If we were a private corporation, our CEO, facing heavy pressure from shareholders, would perhaps be experiencing sleepless nights and dizzying headaches the persistent and throbbing kind.
Our latest Balance of Payments or BOP position, for instance, isn’t exactly comforting. You see, more money is leaving the Philippines than is entering it, and the situation is more pronounced now.
The September BOP posted its largest monthly deficit in four years of $2.3 billion, significantly wider than the $412-million deficit a year ago and the $572-million deficit in August.
The BOP is the summary of our transactions with the rest of the world. A deficit means the country is importing more commodities, capital, and services than it exports, which means more foreign exchange outflows. On the other hand, there is a BOP surplus if the country exports more than it imports.
According to the Bangko Sentral ng Pilipinas, this was the sixth straight month that the country’s BOP position was in the red, and the widest deficit since the $2.7 billion in September 2018.
“The BOP deficit in September 2022 reflected outflows arising mainly from the BSP’s net foreign exchange operations and the national government’s payments of its foreign currency debt obligations,” the BSP said.
The September figures brought the January to September BOP deficit to $7.83 billion from a $665-million deficit in the same period in 2021.
A BOP deficit in the short-term isn’t necessarily bad and is usually common in developing countries like ours.
But at the same time, it tells of bigger problems. For one, it puts pressure on the peso and more importantly, it could mean that our economy is more unbalanced than ever with the government failing to develop the export sector.
Trade deficit
Indeed, the September BOP deficit is a reflection of our sizable trade deficit, which could give birth to bigger problems if it remains unresolved.
Our latest trade deficit has widened to a record $6 billion in August as imports continued to surge. It doesn’t help that imported oil and other commodities affected by Russia’s war on Ukraine remained elevated, bloating our import costs.
The August trade deficit was almost double the $3.31-billion gap a year ago and also higher than the $5.989-billion trade shortfall in July.
In all, our imports rose by 26 percent while our exports dipped by two percent during the month.
Peso
Not surprisingly, the peso is feeling the pressure and is currently trading at 58 to 59 against the dollar.
On Wednesday last week, when our September BOP deficit came out, the peso weakened to P58.90 from the previous day’s P58.70. Wednesday’s finish neared the all-time low of $59 to the dollar earlier this month.
Finance Secretary Benjamin Diokno said the government is ready to defend the peso and would do everything to prevent it from reaching P60 to the dollar.
He even telegraphed just how much the government is willing to spend to defend the peso – a whopping $10 billion.
It’s a curious case why Sec. Diokno would disclose the government’s ammunition.
Didn’t Sun Tzu tell us that in war, we must be extremely mysterious even to the point of soundlessness?
“Thereby you can be the director of the opponent’s fate.”
Vowing to defend the peso at P60 indicates that our authorities actually expect the peso to hit that level.
What the government must do really is to significantly change the fundamental drivers of the peso. Strengthening our export sector is one way to do this. There are successful countries with export-driven policies that have helped them create trade surpluses.
It’s really necessary now more than ever to strengthen our manufacturing and export industries.
Look at Vietnam for example. Its exports have maintained double digit growth this year, up 18.2 percent year-on-year in the eight months to August to over $252 billion.
Its exports are forecast to rise 9.5 percent to $368 billion in the year, its government said, adding that its foreign direct investment inflows are seen rising 6.4 percent and 11.5 percent to $21 billion to $22 billion, according to Reuters.
There are gap-filling sectors, too that can bring in dollar inflows to the country, such as BPOs and POGOs. Tourism, too, as a low-lying fruit can bring dollar revenues if supported well.
To provide immediate relief to vulnerable sectors that are hurting most with high food prices, the government must provide social protection and distribute these conditional cash transfers in a faster and more efficient way.
And then there’s the need to address the perennial problem of corruption, smuggling, and red tape.
President Marcos has been showcasing the Philippines in the global arena, as what he and the Philippine business delegation did during a recent visit to New York.
But investors will only really come and do business here if they see that we mean business. One way to do that is to rid the government of corruption and bureaucratic red tape.
What happens next is anybody’s guess.
We are still largely where we were since the start of the Marcos presidency scorching hot inflation, weak peso, skyrocketing commodity prices, and now, a widening BOP deficit.
Against this backdrop, millions of Filipinos are desperate for help.
Iris Gonzales’ email address is eyesgonzales@gmail.com.
Follow her on Twitter @eyesgonzales. Column archives at EyesWideOpen on FB.