Over the past two years, the value of the dollar has really taken a dive here in the Philippines, and also around the world. It is something I have written about in the past, but I feel it’s time to re-visit the subject. Two years ago, a single US Dollar would purchase a little more than 56 Pesos. Today, you’re lucky to get 45 Pesos for that same dollar. That’s a loss of 20% in two years. For anybody living here and earning US Dollars, it’s a drop in value that is surely noticeable in their daily life.
Let’s say that you are retired here on a US Pension of $3,000. Two years ago, that pension was worth P168,000. Today, for the same pension you receive only $135,000. That’s a big difference! Of course, most of us Americans living here are lucky in that we can still live a good life. Our incomes are high enough to withstand the slide – for now. But, I have heard from a number of American friends and acquaintances that if the dollar continues it’s downward spiral they will have to reconsider their permanent stays here. The problem with that is, if you are earning such a small amount that you can’t afford to live in the Philippines, where can you afford to live? That’s something to be looked at!
The Administration of President Arroyo is really bragging that their reforms and programs have improved the economy a great deal, and the value of the Peso against the Dollar is an indication of that, or should I say a confirmation? However, I don’t buy that. The fact is that the Dollar has crashed against almost every currency in the world! The British Pound is now worth more than $2. The Euro is more than $1.35. So, it is not a matter of the Peso gaining strength worldwide, it’s more a matter of the US Dollar losing strength worldwide, including against the Peso. It makes good spin for GMA to claim responsibility for the Peso strength against the dollar, but that’s what it is – spin.
Funny thing is that with the dollar losing so much value, that should mean that goods from the USA are getting cheaper, the Peso is worth so much more after all. However, when you go to the grocery store and look at US products, they are getting more and more expensive, not getting cheaper as they should. At first I thought that the prices of imported goods would fall in time, it just took things some extra time to even out. But, we have been experiencing this Dollar decline for about 2 years now, and prices have had time to flush out their real values. I suspect that some people are just making some extra profits on the exchange imbalance.
What do you think? Does the slipping dollar have any impact on your plans to live in the Philippines? If you are already living here, do you think there will ever be a time when you will be financially forced to go back to the States?
Hi Bob,
First of all, let me wish you and all the Yankees out there a Happy 4th of July! 🙂
As far as I can remember, prices of goods in the Philippines have only gone one way – up. So, don’t hold your breath for a drop in prices, especially imported goods.
Although not good for us who are earning in dollars, I am happy that the peso is starting to rebound. The Philippines hasn’t recovered as well as the other Asian countries from the 1997 financial crisis. 10 years is a long time. The economic recovery is long overdue.
No, the declining dollar won’t impact our plans of retiring in the Philippines. There are other reasons for our wanting to retire there. Even if the dollar continues to decline, it will still be relatively inexpensive to live there compared to other places so I think this one’s a no-brainer.
Bob,
I'd think you have to give some credit to Arroyo. The Aussie Dollar has also fallen against the Peso but is at a 10 year high against the USD.
It all comes down to the difference between the interest rate and the inflation rate. The bigger the difference the more attractive that currency is to investors. At the moment the US is at approx 2.55% and Aussie is 3.85%. The Philippines has a real return of about 5-6%. All 3 have low inflation rates, but the Philippines has a higher interest rate.
An economy is generally considered to be flat when interest rates are low. I'd say the Phil economy is performing pretty well.
I stand to be corrected on all of this by any retired Economists.
Bob,
It might be worth putting the following link on your front page, particularly for any future retirees with an eye on the Phil economy.
http://www.bsp.gov.ph/
Let me preface this by saying that I've not studied this intently, nor am I a long term resident here.
Tina, as I did some of the background research for my thesis, it was my understanding that the Philippines was not hit nearly as hard as any of the other Asian countries during the financial crisis. I read somewhere (and I'm sorry I don't have a ready reference…I should know better) that in relative terms, they were barely affected. So I'm not entirely sure what that means in terms of recovery.
Example of what I'm trying to say: If I lose $10, and Bob loses $1000 and we both recover our losses at 1% per year, my recovery would be barely noticeable!
War always destablizes the dollar ( provided its the US at war !), with the election in a little over a year I would expect the new administration to plan an exit from Iraq. The dollar I hope will rise after we withdrawl.
Insofar as cost of USA goods I would think its the cost of shipping i.e. fuel charge thats driving up the cost. Ditto on living on the edge finacially ….if your on the edge on a 20% USA value drop..your living to close to the thin green line.
Hi Elisa,
In 1997, the exchange rate was 26 pesos to a dollar which dropped to 52 (or thereabouts) to a dollar during the Asian financial crisis. Currently, the peso exchange is 46 to a dollar so there is still a lot of work to be done. On the other hand, South Korea and Thailand (which were worse hit) are in much better economic shape than the Philippines. I don't have the exact figures nor am I an economist, all I know is the peso hasn't regained its value since 1997. Hope this helps.
Hi Laurence – I do give GMA credit for many things. In fact, I would consider myself as a fan of hers, contrary to the popular opinion in the country. I just don't feel that she has made a big impact on the economy. Yes, there have been improvements in the economy here, I just feel that the improvements have more to do with world events than they do with her policies. That doesn't mean that I don't like her, or don't feel she is doing some good things!
Hi Tina – Happy 4th to you and Ken! We are going to have a little barbecuing later today! Should be fun. Did you realize that a lot of Filipinos are actually complaining about the Peso being strong? Why? Because one of the mainstays of the Philippine economy is remittances being sent from OFW's, and those are primarily dollar remittances, and those people are hurting because the same number of dollars sent are actually fewer pesos in their pockets. I do agree that an economic recovery here is a good thing, but it has negative impact on people too.
Hi Elisa – Actually the RP economy was hit hard in the 97 financial crisis. Actually, the exchange rate went from about 25 to the dollar down to about 40 to the dollar almost overnight. The 52 level that Tina mentions didn't actually come into effect until well into the 2000's. When we moved here in 2000 the exchange rate was P43:$1, and it is almost back to that now! There is still a long way to go before it can get back to 1997 levels, though. If it ever went back that far, I would have to re-evaluate some of my businesses and make some financial changes.
Hi Brian – I feel that your reasoning is pretty much on track. But, even after any US withdrawal from Iraq, I think there will still be weakness in the dollar simply due to the threat of terrorism. Just to clarify, I am not living on the edge financially, that was something I was saying that others are telling me about their situations.
Happy 4th of July to all here!
I empathize with the concerns here regarding the value of dollar against the peso (the so called strengthening of the PHP Peso). Even though I myself do not earn US dollars but rather SG dollars, I feel my remittances I return to my family there is dwindling. The usual amount of money I remit last year is higher compared to this year. An additional hundreds of dollars would amount to additional thousands of pesos. Nowadays, half of those thousands of pesos are added.
Still, I always think that goods there are still cheap especially the basic ones. As long as my family is capable of obtaining these basic needs, I'm happy and contented. I'm glad I could provide for them.
Don't worry guys. I still think that goods there are way cheaper and more accessible to budget than other Asian countries such as here in Singapore (where goods can go triple in Peso value).
Hi Jio – I understand what you mean. I hear a lot of Filipinos complaining about the value of remittances hurting them badly. It's really a double edged sword. If the peso is weak, prices are rising, and their after conversion pesos are worth less. If the peso is strong, their pre-conversion dollars don't buy many pesos. It's really a catch 22 for a poor Filipino family!
Tina and Bob – Thanks for the details. I do recall when I was here back in 2000 that the rate went from 48 to 54 just in the 4 months I was around. Since I didn't have any background knowledge then, I just figured it was normal fluctuation since hey, it's only a few cents to me.
I'm taking a slight hit in that my research funding doesn't go quite as far anymore, and I find it odd that my Tagalog tutor wants to be paid in US Dollars (requiring me to go to the ATM and the money changer, where she'll probably get back less than what I put in).
Hi Elisa – I was just browsing your photos on Flikr. You have some nice shots there! I was particular interested in the ones in South Cotabato. I recognized a lot of places that I have been in your photos! Nice work there.
It is indeed interesting that your language tutor wants US dollars! Maybe she knows that we don't know!
It was hit on the nose before, but the sad fact is the US is at war. We never really recovered from the stock market market crash of 2000, we simply replaced the busted bubble with another bubble. This time the Housing Bubble. The extremely lax credit practices in the US right now coupled with the FED printing as much money as it can as fast as it can will only lead to more dollar devaluation. I suspect that the next adminstration will be Democrats, I only hope it's not Hilary Clinton. Yes they will exit out of Iraq but a quick withdrawl will only mean a fast collapse of the Iraqi goverment. It's also estimated that it would take $40 billion to replace the equipment lost in iraq. How do they get that money? Why we simply print more of it! The more the Fed prints the lower the dollar will go. Inflation is bad in the US, the Gov just doesn't admit to it. The other factor to consider is that the Dollar is slowly being replaced as the world currency. Many central banks are switching to Euros and that will soften demand for the dollar making it lose value even more. I think by this time next year we may be looking at 30pesos to the dollar. Arroyo is rather anti-American and since she's in office until 2010 there's going to be little incentive from the Philippine Government to weaken the Peso.
Hi Louis – I don't think we will see a P30:$1 exchange in our lifetimes, but if we do I will have some serious re-considering to do about my lifestyle! That would mean a nearly 50% drop in dollar value in 3 years. Of course none of us know the answer, but I can't imagine that.
I don't think GMA is anti-American! In fact, I'd say that in the days since Marcos, she is the most Pro-US President with the possible exception of FVR.
I will say this – if the Peso goes to 30:1, there will be uprisings in the Philippines. Exports from the Philippines to the USA will be too expensive to compete against other countries. Exporters will be earning only half of what they are used to. Families supported by OFW's will be going hungry. It will be chaos here. Of course, 1997 showed us that when it comes to the economy, anything can happen.
Hi Louis:
In what part of the US do you live? Admittedly the price of fuel has gone on an unexpected rapid and steady rise. However your statement of "Inflation is bad in the US, the Gov just doesn’t admit to it." is more than just a bit off. In fact most consumer prices have remained fairly constant. The inflation is not as you claim bad in the USA. People are not buying as many big ticket items at this time but people are still spending money. FYI I live in northern NH where our cost of living has remained constant except for the price of fuel. Northern NH is one of the poorer parts of the country.
Why the pesos is so strong? Because every year balikbayans sent loads of dollars to the family. How much was it last year? I think around 14 billion US dollars. That's why real estate is also expensive in the Philippines. No Filipino can afford to buy a piece of land with his average income but with the help of the family members abroad… It's a consumer economy, not a manufacturing economy and the big shop owners in the malls are the smiling collectors of all those dollars.
And those with no family abroad. Tough luck.
Bob I was going to sit on the sidelines of this topic but after reading a post I cannot resist. It amazes me at times what people write which is not true and that others might accept it. The Department of Treasury does not print money at will. Its tied to a gold standard and can only print as much money as that standard allows. In simple terms the supply of money does not change by what is printed. The supply of money changes by what is available to lend and spend. The Federal Reserve raises and lowers interest rates like a flood gate to control the flow of money in the economy. This control is what keeps inflation in check. The dollar has become weaker against other world currencies for a variety of reasons. One might be that with this administrations tax policies there is more money for Americans to borrow and spend. That money is out there in the world economy-supply and demand is at work with the value of the dollar. If for example we get a Democratic administration this next time around the general thought is that taxes will increase. If that happens of course the available amount of money to spend becomes smaller and that impact again supply and demand. So with less dollars in the market place that wil impact the exchange rate there-most likely making the dollar stronger against the peso. To say that our economy is doing well is in my opinion not a true statement. Consumer spending is doing ok-by the way mostly on Chinese imported products. Large ticket items like homes, cars, durable goods are down considerably. I also want to comment on the issue of the war and needing to replace equipment. That can and only will improve our economy as jobs are created to fill the orders for new equipment, etc…. War also has always been a good thing for America's economy. Look no further than WWII which brought us out of the depression by creating jobs that created equipment, etc….. I will finish by saying that the dollar will only strengthen as we improve our national debt. I will also say that if the dollar keeps falling and prices keep rising I will most likely not retire there as planned. So I like all of us are hoping the dollar rebounds or stays solid in the high 40s. Ron
Ron , I don't disagree with you on the effects of war on dollar currency but… we were in a depression we had no place to go but up, unlike our current economic state where war tends to fuel retention of investor dollars. Couple that with the trillions of USD invested ( my prediction wasted !) in Iraq, uncertain energy (oil) futures resulting in an economic slowdown. Combine that with a real estate market slowdown with record bank forclosures a result of job loss in other sectors and you have a created a perfect strom for the decline in USD value. ….of coarse thats just my personal opnion,,,hope you don't take offense.
oohh FYI the Federal Reserve which controls the value/flow of money is a private enterprise…it is not part of the federal govt. it's an entity which is owned by …my understanding…several large banks which we have never quite figured out exactly who owns them !
The current weakening of the US Dollar can be traced, in most part, to the recent sales of USDs by other countries, mostly in favor of replacing them with a more stable Euro. Basic law of supply and demand kicks in: larger supply on sale, price goes down. (Some conspiracy-minded people see this as an attack on the US's economic system–a nearly impossible action to carry out in unison, let alone conspire.) As to the Philippine Peso, it is neither strengthening or weakening but is enjoying (if one could use that word) the benefits of the effects of this small sell-off. If the current government can be praised for something related to the Peso:USD exchange rate changes, it would be that they've wisely done nothing to harm the value of the Peso.
Hi Brian – the Federal Reserve is "owned" by shareholders of Federal Reserve stock. Among the shareholders are large banks, insurance companies, pension funds, hedge funds, mutual funds, and others. The Federal Reserve also has creditors–holders of Federal Reserve Bonds and Notes, many of whom are also shareholders.
Hi Wayne – I agree, by all indications, inflation is well under control in the USA. As you say, energy prices have exhibited inflation, but that is the only sector that has really been inflationary.
Hi Luc – You're right, the remittances of the OFW's are really the number one support of the Philippine economy. And, they are the main ones being hurt by the strong Peso.
Hi Ron – I agree with almost everything you are saying, except that I believe that the US abandoned the gold standard in the 1960's.
Hi Paul – I do agree that the Government of the RP has been doing a good job when it comes to not harming the value of the Peso.
Bob – Interesting points you make and things I had not taken into consideration. As for GMA, she has publicly said she would prefer less American investment over here and more European.
Wayne – I am from Maryland and in the time since September 11th I have seen a drastic drop in what my dollar can afford. You say many people are still spending money… well this is true but is it their money or big banks backing the credit cards in their wallet? The housing boom in the US has made people feel like their houses are an instant ATM machine, they can take out a second mortgage and spend more. All this spending makes for inflation though, especially if its a consumer economy in wartime. As they told me in economics class, you can have guns or you can have butter but you can't have both and sustain the economy.
thanks paul, was unclear on who exactly owned the fed.resv. so let me get this right, a private enterprise is reponsible for the flow , printing and value of usd AND they make interest/ money off of it? a hundreth of a percent charged by them would be trillions!
Hi Louis – I have never heard about that quote from GMA. I have met her before, and I can really say that she is pro-American. As a matter of fact there are always protests in Manila complaining that she is an American puppet.
Hi Brian – Wouldn't be bad to get in on that action, would it? 🙂
Bob thanks for the correction. Ron
Louis:
I guess some economics classes are just taught by liberals who look at the world from his/her ivory tower. Historically in the 20th century US economy has done well in war time. It's odd, Maryland must have it's own economy because not only have prices remained fairly constant hear since 9/11 but my clients from across the nation have echoed the same experiences. {Except for the rapid rise in fuel prices.} I suspect it goes along with the idea that the federal government just prints money when ever it needs it as you stated previously. Spending creates inflation. A curious statement!
Bob,
I'm a new visitor and this is my first post, but sweet jesus on a stick there are some waaay off observations on here.
First off Inflation has been running rampant in the US for the last several years……yeah I know "official" CPI numbers have it around 2.5% but that is without regard to food, fuel or housing costs factored in (the rent substitute the govt uses is a farce). Food had double and tripled in some areas over the last few years 300% rise, food has easily doubled (milk $6 a gallon in some stores, $4 a gallon in others), and housing as had a 300% to 400% rise in the last 3 years in most parts of the country. From 2004 to 2006 land in Western WA (I lived there) went up 1000% from 10k per acre to 100k per acre.
So I think inflation is a bit higher than what the govt lets on, reasons are two fold, one is that govt benefit raises based on what the "official" inflation rate is and since the govt sets the "official" inflation rate, it stays low. Secondly, if we were in an enviroment of rising inflation and falling wages (real wages indexed for inflation) then people would be unhappy, now they're just too stupid to figure out what's going on.
Inflation: Is the increase of the money supply, which is controlled by the Fed (and no there is NOT a gold standard, hasn't been since 1971)
What we are experiencing currently is a bit of stagflation, the inflation rate is still soaring, I would point you to the "official" M3 money supply rate of increase, but since the govt chose to quit publishing that bit of info (currently being replicated by economists and it's soaring at 11 – 13% per annum).
In addition to the money supply skyrocketing the prices of housing is starting to drop and drop it will as the ARM start resetting later this summer and into next. Goodbye 1 trillion in make believe money, except for the loans that are still held by mom and pop, but since no one puts money down on housing any longer, the banks will eat the loss, until the bailout and then the tax payer will eat it.
So how does this come into play for the PI, the dollar will continue to drop 30% loss since 2001 and still dropping, once the dollar breaks the 80 index mark, it's down, down…….I'm guessing you could expect to see 30:1 peso rate in the next 2 – 3 years, that's not a far stretch.
As to the fed, it is the buyer of last resort for the govt, the Fed reserve is NOT the govt, it is controlled by private bankers. If our govt needs someone to buy the dollar the fed can do it and then charge us interest for doing it. The Fed is one of the worst things that has happened to the dollar, and as we spend trillions of dollars on wars the bills will be paid back with crisp new dollars that will continue to lose their value.
Eventually it will be cheaper to live in Ohio or Tennessee than overseas, even in the PI.
Take care
Tony
Hi Tony – Thanks for coming by, your views are always welcome. While I don't agree with much of what you are saying, I do agree with some of it. Regardless of whether I agree or not, you are free to post what you think here, and I am happy to give you a place to do so. If that 30:1 Peso does happen in our lifetime, I'll be having to rethink my living arrangement, I know that.
Saying that there are "waaay off observations here" is OK to say, but remember that many people think that your observations are the ones that are "waaay off." Each person's attitude would be based on their own beliefs. For me, I am just happy to let all the attitudes be stated, and I will evaluate the attitudes based on what's happening on the ground and make a judgment as to where my own attitude should be.
The only thing I can say, though, is that the doom and gloom scenario that you're espousing has been repeated over the years probably all the way back to the depression. During the Reagan years especially, the big crash was always right around the corner – the next depression was always coming. Somehow, it never happened, though.
We'll see!
from australian perspective; 2 years ago when us$1 bought peso 56 au$1 bought peso 40. today we can still get pretty close(peso39.50) for AU$1. I think it is only a matter of time for us dollar to bounce back.
Hi Anthony – Yeah, I think it will bounce back in time, this kind of thing is almost always cyclical. Interesting what you said about the value of your AUD – it has remained pretty steady with the Peso. That confirms what I was saying about the Peso being strong against the USD, but not particularly strong against the rest of the world.
Bob,
Thanks and sorry for saying some of the comments are waayy off base, I'm just passionate about this topic and have been following it pretty closely for about 2 years now. We may disagree, but I'm fairly certain everything that I've said is accurate, from the true rate of inflation to the plummetting home prices. I know too many people that cannot sell their homes for what they owe on them and their ARMS are resetting.
As to my prediction on a possible 30:1 peso rate, yeah that is pure speculation, but did you see how far the dollar fell today? I still say that my prediction is possible, probable?? Who knows for sure.
Yes gloom and doom are overrated and I'm easy prey to that sort of mentality, but just because you're paranoid doesn't mean that they aren't out to get you…. 😉 That last part was humor, FWIW.
Hey question,
My wife is from South Cotabato and she says it's way too dangerous to visit much less live there for me, what do you think? It's been over 10 years since my last visit, I'm not sure if she's right or not.
Tony
Hi Tony – Don't worry, I don't mind comments that are not in full agreement with me, or even in total disagreement! That makes the blog more interesting!
Regarding South Cotabato – I go there often. I lived in General Santos for 2 years. I would not be worried about visiting anytime. For a Mindanao Security Report that covers every Province in Mindanao, just send an e-mail to [email protected] and it will be sent to you free. I update the report every 2 months, or more often if the security situation warrants that.
Hi Tony:
All I can say is that things on your side of the country are a whole world away from my area of NH. Nothing, and I mean nothing is anywhere near that bad here. If it was that bad I think I would just live in the mountains and live off the land. Oh wait that is what I do now….. Never mind. You should read Julius's post on negative thinking in "What does not kill us will only make us stronger". Might change your perspective, but I doubt it.
Hi Bob,
USD and EUR are both going down – even against the pesos. Euro is now down to PHP 56 from PHP 60 2 years ago. All other currencies, AUD, CAN, YEN etc are getting stronger. CAD remains almost the same as the PHP in the past 3 years. I guess we’ll see more of the downward slide of the US and EUR in the near future, but as long as the PHP is stable with other currencies like CAD that’s fine with me.
I think people tend to underrate GMA’s performance. Her strength was not in things that most people felt. But her economics broke the boom and bust cycle of the Philippines with 9 years of continuous growth, inspite of 9/11, SARS, global recession, finally got the country out of the IMF monitoring, getting the debt to GDP ratio down, etc., the infrastructure: continued the legacy projects of Ramos, even Erap (bridges) and Marcos (nautical highway). What economic analysts call – the macro economic fundamentals. I think that paved the way for the new administration to do better (we’ll see with this one).
She is pro American, pro liberalization of the economy (which runs counter to the ruling oligarchs),the same brand as conservative pols in Europe, Canada. Where I think she failed is to implement are social policies that would have had immediate impact on the local folks and earn major brownie points. I was not exactly a fan then, but now I am and have to give her credit where it is due.
Hi AlexB – I am in full agreement with you in regards to GMA’s performance. At least in the area of economics, she did the country well, I believe.
I think you nailed it with the statement that, if a person can’t afford to live IN THE Philippines on ‘X’ amount.. how will they do so in the US, where the dollar buys you even less?
My plan is to continue making USD via the Net because even at 20 pesos to the Dollar I’m making a profit in local buying power. Plus, if if ever came down to it and was feasible, I could do PC Repair work locally getting paid in Pesos to make up the difference. This is a scenario I really don’t think will happen, but it’s a way to keep rice on the table for a single-guy such as myself.
Here in Southern California it takes a MINIMUM of $2,000 a month just keep one’s head above water. Rent/Mortgage alone is an average of $1,100 a month and housing should not be more than 35% of one’s budget. In the Philippines I don’t need a vehicle. In the US a private vehicle is a MUST. And with it comes maintenance, State fees, insurance and fuel. And we haven’t even covered groceries or utilities yet.
So.. for me, I’m glad that for 30 years while the economy was good I was able to raise my kids to adulthood. They are doing well on their own, thanks to God. But for me.. personally, I see the Philippines as my new home and would rather strive to survive comfortably there than end up in a bad way in the US.