other hand, everything seems to be going in favor of the US dollar. The unabashedly pro-business policies of the Trump administration have pushed US stocks on a record bull run. That reflects in massive conversion from other currencies to the dollar. The US Fed has taken a hawkish position, raising interest rates recently and threatening another increase soon.

Fuel prices, which we pay for in US dollars, sustained their escalation. After many months of failed negotiations, the major oil producers finally agreed to cap production levels to bring down supply in the global market. The global market responds to tighter supply by raising prices.

The US dollar is now a juggernaut currency. All others lose value before its charge. The Philippine peso, alas, cannot run against the trend.

Should hot money leave our market in large volume and our BPO earnings begin to flag, that will magnify the trend towards a weaker peso. At this point the downside outweighs the upside.

The depreciation of the peso has now been substantial enough to have palpable impact on our domestic economy.

Immediately, the depreciation inflates our outstanding external debt. We pay our debt in dollars while government earns revenue in pesos. The foreign debt load just got heavier.

The depreciation will surely put upward pressure on our inflation rate. We saw pump prices for oil products rise in a sustained way the past few months as the peso’s position weakened.

Fuel is an essential component in the cost of everything else. If transport costs rise, everything from vegetables to imported raw materials will become more expensive. We have now begun to feel the uptick in the inflation rate.

Our economic managers are putting up a brave front, saying that inflation levels will probably remain within the targeted range, albeit in the higher estimate. We all hope so. Beyond the targeted range, inflation will begin to hurt. It will cut into the purchasing power of wage earners.

There are winners, however.  Our OFWs are getting more pesos for the foreign currency they send home. That, however, will not raise remittances in dollar terms, only fuel inflationary domestic demand.

Choice

The power of choice should extend to the choice of power sourcing.

Last Tuesday, the Supreme Court issued a restraining order against portions of the Energy Regulatory Commission’s program regarding retail competition and open access (RCOA). The Court’s restraining order was in response to a petition filed by a school and several commercial enterprises opposing the RCOA.

The ERC’s program would have compelled large consumers to cancel their existing power supply contracts with their preferred generating companies and choose from a short-list of generators for new supply contracts. The petitioners argued that this program violated the core principle of the Electric Power Industry Reform Act (EPIRA). The intent of the EPIRA is to precisely uphold a free market system and protect the consumers’ freedom of choice.

The portions of the RCOA suspended by the Supreme Court deprived large consumers the freedom to choose their supplier. It compelled large consumers of power to buy power from the ERC’s preferred suppliers. Those anti-consumer provisions of the RCOA would have come into effect last Feb. 26.

Had the Court not issued a restraining order, there would have been confusion and disarray in the energy market. Large consumers would have been forced, on short notice, to cancel supply contracts and enter into new ones from the list proffered by the ERC.  They would have been forced to do that even if the large consumers were perfectly happy with their existing contracts.

The RCOA constitutes heavy-handed intervention in the operation of free market forces. It therefore undermines the promise of EPIRA to bring forth an efficient electricity industry based on untrammeled consumer choice.

The ERC could not be wiser than all the electricity consumers acting in concert. Consumers will not act against their own interest. They will always go for the best deal in an open market. It is an act of conceit on the part of the ERC to presume they know better than the consumers.

The RCOA would have benefited only the 28 or so power suppliers accredited by the ERC and imposed on the consumers. Whatever inspired the ERC to adopt such an anti-market program we can only surmise. This is, after all, the same ERC that President Duterte wanted to resign en masse after an employee committed suicide on claims he was being forced to commit corruption.

The Supreme Court’s restraining order is a blow struck for freedom of choice. Consumers who want to go for new supply contracts with the ERC-endorsed retail electricity suppliers are still free to do so. But, most important, those who want to maintain their existing supply contracts cannot be penalized for exercising that choice.

The restraining order is, of course, just a restraining order. The Supreme Court has yet to finally rule on the issues presented by the petitioners. The final ruling will, hopefully, continue to uphold consumer choice.