Strong US dollar good news for OFWs, but not for PH economy and elsewhere
Filipino nurse Joan Tecson, who hails from Bulacan, has been working at a United States multi-specialty hospital in Austin, Texas since 2017, earning $37 (P2,100) per hour.
At the start of the year, Tecson’s salary would be worth P301,920 a month. At today’s exchange rates, with the peso touching P59 to $1, her salary's value has ballooned to P349,280 or an additional P47,360 a month.
“Since nakarating ako dito (sa U.S.), napagawan ko na sina Mommy ng bahay,” she told PhilSTAR L!fe. “Noong andiyan ako (sa Pilipinas), wala akong naipon.”
But even if her family is in a relatively more comfortable financial situation now, Tecson says they're not spared from the effects of inflation.
“Masarap isipin para sa aming mga OFW na mas malaki ang conversion ng pinadadala namin,” Tecson said. “Pero tumataas din ang mga bilihin sa Pilipinas… Mas apektado ang mga tao diyan.”
The Philippine peso closed at a record-low P59.00 against the U.S. dollar on Oct. 3. Monday's close was lower than the previous record of P58.98 on Sept. 28. It has already weakened by 15.64% from its 51:1 close on Dec. 31, 2021.
Local economists noted that inflation has forced central banks worldwide to hike interest rates, meaning higher borrowing costs.
“Higher interest rates are thought to reduce economic activity and demand,” Renato Reside, associate professor at the University of the Philippines School of Economics, told PhilSTAR L!fe. “The resulting reduction in demand for goods and services then lowers pressure on prices, hopefully creating a situation where inflation expectations get more firmly anchored, and don’t go further up.”
“In a possible slowdown in economic activity, investors normally demand assets that are considered foolproof or risk-free,” Carlo Asuncion, chief economist at UnionBank, told PhilSTAR L!fe. “At this point, the U.S. dollar is it.”
As investors place their money into the U.S. and pull them out of other countries, the value of the dollar increases. Subsequently, the value of other currencies decreases, not only the Philippine peso but also other major ones like the British pound, which reached a 1:1 exchange rate with the dollar last June for the first time since 2002.
While the recent higher exchange rate appears to be favorable for overseas Filipino workers like Tecson—as well as local dollar earners like freelancers, exporters, and BPO (business process outsourcing) companies—economists stress that it actually does more harm than good to the Philippine economy.
“Any advantage may be offset by higher prices,” Michael Ricafort, chief economist at Rizal Commercial Banking Corp., told PhilSTAR L!fe, emphasizing the country’s high headline inflation.
Ricafort cited as an example another round of fare increase in public utility vehicles starting Oct. 3, which he said, among other things, will have a delayed negative impact on the economy. He also highlighted the perennial problem of the Philippines being heavily dependent on imports instead of exports, depreciating the peso even further.
Figures from the Department of Energy (DOE) show that in January 2022, the average price of diesel was P43.94/L. In July 2022, the average price ballooned to P87.31/L. This increase of P43.37/L shows that in some areas in the Philippines, diesel pretty much doubled in price.
Reside said the local rate hike can only do so much since the growing interest differential only makes the U.S. dollar more alluring to investors, as they’re assured of better returns.
“People will want to hold assets perceived as safest in times of uncertainty,” he said. “Until these conditions change, the peso might continue to be weak.”
While it remains speculative at the moment, Reside and Asuncion don’t discount the possibility of the peso surpassing P60.00 per dollar any time soon.
In order to cushion the blow of the strong dollar, Reside said that while the Bangko Sentral ng Pilipinas may continue to raise interest rates accordingly, the government must also work on attracting more investors by reducing the cost of investment and capital in other ways, like reducing regulatory and political risks. Public expenditures must also be rationalized to avoid a situation where debt is monetized.
In the long run, Reside said productivity in the economy must also be improved through investment in infrastructure, education, worker training, and upskilling.
“Ensure sufficient supplies of food and energy goods moving forward. Ensure channels for trade remain free and open. Consider joining trade groupings that lower the cost of imports,” he added.
Asuncion said the government must also monitor vulnerable basic products and protect supplies so as not to further aggravate inflationary tendencies.
In this Feb. 16 photo, vendors from Marikina City Public Market sell their produce. Walter Bollozos/The Philippine STAR
For Ricafort, the government must intervene more in the local foreign exchange markets, siphoning off more pesos from the financial system to reduce dollar costs. The country must also shift to more renewable power resources like solar, wind, and hydro so as to reduce reliance on energy imports.
“Work hard and be productive. Build up household savings. Save on power and other energy consumption,” Reside said.
In the meantime, Asuncion is urging the public, in general, to live within one’s means amid the economic turmoil.
“If an additional source of income becomes available, one should take advantage accordingly,” he said. “Being sober and informed of the situation is also a good thing to know what to do next.”