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Friday, March 29, 2024

Bad diplomacy starts to hurt economy

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Negative trends are in progress in the economy of this country. One is the depreciation of the peso; the other is the weakening of the stock market. At around 48.25 to the US dollar, the peso is at its lowest level against the US currency. The Philippine Stock Exchange (Phisix) index has slipped below 7,000, a sharp decline from the just-over-8,000 that it reached last year.

These and other less prominent trends are being ascribed by the BSP (Bangko Sentral ng Pilipinas) and defenders of the administration of Rodrigo Duterte to the uncertainty generated by the long-awaited US Fed (Federal Reserve Board) decision on the basic Fed interest rate the—Fed funds rate—upon which US commercial-bank rates are based. But the leaders and members of the Philippine Stock Exchange do not believe that the negative trend in the Phisix are entirely attributable to the decision-making of Fed chairman Janet Yellen and her colleagues. This can be gathered from the published statements of some bankers and stockbrokers.

The economist of this country’s third largest commercial bank (and oldest domestic commercial bank), Bank of the Philippine Islands, has spoken of the uncertainty generated by the uncertainty of the administration’s foreign policy. “Most of the investors who have raised their concerns with (BPI) find the uncertainty about Philippine foreign policy and diplomacy to be most unsettling,” Emilio Neri has said.

The senior economist at ING Bank Manila, Joey Cuyegkeng, has attributed the peso’s continuing underperformance against other Asian currencies partly to domestic factors. “(These) have to do with market perceptions about “non-economic concerns.” Being a Dutch bank, ING Bank is undoubtedly  aware of, and sensitive to, the ongoing discordant dialogue between the Duterte administration and the European Union, of which Netherlands is a member. Added Cuyegkeng: “(T)here are emerging stresses on the economy and (these) could be exacerbated by non-economic factors.”

In a research note distributed among its clients, stockbrokerage Papa Securities said: “There is still some debate if the cause (of the foreign funds outflow) is profit-taking, uncertainty over the Fed rate hike or concerns on domestic stability.” It added: “(W)e suspect that Mr. Duterte’s often-quoted statements are merely aggravating foreign selling in a relatively fragile market.”

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But the weightiest observation came from the leading international credit-rating firm S&P Global Ratings, which gave the Philippines successive rating upgrades during the Aquino administration. Said S&P: “The numerous instances of extrajudicial killings, when combined with the President’s policy pronouncements elsewhere on foreign policy and national security, we believe that the stability and predictability of policymaking has diminished somewhat.” Sounds ominous.

The common message of the foregoing statements is that a government cannot with impunity make irresponsible and injurious statements about international institutions and foreign personalities. There is a price to pay sooner or later.

The behavior of the securities and foreign exchange markets suggest that that price is beginning to be paid.

E-mail: rudyromero777@yahoo.com

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