Teves favors gradual appreciation of peso to soften impact on exporters

Finance Secretary Margarito B. Teves said a gradual appreciation of the peso against the dollar would support the competitiveness of the country’s exporters, who have been complaining of the steady rise of the local currency.

Exporters are most hurt by the appreciation of the peso as their competitiveness is eroded by the declining peso value of the dollar.

“If it is inevitable that the peso goes up, I would rather see the peso improving gradually so that exporters can cope,” Teves said.

The Philippine Exporters Confederation Inc. (Philexport), the umbrella organization of the country’s export firms, has repeatedly appealed to monetary authorities to stop propping up the peso.

Philexport president Sergio Ortiz-Luis said exporters receive less pesos for the foreign currency they earn.

Teves said, however, that the appreciation of the peso is inevitable because of strong remittance inflows from overseas Filipino workers (OFWs).

The Bangko Sentral ng Pilipinas (BSP) reported on Friday that dollar remittances from OFWs coursed through banks reached $1.2 billion in May.  It was the 13th straight month that remittances breached the $1 billion mark, data from the BSP showed.

The May 2007 remittance figure is also an 8.4 percent improvement from the figure recorded a year ago.  For the first five months of 2007, remittances reached $5.9 billion, 21.9 percent higher than the level posted in the same period in 2006.  The BSP attributed the strong inflows to an increase in the deployment of Filipinos abroad and improvements in the remittance services of banks.

Despite exporters’ complaints, Teves conceded that the strengthening currency has helped the government’s fiscal position.

“A strong peso has allowed us to reduce our interest payments,” he said.

Data from the Finance Department showed that in the first semester of the year, the government was able to save P20 billion in interest payments on the country’s various loans due to a strong peso.

Estimates showed that for every peso appreciation, the government saves P4.2 billion in debt payments and another P5.1 billion for every percentage point decline in interest rates.

The peso has appreciated steadily against the dollar since 2005. From 56.199 against the dollar on January 3, 2005, the peso rose to 53.234 to the greenback in December 2005.  At the end of January 2006, the peso appreciated to 52.617 against the dollar. It averaged at 49.28 against the dollar that year.

At the close of last week, the peso further rose 0.72 percent to 45.75.

Jonathan Ravelas, market strategist at Banco de Oro Universal Bank, said the peso has room to further appreciate.

“The week’s close at 45.75 supports a retest of the 45.60 level, a break of which could call for further appreciation towards the 45 level. Only a move above the 46.50 levels would suggest a near-term reversal,” Ravelas said in a report.