Help OFW families cope with strong peso - Roxas

Help OFW families cope with strong peso - Roxas
12/10/2007 | 07:53 PM - GMANews.TV

Stop borrowing in dollars to create a demand for the US currency and, in the process, help families of overseas Filipino workers and exporters cope with the continued strengthening of the peso.

This was the gist of the proposal of Senator Mar Roxas II on Monday for the government to mitigate the impact of the weakening value of the dollar against the Philippine peso.

“Our economy is in danger of stalling if we continue to turn a blind eye to the plight of OFWs and exporters," the senator said, emphasizing that the economy is driven primarily by consumption, which is more than 70% of gross domestic product.

Roxas, who chairs the Senate committee on trade, said the high peso-dollar exchange rate is now constricting the purchasing power of families of OFWs and could dislodge workers in the export and manufacturing sectors.

Instead of borrowing in dollars to amortize the country’s debts, Roxas said borrowings should be in pesos, which could be used to buy the dollars needed for debt amortization. This could prop up demand for dollars and, in effect, strengthen the dollar versus the peso.

“Isang kongkretong hakbang na magagawa ng gobyerno—ng Bangko Sentral o ng Treasury—ay sabihin na lahat ng ating dollar-denominated loans ay hindi nila ire-renew sa pamamagitan ng dolyar. Uutang sila sa piso, at iyon ang iko-convert sa dolyar, at sa ganoon, mas magiging malaki ang demand para sa dolyar, magkakaroon ng mas magandang balanse ang peso-dollar dito sa atin," Roxas explained.

“Right now, even if we are already flooded here by dollars, we continue to borrow in dollars. In effect, we are just shooting ourselves in the foot," he argued.

The Arroyo government is set to borrow P125 billion—or $2.67 billion—from foreign sources to finance the proposed P1.227 trillion budget for 2008.

Of the P125 billion, P87.7 billion—or $1.87 billion—will be used to roll-over outstanding foreign debt. The government had projected that the dollar will be worth from P46 to P48 in 2008.

“Let’s put our money where our mouths are. Our OFWs, exporters, BPO and tourism industries are hurting by P10 less per dollar or 20%. That’s a lot," Roxas said, noting that the peso has strengthened from P51.30 last year to P41.74 this year.

“Sabihin na nating may walong milyong OFW ngayon at ang kabuuang remittance nila ay $12 bilyon, eh ‘di kada pamilya nila dito ay tumatanggap at gumagastos ng $1,500 kada taon," the senator said.

“Kung dati-rati’y P76,500 ang kapalit nito sa piso, P61,500 na lang ito ngayon, bawas na ng P15,000. Pang-matrikula na iyon ng isang anak o pambayad ng kuryente sa isang buong taon," he explained.

With regards the exporters, Roxas estimated that assuming export revenues last year of $47.4 billion are the same this year, exporters would now earn at least P474 million less (P2.4 billion with last year’s exchange rate versus P1.9 billion with the present exchange rate).

Roxas sees the impact of this proposal on inflation would be minuscule compared to the emasculated spending power of Filipinos—and possible loss of jobs—due to the strong peso.

He noted that inflation for the year has so far been averaging at 2.6%, which is at the lower band of the central bank’s target of 2.6% to 3.1%. The target for next year, as assumed in the proposed 2008 national budget, is 3% to 4%.

Roxas pointed out that interest rates of short and long-term government securities have now declined, thus, it is cheaper now for the government to borrow in pesos. He noted that the benchmark 91-day Treasury Bill rate has decreased to 3.67% this November from 7.36% in 2004. The 3-month LIBOR rate has increased to 5.15% in October this year from 1.62% in 2004.

Government’s outstanding foreign debt so far is P1.7 trillion—or $41 billion using the exchange rate last Friday—as of August, according to the latest data available on the Bureau of Treasury website.

Meantime, as a consequence of the strengthening of the peso, OFWs are paying at least P250 more in membership fee to the Overseas Workers Welfare Administration because the agency still uses the old exchange rate of P51:$1 in collecting the equivalent of the $25 OWWA dues, which remains at P1, 275.

Lito Soriano, former president of the Philippine Association of Service Exporters, Inc.(PASEI) and president of LBSe-recruitment Solutions Corp., said OFWs are being short-changed by being made to pay P1,275 in OWWA fee instead of paying $25 dollars required from every contract processed by the POEA whether the worker is a new hire, re-hire or balikbayan.

With an average of 3,000 OFWs leaving the country everyday to work abroad, Soriano said OWWA is collecting P750,000 more from OFWs since the value of the peso appreciated.

Soriano appealed to OWWA to take the necessary steps to correct what he described as an imbalance by allowing the OFW to pay the current rate in pesos or dollars if he desires so as to save on his processing fee.

The peso is still bound to appreciate this Christmas with the massive inflow of dollars from OFWs to their dependents and hundreds of thousands OFWs arriving to spend the holidays with their families.

He said the continued appreciation of the pesos against the US dollar has already eroded OFWs income by 20 percent.

He noted that a worker who earns $1,000 monthly (including overtime pay) loses P10,000 monthly with the prevailing exchange rate of less than P42.00 to a dollar.

Recruitment agencies not collecting placement fees are also reeling from the loss of income with their international transactions pegged to the dollar and were forced to increase their rates with their principals.

Some foreign employers have refused to increase their rates and instead have transferred their business to agencies collecting placement fees thus increasing the burden of workers with higher placement fees.

Foreign exchanges warned over rates

Foreign exchanges warned over rates
Last Updated : Wednesday 05 Dec, 2007 –
Posted in 7days

The UAE central bank has warned foreign exchange outlets against ignoring the official exchange rate after some raised dirham prices in anticipation of a revaluation. The bank yesterday said it would reimburse customers who had been overcharged, using funds placed with it by the foreign exchange companies themselves.

It had “noticed that some money changers took advantage of the rumours promoted by some speculators and raised the exchange rate of the dirham against the US dollar”, it said in a statement, adding it would “enforce more severe penalties in case of similar violation in the future.” Hotels and money changers in the UAE changed dollars into dirhams at as much as 17 per cent below the official rate in anticipation of a revaluation, an action the bank described as harmful to the country's tourism industry.

Gulf rulers are meeting in Doha amid frenzied speculation that some may drop their pegs to the declining dollar or allow currencies to appreciate. On the first day of the summit, however, the UAE foreign minister told reporters there would be no decision on the dollar peg at the ongoing meeting.

“There is no intention to take a decision at this summit regarding de-pegging the Gulf currencies to the dollar,” WAM reported Sheikh Abdullah bin Zayed al-Nahayan as saying.

Gulf currencies weakened yesterday after Saudi finance minister Ibrahim al-Assaf ruled out dropping his country's peg. Bids on the UAE dirham eased to as low as 3.6715 per dollar after hiting a 17-year high of 3.6561 per dollar last Friday.

Leaders move on but peg stays put

Leaders move on but peg stays put
Last Updated : Wednesday 05 Dec, 2007 -
Posted in 7days

GCC leaders concluded their annual summit in Doha yesterday, having opted to keep their currencies pegged to the sliding dollar for now. “Right now, the policy is to stick to the dollar,” said Qatari prime minister Sheikh Hamad bin Jassem al-Thani. “The GCC is concerned about the [weakening] dollar. No decision on the currency for the moment.”

UAE foreign minister Sheikh Abdullah bin Zayed al-Nahayan had earlier said a decision on unpegging was not on the summit’s agenda. Indeed, the communique issued at the end of the two-day talks made no mention of foreign exchange rates or the dollar’s weakness - but this has done nothing to reassure markets either way and analysts say it suggests a division between nations.

“It’s a sign of disagreement. There could be short-term disappointment in the market,” said Marios Maratheftis, regional head of research at Standard Chartered. Gulf currencies weakened against the dollar following the summit as expectations of a near-term change in exchange rate policy waned. One issue the summit’s final communique did mention, however, was the single currency project, which it said remained on track for 2010.
“The leaders have decided to continue to work towards achieving the monetary union... and confirmed keeping the date of 2010,” said GCC secretary general Abdulrahman al-Attiyah. He said the issue would be discussed at the next summit in Oman, while Bahraini foreign minister Sheikh Khaled bin Ahmed Al-Khalifa said policymakers would meet again to try and agree a common position on currencies.

Forbes urges Gulf to re-evaluate peg

Forbes urges Gulf to re-evaluate peg
Posted in 7days online
http://www.7days.ae/en/2007/11/19/forbes-urges-gulf-to-re-evaluate-peg.html

Calls for Gulf countries to revalue their currencies gained momentum yesterday as American entrepreneur Steve Forbes recommended a one-time adjustment. Speaking at the Leaders in Dubai Business Forum, the editor-in-chief of Forbes magazine advised continuing the peg to the dollar, but to re-evaluate rather than devalue currencies.

“The thing that should not be done now is to allow your currency to float,” he said. “Eventually, and rather than going for a basket of currencies, Gulf countries should do a one-time revaluation and keep it fixed, whether it is 8 per cent, 10 per cent or 12 per cent and then re-peg to the dollar.” Forbes hit out at the US Federal Reserve for inviting the ongoing credit crisis, and called upon Gulf states to act now to correct the Fed’s mistakes and protect themselves from any further depreciation of the dollar.
“Currencies should be stable in value – that’s the first rule. Look at what the Federal Reserve has done in the US. By printing too many dollars and allowing the property sector to build four years worth of houses in two years, it has created a credit crisis.

“Even though the pound, yen and euro have appreciated, they all have inflation. They have all sinned, but the Federal Reserve is the biggest sinner of all,” he said. By re-evaluating, Forbes claimed, Gulf governments would buy themselves time to make a decision over going for a basket of currencies in future.
He also criticised the International Monetary Fund for wrongly encouraging countries to keep their currency values low.

Dollar peg at the crossroads

Dollar peg at the crossroads
By Babu Das AugustineBanking Editor
Published in Gulfnews: November 14, 2007, 00:18


Dubai: The UAE Central Bank Governor yesterday hinted at a potential change in the UAE's exchange rate policy currently anchored on fixed peg against the US dollar.
"The dirham's peg to the US dollar has served the economy of the UAE very well in the past. However, we have reached the crossroads now with a further deterioration in the US dollar and expected further weakening of the US economy," Reuters quoted Sultan Bin Nasser Al Suwaidi as saying in Tokyo yesterday.

Analysts saw the statement as a clear shift in central bank's stand on the peg.
"The increasing frustration with the decline of dollar and domestic inflation could lead to a more flexible exchange rate policy including a move to a currency basket," Monica Malek, an economist with EFG Hermes, told Gulf News.

The sharp decline in the exchange rate of dirham against most leading international currencies have resulted dirham losing its value in the range of 16 per cent and 20 per cent against currencies such as sterling, rupee and euro during the past two years.

While the decline in exchange rates and domestic inflation above 9 per cent is wiping out a significant share of expatriates' earnings, the reduced purchasing power of dirham has also fuelled higher inflation through rising import costs.
Despite this, the UAE was forced to cut interest rates by 0.6 per cent this year following the US interest rate cuts of 0.75 per cent, fuelling further inflation.
"We continue to hold a long dirham and Kuwaiti dinar versus short dollar in our discretionary portfolio," said Emma Lawson, a currency strategist with Merrill Lynch.
Simon Williams, an economist with HSBC, told Gulf News that although the governor's statement is a bold one, a unilateral decision by the UAE is unlikely.

The GCC heads of state are set to meet next month where a collective decision is expected. EFG's Malek said the UAE is clearly the next in line for currency reforms and sees a probability of more than 40 per cent in the second half of 2008.