Strong Peso Fails to
Benefit Consumers
A strong peso is
supposed to benefit consumers through lower prices of goods and services.
Why is this not the case at this point?
BY DANILO ARAÑA ARAO
Bulatlat
In the first quarter
of this year, President Gloria Macapagal-Arroyo stressed that the people
can benefit from a strong peso through lower prices of goods and services.
She even thanked last March 18 the government’s economic team and the
private sector “for working together to let the ordinary consumers feel
the benefits of a strong peso.”
Analyzing the yearly
average of the peso-dollar exchange rate from 2001 to the first semester
of 2006, there was a devaluation of the peso until 2004. From then on, the
peso strengthened to a level slightly above the 2001 peso-dollar exchange
rate. (See Table)
Theoretically, a
strong currency can affect domestic prices since the cost of importing raw
materials and even finished goods becomes lower. A strong peso, after all,
means that fewer pesos are needed in exchange for dollars, the universal
currency used in trading. For an import-dependent economy like the
Philippines, the current peso-dollar exchange rate should be a welcome
development for consumers.
Data from the
National Statistics Office (NSO), however, show that inflation has not
substantially gone down from 2002 to 2005 as a result of the strengthening
of the peso. From 6.8 percent, the average inflation rate decreased to 3.0
percent in the following year. However, the succeeding years saw the
average inflation rate rising to 3.4 percent (2003), 6.0 percent (2004)
and 7.6 percent (2005). The first six months of 2006 saw the inflation
rate slightly decreasing to 7.1 percent (January to June 2006).
This simply means
that despite the strengthening of the peso since 2004, prices of goods and
services in the Philippines still increased. Indeed, official data on
inflation rates show that there is no quantifiable basis for the
President’s claim that Filipinos are now benefiting from a strong peso.
For the month of June
2006, no less than the NSO admitted, “Tuition…hikes in many regions
including (the National Capital Region) along with the upward price
adjustments of school supplies, gasoline, diesel, medicines and selected
medical and health goods mainly contributed to the 0.7 percent growth in
the month-on-month inflation rate in June. Add-ons in the prices of LPG
and kerosene were also noted during the month.”
Why has there been no
substantial reduction in prices of goods and services in the past five
years?
As early as January
2006, Sen. Manuel Roxas, a former trade secretary, stressed, “The
government must be more assertive in both its policy and approach to (make
the) strong peso (result in) lower prices of basic commodities and
services.”
Untenable strong
peso
More than political
will, however, is the reality that in an export-oriented economy like the
Philippines, a strong peso is untenable. Filipino exporters, after all,
end up with reduced profits in a situation of a strong peso as the dollars
they earn in their trading activities are exchanged for fewer pesos. In
order to earn more, exporters definitely want a devalued local currency.
Not surprisingly, the
government acknowledged that exporters “have been complaining that they
are losing competitiveness due to the continuing appreciation of the
peso.” As a result, Macapagal-Arroyo as early as last March 18 asked
Finance Secretary Margarito Teves whom she described as an exponent of
market forces “to find ways to help ease the burden of exporters due to
the further strengthening of the peso.”
Since the
government’s major thrust is to strengthen the country’s export sector,
one could expect intervention from the Bangko Sentral ng Pilipinas (BSP)
to devalue the peso in the near future.
On the part of local
industrialists, they are apparently aware that the strong peso is only
temporary, hence their wariness in substantially reducing prices of their
goods and services, only to increase them once the peso is devalued. Of
course, their inherent profit greed must also be taken into account in
analyzing the current price levels of goods and services nationwide.
The government’s
outward-looking development strategy requires a devalued peso to encourage
more industrialists to go into export. Given this, the interest of
consumers in availing of lower prices definitely takes a backseat to the
need to provide exporters with more opportunities to earn. Bulatlat
Peso-Dollar Exchange
Rate |
Year
|
Yearly
Average |
Increase/
(Decrease) |
1995 |
25.7144 |
-- |
1996 |
26.2157 |
2% |
1997 |
29.4707 |
12% |
1998 |
40.8931 |
39% |
1999 |
39.0890 |
(4%) |
2000 |
44.1938 |
13% |
2001 |
50.9927 |
15% |
2002 |
51.6036 |
1% |
2003 |
54.2033 |
5% |
2004 |
56.0399 |
3% |
2005 |
55.0855 |
(2%) |
2006 a/ |
52.0494 |
(6%) |
Source: Bangko Sentral
ng Pilipinas
a/ from January to June only |
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