Thursday, February 16, 2006

Damned lies and statistics: the case of the strong Philippine peso

“There are lies, damned lies, and statistics.” (Benjamin Disraeli, 1804-1881)

Will the government stop using the economy’s statistical indicators such as the peso-dollar rate as political props? This is to avoid confusion on important public economic policy.

Is the government promoting a strong peso? Apparently not. The Bangko Sentral ng Pilipinas (BSP), which is supposedly independent, has been stressing it’s implementing a “market-determined” exchange rate policy. Nevertheless, President Arroyo’s often use of the "strong peso" as indicator of her administration’s "economic performance" is sending a confused signal to the private sector. Lately, exporters are complaining that a “strong peso” is hurting their competitiveness. And certainly, it’s affecting the families of overseas workers who are now pressured to send more dollars for the same amount of peso that their families need.

In December, for instance, Sergio Ortiz-Luis, president of the Philippine Exporters Confederation warned that a peso-dollar exchange rate lower than P54:$1 would hurt their chances of attaining their 10 percent export target for 2006. Is president Arroyo aware of the consequences of her statements? Yesterday, the Bangko Sentral ng Pilipinas (BSP) reported that remittances from overseas workers jumped 25 percent in 2005. This could probably mean the peso may yet remain “strong” for long thus hurting further the “globalized” sectors (i.e., export, OFWs) that are propping up the economy. Take note that these sectors now account for about two-thirds of the country’s gross domestic product. What will she say this time?

The government is having a peace process in Mindanao, an island economy which is highly depended on the exports of marine products like seaweeds, and high value crops like bananas, mango, pineapple, asparagus, among others. Government has been saying it wants to see an economically prosperous Mindanao. Surely, they are not happy with GMA’s preference for a “strong peso.”

Lately, economists from the University of Asia and the Pacific are warning that the strong peso might yet worsen the country’s trade deficit and are recommending that the government should buy dollars to “mop up the excess dollars” in the economy to "weaken" the peso and restore the competitiveness of the country’s export-oriented industries. Should her advisers or the BSP find these recommendations appropriate, the government now may have lost its flexibility and credibility to do something. Will she reverse her earlier statement and say “Wow naman, the peso is depreciating na. This is great!”

Go easy on statistics, Madame President. It’s not wise to use them the way a drunk would use a lamp post. The truth behind the “strong peso” could hardly be credited to your strong “economic fundamentals.” It’s largely due to high OFW remittances, meaning that many professionals are seeing limited options for a secure future within the country’s borders so they are wandering about the globe, following trail of the dollar. Certainly, portfolio investments are coming in after sensing that the implementation of the higher VAT will push through, but these monies are nothing but mindless herds that will stampede out of the border once they see trouble or once they find a more profitable grazing land.

Besides the OFW remittances, the real money are the export-generated dollars and foreign direct investments. Exporters however are hobbled by a host of problems, (including a non-competitive peso-dollar rate). We are not seeing foreign direct investments coming in droves because of constraints like lack of infrastructure. Infrastructure is bad because government has been inept at collecting taxes and would rather keep the money for “fiscal consolidation” to appease its tuxedoed gods at the headquarters of Fitch as well as Standard and Poor’s.

Business process outsourcing, of course, are raking in billions of dollars in terms of service exports, but these activities are largely private-sector driven and could not be credited to the “economic performance” of the government. It’s a “people’s economy” and there is hardly anything that the government could claim credit for.

The government often blames “political noise” every time the economy are experiencing hiccups. Part of the reason, we believe, is her often inappropriate use—nay cherry picking—of economic indicators for political purposes. If you use economic statistics to flaunt economic performance, chances are the economy becomes a lightning rod for criticisms from all quarters. And that’s unfair to the private sector entrepreneurs who are caught in the political crossfire.

In their station of the union addresses and policy pronouncements, former United State President Bill Clinton and even the current president George W. Bush hardly speak using the arcane esoterica of the Dismal Science. Instead, they usually talk about whether or not Americans have adequate shelter or jobs or medical care or better quality of life. This way, their message, simple and unpoliticized, get across the nation loud and clear. Couldn’t we just do the same here in the Philippines?


taoharu said...

"... these sectors now account for about two-thirds of the country’s gross domestic product."

You know what? I didn't know that we were this strong in exports. Nice to know this... I'm a believer in export-led growth for the Philippines. And I agree with you, a "strong peso policy" is bad policy for an export-led growth strategy. The strong peso favor importing.

GMA's "strong peso bias" is popular in Manila. Well, that's reasonable because Manila is import dependent. The strong peso is good for them. It is Manila that complain whenever the peso gets weak. Because Manila controls the newspapers and the media networks, it's voice is very loud. Deafening, in fact. And our Manila-centric government act as if it is the Philippines. For the present government and for the Manila-based elites: What's good for Manila is good for the Philippines. But we promdis (from the province) know it's not the case. What's good for Manila is good for Manila and not always for the larger area of the Philippines.

Manila exerts too much influence in our government. It's influence should be reduced. The provinces should be given more power and independence. And I believe a federal setup will be good for the Philippines.

By the way, I agree with you. The "strong peso" is not the right position to take, specially with our high unemployment situation. GMA should focus on job-generation before anything else.

Dave Llorito said...

i totally agree with you. amen to all those points. but when i say that its "two-thirds" it includes other globalized sectors including remittances, and services export (call centers, other outsourcing). got that figure from philexport chief sergio ortiz luis. got my own computations a few weeks ago and its 77 percent. but i need to review those figures. ill update you on this one.