Danger signals

Reports say that the Philippine gross international reserves (GIR) remained high at 32.4 billion US dollars at the end of October. Central Bank governor Amando Tetangco Jr. attributed this high GIR to the central bank’s dollar purchases amid strong inflows from OFW remittances. BSP expects about US$ 14.7 billion in OFW remittances by the end of 2007. The monies being sent by over 8 million OFWs is one of the contributory factors of the strong performance of the peso against the US dollar. Currently trading at 43.60 against the weak dollar, the peso is the second best performing Asian currency.

BSP intervention: keeping the peso at bay

The BSP’s intervention in the forex market is the second or third time the monetary authority intervened. For the 5th straight month, Philippine money supply flowed to 11.4 percent due to BSP dipping its hands into the cookie jar. Government hopes that a strong peso would slow down inflation. Reports indicate a reverse. Inflation remains high at 2.86 percent, higher than the 2.8 expected inflation rate.

Balance of Trade

Government figures place the balance at a negative US$ 867 million due to a slowdown in export earnings (US$ 4.10 billion) compared with the entry of imports (US$ 4.97b). Ths is the sixth or seventh straight time that trade imbalances nearly near a billion dollars.

Slowdown of FDI’s

Analysts are worried on the continuing drop of net foreign direct investment (FDI) dipped to US$77 million last August, down by 80 percent from a year ago and nearly 82 percent from July. Net FDI’s amounted to US$ 387 million in August and just US$ 419 million in July of this year. Aside from fears of a further slowdown of the US economy, investors are worried about the high power costs and decrepit infrastructure in the Philippines. The country lags behind Indonesia, China and Singapore in attracting foreign investments.

The slowdown of FDI has reflected in the performance of the stock market. Today, the stock market fell 0.3% over fears of continued US economic slowdown. This is not unusual considering that the regional markets reacted the same way.

Danger signals

The implications of a strong peso must not be glossed over. This early, government is concerned over the impact of the strong peso in the lives of OFW families. More on this later.