Sections I2D2-Debt & Development The Filipino Version of the “Irrational Exuberance”?
| The Filipino Version of the “Irrational Exuberance”? |
Many Filipino consumers, including Overseas Filipinos, cannot really understand the exuberance of the top economists, financial experts and whiz kids of the Philippine government over the appreciation of the Philippine peso vis à vi the US dollar. Is this the Filipino version of Alan Greenspan’s “irrational exuberance”?
"Irrational exuberance" was a phrase used by former Federal Reserve Board Chairman Alan Greenspan in a speech given at the American Enterprise Institute at the height of the stock-market boom in the 1990s. The phrase was interpreted by financial pundits as a typically cryptic warning that the market might be overvalued.
Peso Revaluation: Speculation or Manipulation?
If the Philippine peso is that strong a currency, then it should be revalued because of its strength and not because the American currency is weak. However, everybody knows that the Philippine peso is weak if compared to the currencies of its neighboring countries. In fact, no money-exchange store in all parts of the world would accept the Philippine pesos for conversion into other currencies such as the American, Canadian, Hong Kong or Singapore dollar, etceteras, etc. If it remains a currency that is not convertible in the open market, then why is it abnormally strong?
The Filipino consumers do not really understand the exuberance because the prices (in pesos) of commodities continue to go up. Is the peso revaluation a product then of speculation or manipulation?
Is it a case of too many dollars (principally caused by the remittances of the Overseas-Filipino workers and residents abroad) chasing too few pesos? The Philippine government has been known to overprint the local currency. In fact, one of the best-kept secrets in the Philippines is nobody can really tell the truth about the money supply in the country.
In the United States, the most-common measure of the money supply is known as M2. The M2 money stock includes currency, coins and traveler’s checks held by the public; balances in commercial bank checking accounts; balances at credit unions; savings accounts and certificates of deposit accounts less than $100,000; overnight repurchase agreements at commercial banks; and non-institutional money-market accounts.
A broader measure of the money supply, the MZM money stock includes all of the components of M2 mentioned before, plus institutional money-market accounts and greater-than-one-day repurchase agreements.
So, what is the relevance of the (Philippine) money supply? The monetary system in the Philippines is governed by fundamental economic factors as in the United States. Like when the money supply increases, short-term interest rates tend to decline. When the money supply decreases, short-term rates tend to rise. So, why are short-term and long-term interest rates continue to be high in the Philippines and they are not affected at all by the country’s prevailing money supply?
This writer wrote earlier this article, The “Strong” Philippine Peso Is a Temporary, If Not a Manipulated, Mirage. I mentioned also in it that the real-estate market in the Philippines is grossly overvalued. Philippine property values may be like water that will seek the lower, if not the lowest, level. Moreover, God forbid if the Global-Warming scenario happens, then really property values in the low-lying areas of the Philippines like the Metropolitan Manila area would really be under water (pun intended). Then the whole market – be it real estate, stock or financial – will no longer exude exuberance at all. # # #
http://www.bworldonline.com/BW011508/content.php?id=023
THE PESO barely moved yesterday in the absence of demand on both sides.
It firmed to P40.55 per dollar, its highest for the day and five-centavos stronger than P40.60 on Friday.
The peso, which rose last week to its highest level in almost eight years, has gained 1.8% so far this year. Asia's top performing currency last year, it is mainly driven higher by remittances sent home by millions of Filipinos working overseas.
"The peso could continue to benefit from the acceleration in the pace of yuan appreciation," UBS analysts said in a note.
A currency dealer said trading was thin since there was not much demand for dollars locally or overseas.
Another trader said the central bank had supported the dollar yesterday. Last week, most central banks supported the dollar to tame the volatility of fast-rising Asian currencies.
The peso went as low as P40.63. Volume of traded dollars dollars went down to $407 million from $709 million.
The peso is expected to test a new support level of P40.05 this week.
A third trader said the new support level is tough to achieve following the local currency's technical correction last week.
The market, the trader said, is also awaiting the US Federal Reserve decision on interest rates at the end of the month.
Analysts are generally optimistic about the appreciation of the peso against the greenback.
Norman Villamin, head of the research and strategy department of Citigroup, said the peso is expected to reach P38 per dollar this year.
Bank of the Philippine Islands President Aurelio Montinola said the local currency is expected to appreciate by 5% to 8% percent against the dollar this year.
Last week, Asian currencies ended mostly higher against the dollar on expectations that the Federal Reserve will further trim interest rates amid lingering fears over a recession in the US economy.
The yen rose against the dollar towards the weekend, amid apprehensions about the US economy due to the financial crisis stemming from subprime mortgage loans.
The Japanese currency stood at ¥108.93 to ¥108.95 to the dollar at the end of daytime trading in Tokyo after touching the week's high of ¥108.64 on Friday, compared with ¥109.26 to 109.28 to the greenback a week earlier.
Meanwhile, the Chinese yuan hit another peak on Monday while optimism after a weekend election boosted the Taiwan dollar to a one-month high,
but other Asian currencies were trapped in tight ranges amid jitters about the US economy.
The yuan, guided by a stronger pre-trading daily fixing by the central bank, hit a post-revaluation high at 7.2514 per dollar.
The yuan is widely expected to gain 7% to 9% against the dollar this year compared with 6.9% in 2007 as Beijing tries to quell inflation, providing support for its regional peers who use it as a bellwether for
exports.
The Thai baht was flat at 33.12 per dollar.
The baht has gained 1.7% so far this year, trailing only the peso, reflecting hopes that an election in December will lead to the formation of a new government that will pursue pro-growth policies.
Bank of Thailand Governor Tarisa Watanagase said on Monday that the currency remained competitive with other Asian currencies.
MSCI's measure of Asia Pacific stock performance excluding Japan edged down 0.5% on Monday, after a slide in US stocks on Friday on fears that the worst from the subprime crisis was yet to come.
Citigroup could make as much as $24 billion in write-downs and lay off 20,000 workers as part of a plan to cut costs and boost capital, CNBC said on its Website in a report dated on Sunday.
From a posting in the
By Gil C. Cabacungan Jr.
Philippine Daily Inquirer
First Posted 21:47:00 02/03/2008
MANILA --The country’s high economic growth in 2007 was “meaningless” because it did not result in more jobs and income for Filipinos, two opposition senators said on Sunday.
Sen. Francis Escudero said that although the gross domestic product (GDP) grew 7.3 percent in 2007, the highest in more than three decades, one of every four Filipino workers was either unemployed or underemployed.
Sen. Loren Legarda said there was nothing to crow about the high GDP growth if the country had the third highest jobless rate in Asia, behind only Indonesia and India.
Legarda said the real challenge for the government was to “translate these rosy fiscal and monetary statistics into something that will actually alleviate the plight of majority of the Filipinos.”
Escudero warned that this “jobless growth” could leave a majority of Filipinos out of the “growing fortunes being propagandized by the government.”’
“This is not to belittle the GDP growth last year, but there seems to be a disconnect between impressive economic numbers and depressing realities on the ground,” he said in a statement.
“Yes, the people are feeling the economic growth—they feel it in their poverty, their hunger, their joblessness,” he said.
With 8.75 million Filipinos either unemployed or underemployed, the lack of job opportunities in the country, and not the government’s policies, has driven Filipinos to leave their families behind to try their luck abroad, according to Escudero.
“The remittances of these economic refugees have triggered the consumption spending, which, in turn, stimulated the economy but which the administration now unabashedly claims credit for,” he said.
Escudero said that for economic growth to have meaning, it should translate to more jobs, food and houses for the people. Economic fortunes should be spread to all and not to just a few members of
society, he said.
“If we have pockets of prosperity amid large cavities of poverty then this is growth without equity,” he said.
Legarda said that if the government could not create jobs for its citizens, it should make sure that Filipino jobseekers were directed to the best jobs abroad.
She said the government should protect the overseas Filipino workers from abuses and uphold their rights and dignity.
Copyright 2008 Philippine Daily Inquirer. All rights reserved.
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