Economic developments and political factors, to a certain extent, are weakening the peso against the US dollar. The Philippine currency has dropped to 10-year lows, closing at 50.39 Thursday with no indications of a quick end to the slump.
The impending interest rate hike of the US Federal Reserve Board has largely pulled down the value of the peso against the greenback. With a better investment return, the US dollar has attracted foreign funds away from emerging markets like the Philippines.
The rising demand for US dollar in the Philippines is also not helping the peso. Philippine imports are increasing as a result of a growing economy. President Rodrigo Duterte’s ambitious $170-billion infrastructure program is certain to exert further downward pressure on the peso once the plan is aggressively implemented.
Negative sentiments on the Philippines from abroad, however, are playing a key factor on the peso. These negative thoughts, stemming mainly from local political developments, are prompting foreign funds to reduce their exposure to the Philippine financial market.
This administration’s bloody drug war that resulted in the killing of 7,000 people has unnerved some foreign governments. Reports of widespread extra-judicial killings and police abuse have generated a firestorm, especially from human rights group.
Amnesty International decried the campaign, claiming in a report that the police “have killed and paid others to kill thousands of alleged drug offenders in a wave of extrajudicial executions that may amount to crimes against humanity.”
AI’s critical and well-publicized report will fuel more negative market sentiment on the Philippines. The perception that the government is stifling dissent after the arrest of critic Senator Lilia de Lima has also made foreign fund managers more cautious on investing in the Philippines.
It may take a while before the peso regains its strength, notwithstanding the strong Philippine economic fundamentals. Negative market sentiments may linger unless the political scenario soon improves.