Analysts at MUFG have posited that the Philippine Peso is the weakest link in Asia.
By reaching a record high of 66 pesos per US dollar as of the time of this writing, the currency has undergone fluctuations that surpass those of neighboring countries.
Reports by the Association of Southeast Asian Nations (ASEAN) ascribe financial technology, manufacturing, and intra-region cooperation as the backbone of growth behind currencies, industries and overall economic growth.
Tethered to the U.S.
That said, multiple factors such as the hawkish Consumer Price Index in the United States, rising Treasury Bond yields in the U.S., and the impact from the oil crisis have all given way to externalities that especially affected the Philippines. As the U.S. dollar strengthens; the Peso weakens. And as the U.S. becomes more resilient to externalities posed above, the Philippines must catch up to strengthen its economy. According to a report by ASEAN:
“The US Dollar has been dominating global trade for decades, and ASEAN has been no exception. The ASEAN nations rely heavily on the US dollar (USD) as the primary currency for trade with the US and other nations including intra-regional transactions. However, mounting geopolitical uncertainties and trade tension have challenged the USD’s dominance during the past few years, and the economic sanctions levied against Russia in response to its invasion of Ukraine further exacerbated this situation. This resulted in a need for the countries in ASEAN to further deepen their integration and cooperation to diversify reserves and promote intra-regional trade. Moreover, this created a desire for ASEAN nations to bolster their resilience to weather future crises by reducing their dependence on external currencies.”
Recent efforts to boost the economy come in from numerous ‘big ticket’ investments in the manufacturing and export industry; notably, AI hubs, foreign outsourcing of end-stage assembly, and infrastructure deals.
Resiliency?
The Philippines, however, has been racked by increasing costs of living, a declining consumer purchasing power, high fuel costs, energy costs, and product costs. From oil, to meat, to produce; Filipinos have been affected negatively. Worse, the outlook due to constant rains and oil sensitivity has slowed foreign investment and weakened agricultural output. Joblessness and underemployment rates also remain high, compared to last year.
Resiliency is a byword uttered by politicians and common folk alike. But the landscape and reality is that the Philippines is lagging in resiliency; it is vulnerable to external influences. It exposes structural weaknesses within the system.
Controversies such as the Department of Public Works and Highways (DPWH) only reflect the systematic problems at the core of public services. Exposure to oil price hikes reflects the vulnerability to shock. Weakening external investments in the stock market (as hot money leaves) reflect lowering confidence from investors—both local and foreign.
As the Philippines has deep ties—diplomatically and economically—to the U.S., it has inversely tethered itself to the performance of the U.S. and itself. Though ASEAN has made efforts to “de-Dollarize” the region, the Philippines lags, reflected by the weakening Peso.
ASEAN’s thesis on de-Dollarization follows:
“The use of local currencies in cross-border transactions in ASEAN is increasing driven by geopolitical uncertainties and trade tensions. Strengthening macroeconomic fundamentals and deepening regional financial integration and payment connectivity have promoted cross-border settlements in ASEAN, accelerating the move away from the USD. The policy makers and central banks in the region have introduced several policy frameworks to develop an independent financial system thus bringing in further resilience to ASEAN currencies.”
Remedies
One of the remedies, therefore, through the thesis of ASEAN, is the increase in intra-nation cooperation and trade. Exports to other Asian countries—through its increase—will decrease the reliance of the Philippines on the Dollar to drive its growth and investment. This circles back to the reason behind ASEAN’s formation: to increase the centrality of Southeast Asia, and by doing so, wield influence on the global stage, and in effect, pull up the economies of its participant members.
As the weakening Peso increases costs in importation, resiliency can also be built by boosting the local sector, by means of reducing reliance on foreign goods. This is one of the ways forward. This is one of the ways the Peso can recover amidst a global crisis.
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