Remember, a while back I speculated that the worst of the US Dollar/Philippine Peso exchange had already passed? I mean, I felt like the Dollar had already bottomed out. I wrote that piece back in May, and indeed, the Dollar has been steadily gaining since that time. These days, the Dollar is standing between 44.5 to the Peso and up to nearly 45 already.
I got a little backup from a major financial source this week. Bloomberg Financial News is reporting that HSBC Bank is now projecting that the Peso could stand at P52:$1 by the second quarter of 2009. Before coming out with this latest projection, HSBC had predicted that the Peso would be at P42.80:$1 at that time, so this is a major turn-around in HSBC’s forecast.
What is happening to turn HSBC around like this? Well, a number of financial factors are at play. Firstly, the Philippine economy is changing drastically compared to where it was a year ago. At that time, the national budget was very close to being balanced. Now, the government has basically tossed the goal of balancing the budget aside, mostly because of things like the food crisis and the oil crisis that the world is facing.
HSBC is reporting that since the beginning of 2008, the Peso has lost 7.5% against the US Dollar, and they are projecting further losses amounting to another 14% in the next year. The Peso has gone from being the best performing Asian currency to being the second worst performing currency in Asia in May. That’s a huge turn-around.
For me, I would welcome a turn-around of this magnitude. Seeing the Dollar buying 52 Pesos on the horizon would be very good for me, and for other American ex-pats living here, or planning to. Many will argue that this will be terrible for poor Filipinos, but actually there is a good side for them too. The strong Peso has devastated the export industry here in the Philippines, and a weakening Peso will help them, and provide more jobs for Filipinos too. In addition, this would be very good news for families of Overseas Filipino Workers. The weaker the Peso is, the more Pesos they get for every dollar that their OFW family member remits per month. Many of these people have been suffering over the past year or two as the Peso has continued to strengthen.
I will personally be a little surprised if the Dollar strengthens this much in only a year, but if it does, I will be happy to see it. I, personally would project more like a P48:$1 rate a year from now. We’ll see.
What do you think?
maayongbuntag bob
i know from personal experience that the exchange rate going up is a great thing for me as well.with all the expences increasing in philippines i really dont understand how most filipino can even eat let alone have a prosperious life.to be totally honest here in usa everything is getting out of control.why is it that everything increases exept our paychecks??how do we find a happy medium or a balance in the economy?it really makes me wonder what the next 10 years will bring to our economy.
salamat bob
Bob, I hope it does like you say. every little bit helps. I got my wife a tax ID number in the US so I could claim her on my income tax. It gave me another 3000 back from the feds but I didn't qualify for a stimulus check because she didn't have a social security number. I think your running a good business also Bob take care.
Hi Ron W. — the way the economy's been going I can certainly understand what you're saying. Like you said everything goes up except the paycheck! Well, what the exchange rate getting better, that is kind of like an increase in the paycheck to!
Hi John — to bet on that stimulus check! But it is she got a nice refund. 😆
hello bob
wow your right about the increse in paycheck with exchange rate.i didnt think if that
salamat bob 😯
I thin, Bob, that you thoughts on the balanced budget issue are likelyvery close to the truth. It's sad that many of my American freinds don't see the reason that the dollar is so weak all around the world as well. 8 years ago the US had a huge budget surplus, houses were worth a fortune, jobs were asy to get and gas was *(relatively) cheap.
Today the country runs a huge deficit, housing prices have literally tumbled, jobs are hard to come by and often low-pay and gas? Weell, 'nuf said.
Wonder why the connection between the balanced budget and the quality of life is so hard to see? Certainly anyone who ever let their personal finances get in disrepair … spending more than thye made … buying a house with payments they couldn't afford, etc., knows _exactly_ what happens when you don't mange things to live wihtin your means.
I find it amazing that John Q. Public and Juan de la Cruz both can't see the fallacy of letting a government violate themostbasic laws of fiscal responsibility.
Hi Dave Starr – Yep, running a tight fiscal ship always has it's benefits! No doubt on that one.
Hi Ron W – Ha ha… the paycheck gets bigger for those of us who live here, or who send money here! I can see a little bit of increase in the paycheck already, I just hope we all get a big raise by seeing that P52:$1 rate in the coming months! 😆
Morning Bob
I like to see the exchange rate getting better but I wish it was getting better due to a strong dollar and not a weak peso. I am concerned that the weak peso will cause more inflation in the RP. With gas, rice, and other products trading on the open market these products will increase in cost as the peso goes down in value. Also banks and large corporations that borrow dollars for investing the RP will be in trouble since they are trying to pay the interest on these loans with pesos that are not worth as much.
Hi Larry — thanks for stopping by and leaving your comment. I do agree that there are downsides as well as upsides to the weakening peso. However, overall I think it's a net plus, especially for ex-pats.
Hi Bob
I think it is a net negative in my opinion if it drops that much so fast. Yes families with ofw's (still only 10% of the population) and all the ex-pats who derive their income from their home countries will benefit greatly from this. I think the downsides are more, even higher inflation maybe even instability from the likes of high oil and rice imports. All you have to look is at the transportation sector like the jeepneys, some who are asking for a 3 peso hike or the taxis who want a 10 peso hike per ride. Then the external debt by the national government will cost a lot more to service and make a balance budget tougher (most banks want the government to have a budget deficit to help with these difficult times and spend it on things like infrastructure (as long as it does not go to corruption). The Philippines even with the weaker peso cant compete with places like Vietnam or Cambodia which are seen as the alternatives to China. One thing that a weaker peso will help are the call centers though.
Hello Bob,
I am not so sure that upside for expats would last that long, as the price food,petrol and transport will go up on top off what is happening now with the price of oil, which is not likely to drop much if at all in the future. This also can destablise governments which is not anyone wants. I know that Filippinos are already suffering as I have seen it on the news here in Australia.
The thing is the rich and not so rich can usually ride these economic down turns out, the poor cannot especially where the government do do not provide unemployment payments or any other finanical support. The will start to get desperate, so crime will go up, corruption gets worse. Then governments start making decisions to protect themselves, so things like freedom speech is stopped, the police and military are given extra powers, all of which the Philippines has been through before and I sure they do not want again. Because nobody wins exept the power hungry, e.g: look at Burma or ZimbadwaY. I would not like to be any government today as a lot of very hard decisions are going to have be made for their countries future.
Personally I would like to line all of those people in Wall street who caused this economic down and anybody esle involved to be put in big camp and let the people who have lost their houses and jobs at them.
This all worse case scenerio stuff,but history shows that this happens all the time, just look at Germany and Russia.
Have a good day
Steven
Hi Bob! I am going to be a little bit selfish and say that I will be glad if the dollar gets stronger. Of course, I know that it's going to be partly detrimental to the Philippine economy. But you are right, it does increase one of my profit centers 🙂
Hi Bob. My thesis will be that there will be not much movement with the peso/dollar exchange until the price of oil goes down or stabilizes.
I'm afraid oil and other raw materials will continue to go up in prices. North Korea has just opened up. That's a whole country just all of a sudden in the market to buy the same stuff we all need with Uncle Sam footing the bill of course. That's another crates and crates of dollar bills in the market.
The dollar will only strengthen when oil price goes down or when the U.S. no longer needs a lot of oil (electric cars). That will be three to five years down the road. Hopefully the U.S. Mint will stop printing dollars for a while then.
Hi Neil- OFW's comprise a lot more than 10% of the population. The population of the Philippines is about 90 Million now, and the population of OFW's is well into the double digits (millions wise). Figure that each of them supports a family of 4 or 5 people, and you're talking half of the population of the country! 😀
Hi Steven – Certainly nobody wants the government to be destabilized, but the strong peso threatened to do the same thing. All exporting businesses were put into a tight position by that. I feel that the weakening is only nature getting back into balance where it should have been all along.
I agree that the people on Wall Street caused a lot of harm with the sub-prime mess, but people who signed up for mortgages that they could not afford (and they knew they could not) had just as much blame in the situation.
Anyway, no doubt that the world wide economy is really in the trash heap, but all we can do is to ride it out at this point.
Hi Cathy – I certainly understand that we all wish for what is best for us, and for others that we are close to. No doubt on that, and I don't blame you for that either.
Hi Dr. Long – The price of oil has been high for the past year or more, yet we are already seeing vast swings in the Peso/Dollar exchange, so I don't think it can be argued that no changes will be seen until the oil price stabilizes. The swings are already in play. The Peso has lost 10% of it's value this year alone, after gaining about 30% in the past year and a half. I think that we are in for some wild rides over the coming months in the Forex markets.
Just my opinion, and as always, YMMV. 😆
Hi Bob
I always thought that ofws numbered between 8-9 million but that does not include Filipinos who are citizens of other countries who also send money back home. It should also be noted that with all the money being sent home that it has helped the balance of payments and keeps the peso rather steady because the Philippines is running a trade deficit. I think one thing that is also very important is that with a weakening peso against the dollar (dollar is still weakening against many other currencies) and high prices for commodities that will lead to high inflation closing in on 10-11% where if you keep your money in the bank (in the Philippines) the highest you can get is around 6.5%. This will lead to many problems as well. Last year the inflation was very low in part to the strengthening peso. The good thing is that the Peso is controlled mainly by market forces so it is not being manipulated like many other currencies like in Vietnam where inflation just hit 25%.
Hi Neil – According to the latest figures that I've seen, there are nearly 12 Million OFW's now. Wikipedia puts the number at 11 Million, but the number keeps growing. If we say that there are 10 million, which I believe is low, and then figure that they support around 4 people each, that is 40 million people supported by OFW's, nearly half of the population of the country.
By the way, the Peso is not really a free market commodity as the Bangko Sentral ng Pilipinas uses all of the OFW to buy Pesos and prop it up a lot of times, thus artificially inflating it's value..
All this financial talk is making me dizzy, i am just a jellyfish in a sea of financial decision makers. All I a know is a good exchange rate for me is good for my Pino y family. If I do well, so do they.
Hi Peter Mystakas – My sentiments exactly. When there is a good exchange rate people like you and me send more money to our families to support them and make their lives better. That's why I think a lower Peso is good for the Pinoy!
Hi Bob
This news is great for my wife and me as we are buying a house in Laguna and we are sending dollars via FOREX to pay our mortgage. Just ran the figures and I could save over 2,000 dollars. When the loan is paid off in the next couple of years.
Hi Dan Mihaliak – Let the savings begin!
hey Bob that 's great news. My wife wants to start a restaurant in gingoog city this year …so i guess we will be busy getting things ready. higher pesos lower dollars to buy stuff…good idea ….Phil R.
Hi Phil R. – Since I wrote that column the Peso has slid further. Good news for you – we are at about 45.5:$1 now!
how much money does the philippine govt require an expat to live in the philippines.
Hi James Zedler- There is not a set amount. They will approve your application if they feel you have adequate income to support your lifestyle.