Thursday, 4 November 2010

‘Peso rose 11% in real terms’

Business Mirror

AS the currency wars ensue, the Philippines has already been feeling the heat and may have already seen its currency appreciate by 11 percent in real terms, according to an expert from the government think tank Philippine Institute for Development Studies (PIDS), who advocated some sort of regional capital controls.

In a presentation at the Asia Policy Forum on Wednesday, PIDS president Dr. Josef Yap said that while the Philippine peso has appreciated by around 8 percent in October, in real terms this may have already reached a double-digit increase of 11 percent.

This, Yap said, makes it even harder for sectors dependent on dollar inflows like the export sector and the families of overseas Filipino workers (OFWs). The appreciation of the peso usually slows down consumption since it cuts exporters’ profits and slows consumption of OFW families.

“The Philippines is starting to experience that problem [peso appreciation] in October alone, [when] our nominal terms appreciated by 8 percent. Now the problem is, from my point of view, real terms appreciated at a higher rate, at about 11 percent. So that’s not a good sign if your currency appreciates at a higher rate in real terms than in nominal terms,” Yap said.

“It [appreciation] really hurts our economy, it hurts our exporters, our OFW and people don’t really look at this, domestic firms that compete with imports. I think they’re the hardest hit,” he added.

The solution to this, Yap said, is for the implementation of regional capital controls, which should receive some support from the International Monetary Fund (IMF). This is actually one of the recommendations of the Asia Policy Forum to include in the agenda of the Group of 20 (G-20).

The Asia Policy Forum is urging the IMF and the World Bank to implement reforms in its operations and governance. Included in these reforms should be reviewing the international financial architecture on issues like managing short-term capital flows and balancing the adjustment process between capital-exporting and capital-importing countries.

This was included in the report titled “Policy Recommendations to Secure Balanced and Sustainable Growth in Asia.” The report made by the forum will also be presented to Asian leaders before the meeting of the G-20.

“We really have to look at that issue, and one solution is capital control. But it should be at a regional level. And we have to have some support, explicit or implicit, from the IMF about implementing capital controls,” Yap said.

“So one, it should be at a regional level. That is what we should agree on; and second, we have to have some explicit or implicit support from the IMF about this capital control,” he added.

The other recommendations of the Asia Policy Forum include strengthening the role of Asian regional bodies in global macroeconomic and financial management; reducing the global imbalance; promoting inclusive and green growth; advancing trade and investment integration in Asia; pursuing financial regulatory reform in G20 countries; and reinforcing regional economic and financial cooperation in Asia.

The ADB Institute, which serves as the Secretariat of the forum, said that while Asian economies have already begun to recover from the global economic crisis, many risks remain. These risks include a double-dip recession in the advanced economies, the inappropriate timing and pace of withdrawals of macroeconomic stimulus programs around the world, surges in short-term capital inflows to emerging economies, and “currency wars.”

“Asian leaders need to meet and enunciate an Asian program to achieve balanced and sustainable growth. The articulation of such a program will boost confidence and position the region as a leading center of the global recovery,” ADBI Dean Masahiro Kawai said in a statement.

The Asian Policy Forum, established in 1999, brings together leading researchers to analyze key development issues affecting the region, and to make policy recommendations on them.

Tokyo-based ADBI, a subsidiary of the Asian Development Bank, was established in 1997 to help build capacity, skills, and knowledge related to poverty reduction and other areas that support long-term growth and competitiveness in developing economies in the Asia-Pacific region.

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