DU30 is already one year in office and on Monday (July 24) he will deliver his second state of the nation address (SONA). The fundamental question on the economic front is, is the country better off now than before Du30 assumed the presidency?
The answer to the question is bad news to Filipinos. The Philippine economy faces a gloomy outlook as revealed by current economic data.
The value of Philippine peso relative to the US dollar is at its lowest in decades. The latest exchange rate is now one US dollar is equivalent to 50.940 pesos. Just a year ago the exchange rate was between 45 to 46 pesos. Today, the peso is the weakest currency in the region. The 5 to 6 pesos drop of the country’s currency in a year is very steep.
Economic managers of the administration are quick to emphasize the positive aspects of the sharp decline of the value of the peso. They said this benefits Overseas Contract Workers (OCWs) and their families for this will considerably increase their income. Philippine exports are also favored by a weak peso for it makes them cheaper, thus attractive to foreign buyers.
Du30’s economic team forgot that there are also losers in the volatility of the exchange rate and the negative impact far outweighs the positive. The country imports most of its needs, from petroleum to industrial raw materials to canned goods and even candies. The country’s imports are paid in US dollars. Depreciation of the peso means the country has to raise more money to pay for its imports.
If last year, the country needs 45 pesos to pay one dollar worth of imports, now it needs 51 pesos to pay for the same. The country imports billions of pesos worth of goods and the depreciation of the peso will place a severe strain on the country’s dollar reserves.
Data from the Bangko Sentral ng Pilipinas (BSP) show that the foreign reserves of the country hit a 4-month low of $ 81.41 billion in June. The drop in gross international reserves (GIR) was attributed to “outflows arising from BSP’s foreign exchange operations, payments made the national government for its maturing foreign exchange obligations and revaluation adjustments on BSP’s gold holding resulting from decrease in the price of gold in the international market.”
BSP figures also reveal that the country’s balance-of-payment (BOP) in June widened to $569 million, nine times bigger than last year’s $59 million for the same period. Bigger BOP means more dollars left the country than came in. BSP Deputy Governor Diwa Guinigundo said the BOP deficit is due to the weakening of the peso.
But the most painful effect of the weakening of the peso is the increase in the prices of goods and services. Since imported raw materials and petroleum are now more expensive, the course of action of manufacturers is to pass on the cost to consumers. It is much easier to expect rain to fall on the Sahara than for manufacturers to shoulder the high cost of importation. Ordinary Filipinos will carry the burden, drastically reducing the value of their income. Belt tightening is the only option for most Filipinos, if they still have any belt to tighten.
Filipinos with dollar income cannot be happy with the situation since whatever increase they get from the higher yield of their dollar is cancelled out by price increase of goods and services. It is worst for those who do not receive any dollar from abroad.
The other serious effect of peso decline is the dramatic increase of the foreign debt of the country. At present the foreign debt of the Philippines is $ 123 billion. Weak peso means more pesos are needed to service this gargantuan foreign debt. This is already one of the explanations given by the BSP for the dip in the country’s GIR.
Debt servicing will eat up a huge portion of the national budget leaving crumbs to other areas of national budget. Based on past experience, the most likely to suffer is government spending on health, education and social services.
But this is just the beginning of hell for Filipinos. BPI Securities research head Haj Narvaez said that the peso could further fall to 52.50 against the US dollar by the end of the year. He also projects that in two years, the exchange rate could reach 56 pesos. Just the imagine the economic hardship and torment it will bring to the country once the exchange rate breaks beyond 55 pesos. Filipinos are not only facing a gloomy future but a scary and catastrophic one.
One of the major reasons for the free fall of the peso and the depressing economic prospect of the country is the erratic behavior of Du30. His verbal diarrhea unnerves prospective investors and his vulgar and rude attacks on the European Union and the United States poured oil to the fire. Things are made worst by his martial law declaration in Mindanao which also spooked investors. The Board of Investments (BOI) reported that investments pledges in Mindanao fell by 63 percent from January to June this year.
Du30’s obsession with his war on illegal drugs leads to his gross neglect of the country’s economy. He has not delivered a major economic speech and his economic managers are left to explain and discuss his vogue and hazy economic thought. Du30 is so lazy to come up with his own economic vision that he ended up copying and continuing the economic policies of the previous administration. His 10-point economic agenda unveiled in the early months of his administration did not depart from PNoy’s economic program and appears to be its duplicate.
In his SONA tomorrow, will Du30 talk about the economy and address the impending economic gloom or he will again ignore the economy and instead focus on maligning people, cursing and spewing foul and dirty language? If talking dirty is Du30’s only way of handling the economy, Philippines is doomed.
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