Saturday, January 12, 2008

The Philippine Peso - Asia's Rising Super Star

By Zigfred Diaz

Sometime last year, I told my dad to dump all his dollars, exchange it for peso and put it in mutual funds.This was the time when the United States dollar to Philippine Peso Exchange rate was still P44+ to a dollar.

I am not certain if my dad listened to my advice, However the exchange rate is now about P 40.00 to a dollar.

More conservative experts say the exchange rate will be P 39 to a dollar by 2008. However other experts give the fearless forecast of 37 to 1 by the 1st quarter of 2008. Most of them would agree that it would stay in the P 30 +++ level by the year 2009. Some say it will be above 35 while others say it could be less than that.

However it is certain that the Philippine Peso will keep on getting stronger in the months to come mainly because of the following reasons:

1.) The law of supply and demand - When demand is high prices goes up and when demand is low prices go down. The more supply of dollars there is, the cheaper it will be. The less demand of dollar there is, the price for getting dollars goes down also. And why is the supply of U.S dollars rising in our country? Consider this:

a.) Increase in remittances sent by Overseas Foreign workers (OFW) -About eight million Filipinos, out of a population of more than 80 million, have left the country to work in other coutnries. There is an estimated 11 million Filipinos worldwide. As the number of Filipinos leaving the country for work increases, so does their remittances. This futher aids in making the Philippine Peso stronger.

b.) Inflow of Foreign capital - The Philippines is ripe for investment. The Bangko Central has reported that from January-September 2007, "foreign direct investments (FDI) net inflows aggregated US$1.9 billion, higher by 22.3 percent compared to the US$1.6 billion recorded in the same period a year ago." Investors are now looking at the Philippines as a good place to invest because of several factors, among which are, effective Fiscal reforms implemented by the government, strong economic fundamentals, our growing business process outsourcing potential and liberalization of mining laws. A substantial portion of foreign investments went to mining, real estate and manufacturing. The effect of this is bullish stock market, low inflation rate, high GDP etc. These factors continue to produce a good business environment for investors as this trend continues more investors are expected to come in. With this "hot money" continuing to pour into our country, the supply of dollar continues to rise.

c.) Tourist spending - According to reports Tourist arrival rose 8.6 percent from a year earlier. This means an additional 2.5 million tourists. The money tourists spend in the country helps push higher the supply of U.S dollars in the country.

d.) Export earnings - Exports has also grown despite the appreciation of the Peso. However the growth in this sector is led by Business Process Outsourcing business and not the traditional business. The Philippines remain to be one of the favorites when it comes to Business Process outsourcing.

e.) Political stability - People are tired of political bickering, political mudslinging and engaging in activities that call for the resignation of the president. It cannot be denied that the existing administration has maintained its grip and influence creating a somewhat stable political environment.

2.) Weakness of the U.S dollar - The Philippine Peso benefited from the weakness of the U.S dollar. Because of the sub prime mortgage crises, the U.S economy has continued to deteriorate resulting to a weaker dollar. Thus giving a chance for the Philippine Peso to appreciate much even further.

Since it started to get stronger, the Philippine peso appreciated 18 % against the U.S dollar. This resulted to the Peso being named as the best performing currency in Asia last 2007. In the months or years to come, expect that the trend of a stronger peso will continue.

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