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Govt clueless on peso's drift
(The Manila Times Via Acquire Media NewsEdge) Jul. 7--ECONOMIC managers expressed differing views on where the peso is headed for the rest of the year, with the Bangko Sentral ng Pilipinas (BSP) optimistic about an improvement but the Department of Finance seeing the government's widening fiscal gap dampening the local currency.
Last week, the Philippine unit was slipping halfway towards the 46-to-a-dollar level, on growing risk aversion and higher-than-expected inflation. Economic managers project the peso's value to range from 42 to 45 for every dollar this year.
Despite last week's peso rout, BSP Gov. Amando Tetangco Jr. said the local currency will improve in the fourth quarter, citing the seasonal inflows of overseas Filipino worker (OFW) remittances during the latter part of the year.
"We expect the peso to find support later this year. Our expectation is for a still positive, albeit smaller, BOP surplus," he said, referring to the balance of payments, a summary of the country's economic transactions with the rest of the world.
"This should help the peso gain back some ground for the balance of the year. Traditionally, the last quarter of the year has produced peso strength, given [OFW] remittances," he added.
Remittances sent through banks are expected to hit $16.4 billion this year, higher than the earlier projection of $15.9 billion, due to the continued rise in the number of deployed Filipino workers.
The BSP projected the country's BOP surplus however would ease to $2.5 billion, lower than the earlier forecast of $3.4 billion.
Tetangco said the recent depreciation of the peso is largely due to corporate and banks' demand.
"There is always some amount of positioning by banks and other market participants when there are changes in the operating environment, such as what is occurring right now. Would I call that speculation? Not necessarily. Banks have been reporting corporate demand and maturities for their recent dollar purchases," Tetangco said.
Separately, Finance Secretary Margarito Teves said the government's likely budget deficit would contribute to the peso's further weakening.
During a radio interview, he said the two main tax agencies have to improve their collections this year, adding a wide deficit will have an impact on the local currency.
The peso, which is Asia's second worst performing currency, would have fallen deeper without the BSP's heavy interventions in recent trading sessions.
Since January this year, the local currency has depreciated by almost 10 percent, reversing last year's gains.
Teves said the continuing price increases mean the government would require more funds for its social projects.
He said the government is willing to reach the limit of its official development assistance program to support the struggling local currency.
Teves said the government plans to tap up to $900 million in project loans from the World Bank and Asian Development Bank to prop up the peso.
"By borrowing or accelerating the availment of our program loans might help to strengthen the peso because we're adding more foreign exchange," he told reporters. "The question that we need to ask is, how do you arrest the decline in the peso? That's why one of the measures is to try to determine whether we can accelerate the availment of these program loans," he said.
"Acceleration could be third quarter, but I'm not prepared to say when and what particular account until we're able to review these accounts one by one," he added.
-- With Chino S. Leyco
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