The Mighty Peso
Written by Major Tom
Filed under: The Economy
November 25, 2005
Could we finally say now about our local dinero as “The Mighty Peso” ? (Just like how we usually refer to the mighty greenbucks we always daydream about?) Has the time finally come to sing alleluias and hosannas to a rising economy or are we just embroiled once again into some cruel and surreal dream that makes us feel good while our eyes are closed and makes us writhe with misery the moment we wake into a callous reality?
A dream or a nightmare—We seem to have no inkling just as yet as we struggle now to grope with swinging emotions, like upon a rollercoaster ride. After months and months of repulsive news centering on our diabolic political scenario (e.g. fertilizer scam, Garci disappearance and reappearance) and rising fuel prices, we suddenly found ourselves reading the front pages of the dailies declaring the somewhat extraordinary rise of the peso lately. And not only that, we are just about to becoming accustomed to repeated rollbacks from the mighty oil companies, something that is surreal and good, but I bet something not permanent but simply an aberration, a beautiful aberration if I say. Parang nag-milagro lang ang mga oil companies. Nevertheless, the rising peso and the oil price rollbacks are a breather to our endless miseries.
A dream or a nightmare—It is but an undeniable fact that one of the best indicators of the health of a nation’s economy is the performance of its currency as pegged against the mighty dollar. When we see the dailies suddenly fretting in bold letters about the peso rising in value towards a certain level, then this must be an extraordinary rise, something that shouts “hey…our economy is growing, we should all be glad” . When the peso rises (in value), it only means that its viability has become more manifested and its strength has consolidated towards a comfort zone and confidence is high. A rising peso buys more and this probably why oil companies felt compelled to lower their prices as the peso buys more barrels of crude oil in dollar terms.
In the past, when the peso rises a little more than the ordinary, it becomes suspect immediately that the Bangko Sentral Ng Pilipinas is manipulating the market again, buying dollars by itself thus artificially propelling the value of the peso. But this time, no such suspicion has been hailed at the bank by the Manila Bay and this could be perhaps because of the fact that the main instigator of the rising peso is as obvious as daylight—and that is, the increasing remittances of dollars by our overseas workers which is projected to hit near 11 Billion Dollars by the end of the year. Truly, our compatriots working abroad now become truly our nation’s heroes, casting any doubt upon the myth.
Some sectors say that another main reason why the peso is ticking upward is investor confidence resulting from the enforcement of the new EVAT system, attracting more and more foreign capitals where more peso now is exchanged for dollars from outside, pushing forward the peso’s value as a result. For one thing, the EVAT is said to be aimed at reducing the nation’s budget deficit to zero levels in 2010. If this second factor (the new EVAT system) proves to be verifiable, then there should be more expectancy of peso rise in value by next year, when the new EVAT becomes fully implemented.
The only thing with the rising peso is the somewhat negative effect it has on our exporters where the dollars they earn would translate now into fewer pesos. Families of overseas workers would soon find out that their dollars now could only fetch as much pesos, unlike in the days when the peso was so much weaker. This circumstance seems to lead towards an irony–like a Catch-22 situation—where the sector (the overseas workers) that helped propelled the value of the peso would find themselves at the losing end…ha..ha..Quite ironic. But I guess it would be too myopic to sum-up the value of money by how much it is translated into other currencies. I believe the rising peso would help energize our economy as investor confidence would result into more economic activity and production, where at the bottomline is the resulting boost in job opportunities.
But let me pinch myself. The rising peso seems to be just a myth by now, until it could prove itself—like when its rise could continue towards most of next year. If not, then the rising peso is just a myth. Then we go back to our stinging reality.
ON EVAT : Too much bickering about the EVAT is to be expected. People aren’t too excited about giving any more to the government and that happens everywhere.
In Canada, the ruling Conservative govt imposed the 7% GST – Goods and Services Tax somewhat similar to EVAT sometime in the early 90’s. The plan was this – the 13% manufacturers tax being paid by manufacturers to the govt for every item they make was abolished and replaced by a 7% consumption tax levied on the public. This was a very unpopular move criticized by many as utterly pro-business, moving the tax burden from manufacturers to the public, which resulted in Conservative party winning a measly 2 seats in the next parliamentary elections. The loss was so devastating that the party wasn’t even qualified for official party status. The bold move turned into a major disaster of the party. The opposition made the abolition of GST as their campaign slogan and were successful but despite promises to rescind the tax, they never did or shall we say, they couldn’t.
The Conservatives never regained power ever since but today, Canada’s on its 2nd year of federal budget surplus, estimated to be about $12 this year prompting the Liberal ruling govt to declare tax cuts next year. The Conservatives claim credit for the surplus that if not for the GST and the NAFTA ( North American Free Trade) that they cut with the US and Mexico the Canada would not have succeeded in turning the deficit around in 10 years.
I guess the lesson is – taxes aren’t exactly as bad as they look because they can fill financial shortfalls where needed and will benefit the country in the long run. The 64 dollar question is whether the EVAT revenues will be used for what is meant to service and not going to pockets of unscrupulous politicians.
Comment by bw — November 25, 2005 @ 5:08 pm
correction.. $12Billion
Comment by bw — November 26, 2005 @ 5:32 am
My take, the sudden vitalization of our peso is temporary. It is externally induced by the influx of dollar remittances by our OFWs during the Christmas season and not by the EVAT as Gloria wanted us to believe. Watch for its eventual plunge comes the first quarter next year.
Comment by Sam — November 27, 2005 @ 7:41 am
To BW: Taxes seem to be the next thing that we can’t really avoid, like the sun. Elsewehere in the world I think, governments or ruling parties who are trigger happy in raising taxes are often punished by their voters so most of them, like the Republicans now in America tend to cut taxes in order to pacify their voters and remain power for that matter. In the Philippines, the public doesn’t seem to remember who are the people or politicians who have raised their taxes and added ‘miseries’ to their pockets.
Taxes indeed can be such a good thing if it is money well-spent. But if it goes down the drain, into the pockets of corrupt politicians, it becomes a heinous indiscretion, especially in a poor country like the Philippines.
Comment by Major Tom — November 28, 2005 @ 9:46 am
To Sam: I have the same apprehension too Sam although I am hoping I am wrong, because I really like our nation’s economy to grow and redound to a general well-being to the poor masses. But if the peso sputters in the early month of next year, the rising peso then is just a myth.
Comment by Major Tom — November 28, 2005 @ 9:48 am
This is the problem when a country’s economy is dependent on foreign remittances. Our GDP is high due to our unsung heroes, the OFW’s. Thanks to them, we are holding on. But investment problems will still haunt us considering that without local jobs, this currency seasonality so to speak will destroy the value of the Philippine Peso. I just do hope the EVAT will attract more investors and deliver more revenues for the government similar to what the Ads are saying
Comment by JP — November 28, 2005 @ 2:35 pm
That’s right JP. If for all the the bad reasons that EVAT now is imposed on us like a huge stone on our back, we just hope that it can live up to its promises, like a renewed investor confidence.
Comment by Major Tom — November 29, 2005 @ 5:38 am