Peso to appreciate further this year

by Kathleen A. Martin,

Posted at Jan 02 2013 05:20 PM | Updated as of Jan 03 2013 01:20 AM

MANILA, Philippines - The Philippine peso is projected to remain firmer against the dollar as the country is expected to continue to see a surplus in its balance of payments (BoP), a central bank official said.

"In 2013, we still expect the balance of payments surplus to continue so there is a fundamental basis for the strength of the peso against the US dollar," Diwa C. Guinigundo, deputy governor at the Bangko Sentral ng Pilipinas (BSP), told ANC's Business Nightly Tuesday night.

The peso closed 2012 at P41.05 to $1, 6.36% up from its P43.84-to-$1 finish in 2011.

The BoP gives an overview of a country's transactions with the rest of the world. Components include remittances from Filipinos abroad, exports, imports, and foreign investments.

Latest BSP data showed the country saw a BoP surplus of $8.596 billion in the 11 months to November last year, 16% below the previous year's $10.293 billion but already above the 2012 target of $6.8 billion.

For this year, the BSP sees a BoP surplus of $3 billion.

A BoP surplus means that more funds flowed into a country than went out, providing a cushion against external volatilities, while the reverse--a deficit--means the country has less resources to settle external obligations.

Despite concerns raised by exporters, families dependent on remittances, and the business process outsourcing (BPO) industry, Guinigundo said a strong peso also has advantages.

For one, "it has allowed us to manage inflation quite well," the BSP official said.

Moreover, it helps businessmen cope with higher prices of raw materials and intermediate products as imported commodities cost cheaper, he pointed out.

For his part, Ramon R. del Rosario Jr., chairman of the Makati Business Club, noted the central bank has implemented measures in curbing speculative capital flows as these funds greatly impact on foreign exchange trading.

"The Bangko Sentral has been doing a first-class job in terms of managing our monetary system and doing what it needs to do to temper the ups and downs of the [capital] flows so that we do not expose ourselves to extreme volatility," del Rosario told ANC's Business Nightly.

"There's only certain things we can do and part of the price of success is the strong peso. As already pointed out, there are winners and there are losers... The BPOs are concerned and the exports sector is very clearly so," he continued.

The strong peso is affecting the BPO industry in the Philippines. Around 40% of the members of the Business Processing Association of the Philippines have cancelled expansion plans and an equal number reported losing business to other destinations because of the strong peso.