North Luzon Monitor

North Luzon

Piso kong Mahal o Mura

JP Villanueva
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I woke up the other day to the news that the exchange rate of the Philippine Peso to the US Dollar has breached the P58 level. It was reposted by a Facebook friend with a caption saying to stay there until Friday. She hopes that the rate will still be at around the same level until the end of the week.

That Facebook friend works online for a foreign company. I understand where she is coming from with the exchange rate increasing. This is the same sentiment for most overseas Filipino workers around the world, because of course, the dollar that they or their family will be receiving will be converted to more Pesos. This would mean they could buy more from the money they will be receiving.

But is it all “hayahay so let’s all be merry” because of the increasing exchange rate of the Philippine Peso to the US Dollar? 

Actually, the one benefit that I can think of, if it is truly a benefit, is that the amount of remittance that families of OFWs and/or the compensation of online workers will be receiving will be much higher. This could increase their purchasing ability, but this may greatly be diminished by other factors reacting negatively to the increasing exchange rate.

Another benefit is on exports. The products that we export would appear to be cheaper for other countries to buy. They could see this as an incentive for them to buy more of our products. Service, in a stricter sense is also a good that is intangible. Therefore, foreign employers may want to employ more Filipino workers that will work remotely from their own homes. This would mean more employment for more Filipinos.

One more benefit is in the Tourism industry. A more affordable Peso would provide an incentive for Foreign tourists to come to the Philippines, making the country more attractive for them to visit. This would definitely boost the income in this industry.

On the other hand, it should be noted that the increase in the exchange rate is actually a decrease in the value of the Peso. This means that the Peso is becoming weaker compared to the US Dollar. So, why are economists alarmed with this?

The fall in the value of the Philippine Peso would result in a lot of negative issues in the more macroeconomic perspective, but would also affect the individual consumers or the general public.

First, the impact on imports. It is common knowledge that there are so many goods, from raw materials to final goods that are imported by the Philippines. When the value of the Peso falls, this would mean that we will be buying these goods at a higher price. 

Crude oil is one of the most imported products by our country. It is a raw material for many industries. If crude oil is bought at higher prices, the prices of petrol or gas will also increase. The cost of transporting goods from the warehouses to the retail market would also increase, thus prices of goods will also increase. This would directly impact the consumers.

Another is electricity. Since most of our electric power is generated by plants using coal. Most of the coal used is imported. Hence, if the value of the Peso falls, the price of buying coal will be higher, resulting in a higher cost of generating power, which would eventually lead to higher cost of electricity that will have to be paid by the consumers.

With these two imported products alone, it could drive the prices of goods and services in the economy to increase, resulting in inflation. When this happens, the purchasing power of consumers would greatly weaken, because their incomes do not increase as fast as the increase in the prices of goods and services in the economy. 

This could also be the same effect for families or households depending on remittances from abroad. While it is true that the amount they are receiving increased because of the weakening of the Peso, the fact still remains that their purchasing power will also fall because of the increased prices of goods and services that they would have to buy in the market.

There are other negative effects like business volatility and uncertainty. The increased cost of doing business may disincentivize or discourage existing and potential foreign investors in the country. The hard work that President Bongbong Marcos is exerting in going around the world inviting investors may only lead to nowhere.

Another negative effect is on paying foreign debts. It is again common knowledge that the Philippines is deep in debt with international banks and other foreign governments. Because of the weakening of the currency, this would mean that we would have to pay a higher amount in Pesos. As a result, this would decrease the amount that may be allocated to other government spending for infrastructure, public services (education and health), social services (4Ps), etc.

In as much as there are some sectors that are rejoicing in the increase in the exchange rate, the fact is that there are more negative effects of the weakening Philippine Peso against the US Dollar than the benefits that we get from it. I am sorry to burst your bubble or rain or your parade. It is what it is.

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