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What's In Store For The Philippine Peso ?

Jan 12, 2008
When the United States Dollar-Philippine Peso Exchange rate was still P44+ to a dollar, I told my dad to dump all his dollars, exchange it for peso and put it in mutual funds.

I don't know if my dad has listened to my advice, but now the exchange rate is now nearing P 40.00 to a dollar.

Some experts give the fearless forecast of 37 to 1 by as early as the 1st quarter of 2008. More conservative experts peg it at P 39 to a dollar by 2008 and most would agree that it would stay in the P 30 +++ level by 2009. Some give a higher than P 35 prediction while others give a lower than P 35.00 prediction.

One thing is certain though, the Philippine Peso will keep on getting stronger in coming months because of the following:

1.) Basic economic principle of supply and demand - More supply of dollars means the the dollar becomes cheaper. In the same way the less demand there is for dollars, the cheaper it becomes. What could be the reason why the Philippines has an oversupply of U.S dollars ? The following reasons could provide a clue:

a.) Increase in remittances sent by Overseas Foreign workers (OFW) -About eight million Filipinos, out of a population of more than 80 million, have left the country to work in other coutnries. There is an estimated 11 million Filipinos worldwide. As the number of Filipinos leaving the country for work increases, so does their remittances. This futher aids in making the Philippine Peso stronger.

b.) Influx of more foreign capital - According to the Central Bank, foreign direct investments (FDI) from January to September 2007 aggregated to US$1.9 billion. This is higher by 22.3 percent compared to last year's US$1.6 billion (In the same period). Most Investors now see that the Philippines is good place due to the following reasons, effective Fiscal reforms implemented by the government, strong economic fundamentals, our growing business process outsourcing potential and liberalization of mining laws. Most of the foreign investments in the country went to mining, real estate and manufacturing. This is the reason why the stock market remains to be bullish, the inflation rate is low, and the GDP is high etc. This results to a good business environment for investors. More investors are expected to come in as this trend continues. As more "hot money" flows into the country, the supply of dollar continues to increase.

c.) More Tourist, More money - Tourists spend a lot of money while they are in the country. According to the Department of Tourism, Tourist arrival increased 8.6 percent from last year. This means that there 2.5 million more tourists. With the influx of more tourists, the supply of U.S dollars is further increased in the country.

d.) Growth in Export earnings - Despite the appreciation of the Peso and the slowdown of traditional export business, the exports sector has exhibited some growth. This is because of the increase in Business Process Outsourcing investments in the country. The Philippines continues to be one of the favorites destinations for business process outsourcing investments.

e.) Stability in politics - The Filipino people are tired of engaging themselves in activities to call for the resignation of the president. They are also sick of all these political bickering and political mudslinging. The government is maintaining a strong grip on the situation. This resulted to a more stable politcal environment.

2.) A weaker U.S dollar - While it is true that our strong economic fundamentals helped push the Peso upwards, it also cannot be denied that the Peso got a little help from the weakness of the U.S dollar. The economic problems of the U.S due to the sub prime mortgage crises has been causing the U.S dollar to futher weaken. This factor helped push the Peso upward.

Since it started to get stronger, the Philippine peso appreciated 18 % against the U.S dollar. This resulted to the Peso being named as the best performing currency in Asia last 2007. In the months or years to come, expect that the trend of a stronger peso will continue.
About the Author
Do you want to know more about investments ? Zigfred Diaz regularly blogs about several topics including finances and investments. If you would like to know more economic forecast that could affect investment decisions, visit his blog.
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