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Friday, March 29, 2024

Strong peso, rising forex reserves

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"The second-quarter economic plunge is likely temporary."

The Philippines economy would have been in a complete shambles now after the gross domestic product registered a record second-quarter contraction of 16.5 percent. The peso would have plunged against the US dollar”•a telltale sign of a weak economy and the loss of business confidence”•with foreign investors exiting the Philippines in droves.

But none of these are happening in the economy. The peso rose to 48.57 against the US dollar the other day, its strongest in 45 months, while the international reserves were close to the milestone of $100 billion at the end of July. Foreign credit rating agencies are not setting the alarm bells on the Philippines while multilateral lenders continue to pour in aid money to help the government contain the spread of COVID-19.

The strict lockdown has rendered millions of Filipino workers jobless as factories and offices operated on skeleton staff. Fast-food outlets, malls, restaurants and hotels were also shut down as all forms of travels were restricted in the capital region and the rest of the country. The economy, thus, is certain to struggle for the rest of 2020, depending on the pace of reopening.

But the country's economic managers, while worried over the slow pace of reopening, are not that pessimistic on the outlook of the Philippines. Bangko Sentral ng Pilipinas Governor Benjamin Diokno has assured the economy remains robust despite the sharp drop in business activities.

Critics of the administration have likened the poor second-quarter performance of the economy to the crises in the pre-EDSA revolution, the 1997-98 Asian currency crunch and the 2007-2008 global financial meltdown. The Philippines succumbed to past crises because of inherent weaknesses in the local economy. The Philippines during those times had high foreign debt in relation to the GDP, low foreign investment levels and little revenues to work with.

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The Philippine economy now, in contrast, is structurally strong. The inflation rate is benign while interest rates are at record lows. Besides the strong fundamentals, the Philippines has built a robust banking industry with good capital adequacy ratio and low net performing loans ratio.

The second-quarter economic plunge is likely temporary. Consumer confidence is certain to improve as the population adapts to the new normal forced upon by the pandemic. The Philippine economy, in sum, remains healthy despite the temporary setback.

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