Now, more than ever, we should be glad Philip Medalla is governor of the Bangko Sentral ng Pilipinas instead of Ben Diokno, but Ben is intruding in his realm.
I cannot imagine Gov. Medalla saying we will defend the peso so it won’t go beyond P60 to $1, and we are ready to spend $10 billion for this, as Finance Secretary Ben Diokno did in Bangkok last week.
Diokno said, “We are willing to spend some more just to defend it. Let’s not worry about drawing down reserves,” Bloomberg quoted Diokno saying on the sidelines of an ASEAN Finance Ministers Meeting in Bangkok.
Diokno pointed to the $15.8 billion in inflows from overseas Filipinos’ remittances and call-center receipts towards the yearend and that the Philippine government can use $10 billion of that to defend the peso.
Diokno said he had assured Junior that “the peso slump would have eased by the end of the year as Filipinos abroad send more money home for Christmas and it will eventually strengthen to 55 where we want it to be.”
We have news for Ben. Now that he has telegraphed his plans, OFWs are smart enough to delay remittances or send money in trickles in anticipation of a further peso weakening so their families at home can get more pesos.
Diokno may have put his foot in his mouth. Here is the reaction of Global Source Partners, a New York think tank:
“We think that spilling these usually closely guarded secrets of the monetary authority is likelier than not to weaken its hand in managing the ongoing volatility in the foreign exchange market…
“One financial market expert told us that markets will likely continuously test this line in the sand, with any artificial peso appreciation seen as a dollar buying opportunity. In the end, the BSP’s modest $10 billion ammunition may just end up being wasted.”
A retired investment banker who writes the Heneral Lunacy blog commented: “Drawing a line on the sand and disclosing the size of the ammunition can be dangerous. One, it invariably means the peso will eventually move to that level. Two, once breached nobody will believe you after that.”
The banker has a good point. Given how bad our numbers are, our peso defense will not be credible.
“In August we posted a trade deficit of $6 billion, the largest single month figure since 1957. Our January-August deficit was $42 billion, 68 percent higher than a year ago. Our foreign exchange reserves dropped from $108 billion six months ago to $93 billion. Philippine inflation rose to over seven percent in September, its seventh month in a row.”
The banker continued: “Defending a currency is a tricky thing. It involves three things: One, credibility. Our leaders are trying to talk the peso up, but will not succeed unless the markets believe our government is doing what it needs to finally fix our economy.
“Two, having the ammunition to successfully intervene. The announced $10 billion budget (11 percent of our international reserves) may sound like a lot, but is not when faced with the power of the market.
“Three, an element of surprise. The BSP should not telegraph its intervention price nor the size of its war chest. Once these are known the market will position accordingly.”
If, after exhausting $10 billion the peso continues to slide because nothing has changed in the country’s economic fundamentals, what do we do?
Well, the BSP may impose capital controls, which is guaranteed to make foreign investors head for the exit, the locals panic, leading to a run on the currency. This fuels inflation, which just adds to the problem.
The Heneral Lunacy blog suggests that “the only way to halt a slide in the currency is to get the markets on our side. Once investors believe in our actions – not our words – the sentiment will quickly change.”
Honestly, we might as well throw in the towel. The first item in Heneral Lunacy’s to-do list is to stop corruption. I agree this is more powerful than a $10 billion war chest. But it’s impossible. Our government thrives on corruption. Only the certainty of the world coming to an end tomorrow may stop corruption… perhaps!
The other suggestion is sheer lunacy too. Realign the budget – The 2023 budget contains monies for, among others, an intelligence fund for the Office of the Vice-President (to establish provincial OVP offices) and the DepEd (to track criminals preying on the young). Is Sara building a state within a state?
“The DepEd needs money for the intelligence of our kids, not for that of the OVP, however lacking. Then there is some reported P370 billion in Lump Sum Appropriations, which is the politically correct term for Pork Barrel. The money saved could go to social amelioration.”
Junior cannot risk breaking his partnership with the Dutertes this early. What Sara wants, Sara will get.
This other suggestion is more reasonable and attainable. “Prioritize the low-hanging fruits while building for the future – In the short term we should go all in on dollar earners like tourism and OFWs where the benefits are immediate and the capital investments modest.
“This involves a unified approach by all the stakeholders – the hospitality industry, airlines, local and national government and our international outposts – targeting the Filipino diaspora and foreign travelers. We should upgrade OFW skills to address the world needs for mid-level workers e.g. in airport ground handling.”
But to make tourism shine, the guys in one of my e-groups think we need as tourism secretary, someone sophisticated, well experienced, well world traveled, very well educated, bon vivant, a strategic thinking, business leader - preferably someone who has also lived abroad for some time who knows the international tastes of the well-heeled travelers who are prime candidates of these top grossing travel spots.
In the end, Heneral Lunacy thinks the peso cannot be defended without addressing the underlying issues like focusing, aligning our fiscal and monetary policies, living in austerity and addressing gut concerns like corruption. These and not the peso is arguably what needs fixing.
In other words, we and our $10 billion are royally screwed. And Ben’s foot-in-mouth disease is only partly to blame.
Boo Chanco’s email address is bchanco@gmail.com. Follow him on Twitter @boochanco