PHILIPPINE ECONOMY: THE DECLINE OF THE PHILIPPINE PESO
INTRODUCTION
Devaluation is a reduction in the value of a currency with respect to those goods, services or other monetary units with which that currency can be exchanged. (Wikipedia)
Devaluation is an integral part of adjustment in many developing countries, particularly relied upon by countries facing large external imbalances. Devaluation can only reduce trade imbalances if it translates to a real devaluation and if trade flows respond to relative prices in a significant and predictable manner. (Reinhart, Carmen 1995)
Devaluation refers to the declination in the value of a currency in relation to another which is normally being brought by the actions of a central bank or monetary authority. Sometimes the word” Devaluation” is used more generally to describe any significant drop in a currency’s international exchange rate, but usually a decline caused by market forces where sometimes government has no intervention and is termed as depreciation. Devaluations are most often associated with developing countries like the countries in Asia that don’t allow their currency price to float freely on the open market.
Currency devaluation can take two forms. It can either be the natural result of market forces, or it can be the result of government intervention. In the first scenario, the global market changes its opinion about the stability, value or future of a currency and decides that it is willing to pay less. In the second scenario, a nation's government fixes the relative price of their currency below its present level and prohibits currency exchange at any other rate. (Joshua Curtiss)
In order to achieve a more desirable balance of trade, Currency Devaluation can be a help. Currency devaluation will reduce the price of their products abroad and increase the price of foreign products in domestic markets for nations which is experiencing a trade deficit or when imports exceed exports. Lowering of prices can mean more jobs and lower unemployment rates at home when the demand is increased for products in other countries.
PHILIPPINE PESO
The Philippines or the Republic of the Philippines is a Southeast Asian Country and is considered as an archipelago of 7,107 islands located in the western Pacific Ocean. The capital city of the Philippines is Manila. The Philippines can be divided into three parts, namely, Luzon, Visayas, and Mindanao; with all these islands combined, the country’s coastline is the fifth longest in the world, spanning 36,289 kilometers. It is considered as Asia’s largest Catholic country of Asia, since Spanish colonial times and is the world’s 12th most populated country with approximately 101,833,938 (2011).
Philippines economy is the world’s 47th largest economy (as of 2008). Peso is the unit of currency (Filipino: piso) (sign: ₱; code: PHP) is being used. The Philippine peso is subdivided into 100 centavos, Spanish or sentimo in Filipino. In 1967, the languages used on the banknotes and coins were English so the term peso was the name used. After that, the language was then changed to Pilipino or the name of the Filipino language and so the currency as written on the banknotes and coins is piso. Bangko Sentral ng Pilipinas or Central Bank of the Philippines are the one issuing the banknotes of the Philippines and in charge of the circulation. The 20 peso bill is the smallest amount of legal tender in the circulation and 1,000 peso bill is the largest. The front side of each banknote features prominent people in the country's history while the reverse side depicts landmarks and events in history. The front side of each banknote features prominent people in the country's history while the reverse side depicts landmarks and events in history, the 5 and 10 peso bills have not been demonetized and concurrently offered in coins in recent years.
The peso is usually denoted by the symbol "₱", this symbol was added to the Unicode standard in version 3.2 and is assigned U+20B1 (₱). The symbol can be accessed through some word processors by typing in "20b1" and then pressing the Alt and X buttons simultaneously. Other ways of writing the Philippine Peso sign are "PHP", "PhP", "P", or "P" (strike-through or double-strike-through uppercase P), which is still the most common method, however font support for the Unicode Peso sign has been around for some time (Wikipedia).
PHILIPPINE ECONOMY
The economy of the Philippines is always changing, sometimes the economy is high, and sometimes the economy is low. In 2010 The Philippine economy grew at its fastest pace at a rate of 7.3% that has surpassed the government’s target of 5.0% to 6.0% and jumped up from growth of just 0.9% in 2009, the Philippines seeks to attract more foreign investment and enable the long underperforming economy to catch up with its fast-developing Asian neighbors, said analysts.
The Philippine Star on January 10, 2011, reported that investment is expected to hit P610.4 billion by 2014 (2010 posted a P505 billion investment) according to the Board of Investments (BOI)'s managing head Cristino L. Panlilio and the Philippine Economic Zone Authority (PEZA). The BOI said that they were hoping that investments from the public private partnership (PPP) will boost the figure.
Philippines’ GDP grew 7.3% in 2010 due to spurred by consumer demand, a rebound in exports and investments, and election-related spending. The economy weathered in global recession due to minimal exposure to troubled international securities, lower dependence on exports, relatively resilient domestic consumption, large remittances from four- to five-million overseas Filipino workers, and a growing business process outsourcing industry.
The average rate during Arroyo’s administration is 4.5% economy growth in the country. Despite of the economy growth, the rate of poverty was worsened, because of a high population growth rate and inequitable distribution of income. For Aquino’s administration, they are working to reduce the government deficit from 3.9% of GDP, when it took office, to 2% of GDP by 2013. In financing the deficits the government has had little difficulty issuing debt both locally and internationally. President Aquino emphasizes the first budget to education, health, conditional cash transfers for the poor, and other social spending programs, relying on the private sector to finance important infrastructure projects.
The AQUINO administration has vowed to focus on improving tax collection efficiency - rather than imposing new taxes - as a part of its good governance platform, whereby weak tax collection has limited the government's ability to address major challenges.
According to CIA World Factbook:
GDP (purchasing power parity) GDP - real growth rate
$351.4 billion (2010 est.) 7.3% (2010 est.)
$327.4 billion (2009 est.) 1.1% (2009 est.)
$323.9 billion (2008 est.) 3.7% (2008 est.)
GDP - per capita (PPP) GDP - composition by sector
$3,500 (2010 est.) Agriculture: 12.3%
$3,300 (2009 est.) Industry: 32.6%
$3,400 (2008 est.) Services: 55.1% (2010 est.)
Population below poverty line Unemployment rate
32.9% (2006 est.) 7.3% (2010 est.)
Labor force 7.5% (2009 est.)
38.9 million (2010 est.) Unemployment, youth ages 15-24
Labor force - by occupation total: 17.4%
Agriculture: 33% male: 16.2%
Industry: 15% female: 19.3% (2009)
Services: 52% (2010 est.)
Household income or consumption by percentage share
Lowest 10%: 2.4%
Highest 10%: 31.2% (2006)
Distribution of family income - Gini index Budget surplus (+) or deficit (-)
45.8 (2006) -3.7% of GDP (2010 est.)
46.6 (2003) Inflation rate (consumer prices)
Investment (gross fixed) 3.8% (2010 est.)
20.2% of GDP (2010 est.) 4.2% (2009 est.)
Budget Public debt
Revenues: $26.78 billion 52.4% of GDP (2010 est.)
Expenditures: $33.75 billion (2010 est.) 54.8% of GDP (2009 est.)
Taxes and other revenues
14.2% of GDP (2010 est.)
This means that there is no constant increase or decrease in terms of the GDP or Gross Domestic Product and other rates thereof. GDP or gross domestic product (GDP) is similar to its gross national product (GNP), except that GDP excludes net income from foreign sources. It is a measure of the value of a country’s production of goods and services for a specific period as show above that is usually one year. In general, economic policy makers look to the size and growth of the GNP or GDP as an indication of the well-being of the country's economy.
GDP or Gross Domestic Product is a measure of all the services and products made domestically or the services/product measures in once country. The components of GDP are therefore the sectors of an economy which include consumer spending in their daily living, industry investment of investors like in shoe-making, can goods, differential for imports and exports, and government spending for the development of the country.
GNP can be measured in at least two different ways, both of which yield the same result. One way of measuring the Gross National Product is from the buyer's point of view. Also known as the expenditure approach to measuring GNP, this method calculates the value of the GNP as the sum of the four components of GNP expenditures: consumption of the people, investment for industries or big businesses, government purchases for the development of the country, and net exports to different countries.
The economic theory of purchasing power parity attempts to refine the true value of currency. Purchasing power parity seeks to find whether the purchasing power among the world's currencies is equal or not. To find whether purchasing power is equal, purchasing power parity compares the exchange rates with price levels. If purchasing power parity exists, then the exchange rates and price levels should be equal. To determine purchasing power parity, you can compare the exchange rate and price level between two countries. (Gilberto Fuentes)
PPP or Purchasing power parity is a theory of long-term equilibrium exchange rates based on relative price levels of two countries and uses that to calculate an implicit foreign exchange rate. The rationales of PPP are private sector offers efficiency gains, private sector participation can accelerate the provision of public services and government’s role can be rationalized. It’s also an economic technique used when attempting to determine the relative values of two currencies. It is useful because often the amount of goods a currency can purchase within two nations varies drastically; based on availability of goods, demand for the goods, and a number of other, difficult-to-determine factors.
The Philippines has undergone a transformation from being an agriculture based country to that of a newly industrialized country. The economy is now vastly dependent on the services and manufacturing sector, most of the growing economy is located in Luzon.
PESO DEVALUATION
A discussion in one of the Philippine community forums said, “The 'marketing' of the Philippine peso has yielded minimal outcomes during the last 20 years. Somehow, there is a continuing perception of the Philippine peso, as weak & unstable. Using our vernacular, the currency name 'peso' is becoming synonymous to 'talunan' (ie. loser).”
What is the true value of our peso nowadays? It’s really not surprising that there would come a day when our currency ranges from a 50 peso coin to a 10,000 peso bill if it would continue to devaluate but for me, our economy’s success it’s not all about the devaluation of currency, it’s in the discipline, respect and unity of every Filipino.
The value of a country’s currency is often judged by weighing it against other countries’ currencies. When one country decides to lower the value of its monetary units, this is known as currency devaluation. As a result, stronger currencies are capable of buying more of the weaker currency. Most people think of money as something which is used to make purchases. Many do not consider that money may also be purchased. There are numerous types of currencies in the world. Each normally has a different value when they are compared.
Devaluation has a very harmful effect on the economy of a developing country like the Philippines, if its exports have elastic ad its imports in-elastic demand. A developing country has to import a large number of strategic factors of production which are not available in the country for accelerating the rate of economic development and so with economic stabilization. A currency crisis occurs as a nation's currency suddenly and rapidly devalues. While there are numerous factors that lead to a currency crisis, the immediate cause is a flight of capital from the country in response to perceived instability on the part of foreign investors. This resulting devaluation means that one unit of currency is not worth as much as it previously was, which leads to rapid inflation.
The devaluation of currency can only happen when a nation has been keeping its currency at a fixed exchange rate. For example, if Mexico keeps its peso at, for example, 15 pesos to the dollar, that is a fixed exchange rate. In such a case, a government can devalue its currency by changing the rate and making its money worth less.
In this example, the Mexican government could change the exchange rate and say that the peso is now worth less -- 30 pesos to the dollar. One major impact of such a move is that the country's exports become cheaper for people in other countries to buy.
This is often seen as a reason to devalue -- to allow your country's exporters to sell more goods abroad. There are many other impacts, though, and not all of them are good. For example, devaluation can result in a huge loss of confidence among the citizens of the country that devalues its currency. Please follow the link for a thorough discussion of various impacts of devaluation. (pohnpei397)
TWO MAIN CLASSES OF DEVALUATION
` There are two main classes of devaluations, the planned policies and reactions to market events. Planned devaluations where government decision can deliberately reduce or affect the relative value of a currency usually intended as a means to some improvement in the trading of the country to other countries to have investors brought about almost exclusively. Frequently during a monetary crisis, that the value of its currency relative to major world currencies especially the dollars already depreciated through trading in the foreign exchange markets is the Market-driven devaluation, by contrast is often the formal recognition by a government.
ADVANTAGES & DISADVANTAGES OF DEVALUATION
Advantage of devaluation is it can do increase the supply of exports in response to higher demand without increasing the price. Since currency is devalued and difference between currency value of country where supplies are exported and currency of import country are fairly large. Hence supply will fetch more money to country
Disadvantage of devaluation is if in case of import of inelastic demands, importer, having currency devalued, has to pay more money to foreigners. Hence discourage inflow of goods and services to country.
INTERNAL DEVALUATION
Internal devaluation is economic and social policy option whose aim is to restore the international competitiveness of some country like the developing countries in terms of mainly by reducing its labor costs - either wages or the indirect costs of employers. Sometimes internal devaluation is considered as alternative to standard external devaluation, although social implications and speed of economic recovery can significantly differ between the two options.
Internal devaluation was first considered during the Sweden economic crisis during the 1990s and Finland's accession to the European Union in 1995. Internal devaluation gained popularity during the economic recession of 2008-2010 when several countries pursued such policies with aim to restore competitiveness and to balance national budgets. While internal devaluation is discussed by several publications in the magazines The Economist and The Wall Street Journal, generally there is lack of peer-reviewed research and that is why the widely discussed eventual success of internal devaluation can be partially considered as urban legend. (Wikipedia)
DEVALUATION FACTORS
Devaluation can occur when there are trade deficits, government budget deficits or other internal weakness that is cause by the demand for a nations’ currency as was the case during the Asian financial crisis of the late 1990s.
Usually currency devaluation comes about when some determination is made in the domestic currency that has been overvalued relative to major world currencies. This can be used as a policy tool to relieve for an unfavorable balance of trade or just simply to stimulate the export industries. Such this, the devaluation will make the country’s exports more attractive overseas and imports from other countries less attractive locally but in so much reality there are factors which may diminish these effects and devaluation planning is a risky to undergo.
If the conditions locally are suitable for the ideal devaluation may trigger a cycle of competitive devaluations by other countries and thereby undermine the initial country's strategy. So in due time developing countries such as in Asia are periodically faced with a currency crisis like the Philippines in which they may need to consider devaluation.
The biggest cause of devaluation is the existence of rate controls and other government exchange rate policies. If this thing will not exist, there is a possibility to have currency depreciations but there is no effort to allow the value of the currency to fall. The interests of stability, nearly all nations practice some form of rate intervention from time to time, whether by occasional targeted transactions on the open market or by a strict regime of price controls. The currencies most vulnerable to devaluation, hence, are those belonging to nations with uncertain economic prospects and with active rate control/support policies. Devaluation is easier for a population to swallow or to accept than having harsh structural changes like in the voluntary cutbacks in demand for imported products.
Reasons of devaluation of devaluation of national currency Reasons can be inflation or deficit of balances of payments. Although devaluation is caused macroeconomic factors, the direct decline of currency exchange rate is caused the decision of regulative organs in a country.
Such decision can be an official decline fixed guidance of country of course, waiver of support of currency exchange rate, waiver of attachment of currency exchange rate to currencies of other countries or currency baskets with the purpose of diminishing of deficit of balance of payments of country, increase of competitiveness of producible commodities in the world market, stimulations of internal production.
Under the risk of devaluation of currency the risk of a stress fall-off of currency exchange rate is understood in relation to other currencies. Possibility of estimation of risk of devaluation substantially depends on that, what form it takes place in. A decline guidance of country of the fixed course can be predicted beforehand; elemental devaluation, caused inability of regulative organs to support a currency exchange rate, is difficultly added estimation. On expectations of the sharp falling of currency exchange rate, investors begin to inlay money in more financial transmitters. But, nevertheless, it is an extreme measure.
COMPETING VIEWS ON DEVALUATION
According to the orthodox theory of international trade found in most textbooks, a planned devaluation is not necessary and is, in fact, disruptive since it interferes with free market forces. In theory, any trade deficit in a relatively open market system will automatically be translated into a decline in the affected country's price levels (via the outflow of money that is assumed to reduce prices and, in turn, depreciate the country's real exchange rate). This, according to the theory, would make that country's goods more competitive, expand its exports, and lead it toward trade balance. A similar process is envisioned for trade surpluses. A controversy arises, however, because it is highly questionable that this process actually plays out in reality. The prolonged study of the effects of devaluation has produced results that are theoretically indeterminate and empirically unconfirmed.
Even though the validity is still in debate, there are supports the argument that a devaluation can indeed have positive effects, albeit not immediately. Many of the economic experts expect that devaluation can worse the trade balance that can result to the contraction in output and employment rate improving the overall balance. An explanation for this is that changes in a unit demand often move slowly than corrections that can result on the immediate decrease in the export revenues that is due to lower prices without an initial increase in the units to offset it.
Some have argued on the devaluation that can lead to other more subtle repercussions in the international trading system. Other factors being equal, an improvement in country's trade balance means a decrease in the trade balance somewhere else in the world, since the sum of all world trade balances must equal zero. By logic of this argument, an improvement in one country's trade balance must be gained at the expense of its trading partners' trade balances. This is why devaluation is often referred to as a "beggar-thy-neighbor" policy which also means that attempts to cure a country's balance of trade, inflation, and unemployment problems by practices that harm the economic interests of its trading partners. It usually takes the form of (1) restricting imports by quotas or by raising tariffs, (2) currency devaluation that makes imports more expensive and exports cheaper, or (3) currency appreciation that reduces domestic inflation but makes its products more expensive in the importing countries.
DANGERS OF CURRENCY DEVALUATION
Currency devaluation is a reduction in the value of a country's money on the foreign market. The strength of money can fluctuate independently or intentionally, depending on the exchange system in place. Since 1973, the United States has opted to let its currency increase or decrease without government interference. Regardless of the cause, currency devaluation can be economically harmful in many ways.
Currency appreciates (increases value) or depreciates (loses value) based on the system in place. There are two systems: fixed rate and floating rate. Under a fixed system, only the government can change the value of the currency. The majority of industrialized countries, including the United States, rely on a floating system. With floating exchange rates, currencies lose or gain value based on the demand in different worldwide markets.
If a country devalues its currency, other countries will use this situation and are able to import products from that nation at a cheaper price like China. However, this increases the cost of importing goods and increases the demand for products made at home. In turn, this stimulates inflation. Inflation is the general rise in prices throughout a country's economy, because the demand for goods or services exceeds the supply. People exploit this, charging higher prices with the knowledge that purchasers will have to pay, whether they like it or not which is bad for consumers.
While a strong currency is good for a country's image, devalued currency can have the opposite effect. As a nation's currency loses value, its economy seems weaker, which affects its credit. When this happens, investors may be apprehensive to put their money into that economy. The end result is that the country with devalued currency will find it difficult to obtain foreign investors.
Devaluing currency can set off a domino effect of depreciation. Foreign traders may feel that their export industries are threatened. To prevent this from happening, other countries may devalue their currencies as well. The Federal Reserve Bank of New York refers to this as a "beggar thy neighbor" policy. The end result is general economic instability. The International Monetary Fund was established to help moderate trade between countries and prevent successive devaluations.
THE ROLE OF FOREIGN EXCHANGE MARKETS
Foreign exchange (FX) markets serve as the principal rate-setting mechanism for the exchange of currencies. In theory, they allow supply and demand to dictate the relative value of world currencies. In practice, they are also a medium for investment (including speculation and hedging) and an efficient means for obtaining or disposing of foreign currencies. As such, foreign exchange markets can give rise to significant rate fluctuations and can create conditions leading to devaluation. (DinarNewsMan)
PESO REVALUATION
Revaluation means a rise of a price of goods and products or increases the exchange value of currency. This term is specially used as revaluation of a currency, where it means a rise of currency to the relation with a foreign currency in a fixed exchange rate. In floating exchange rate correct term would be appreciation. The antonym of revaluation is devaluation. Altering the face value of a currency without changing its foreign exchange rate is a redenomination, not a revaluation. (Wikipedia)
ADVANTAGE OF REVALUATION
Revaluation is advantageous in that it needs no other parameters to calculate and in that it produces a more accurate depiction of the pattern in which an asset's value decreases as it is used. Revaluation method requires only that the asset's value be manually reassessed in each period and does not need estimates of either its useful lifespan or residual value upon disposal to calculate depreciation expense.
DISADVANTAGE OF REVALUATION
Revaluation method is disadvantageous in that its numbers are based on the individual appraiser's opinion rather than any comparatively objective standard of measure such as the market prices that most depreciation methods are based on. Furthermore, revaluation method produces a different depreciation expense in each period of the asset's use even when there should not have been large differences between its uses in those periods.
DEPRECIATION
The gradual decline in the financial value of property used to produce income due to its increasing age and eventual obsolescence, which is measured by a formula that takes into account these factors in addition to the cost of the property and its estimated useful life. Assets tend not to lose value evenly across their lifespan and most methods other than revaluation tend to model the precise pattern loosely if at all. (West's Encyclopedia of American Law)
Depreciation represents the decrease in an asset's usefulness through the decrease of its value, culminating in an end to its efficacy and efficiency.
Depreciation is a term frequently used in economics and finance that describes the loss of value over time. Depreciation can affect any asset, such as cars, real estate, stocks and even currency. Depreciation can arise from a variety of factors such as wear and tear, obsolescence and economic factors like demand for the asset. Depreciation can be both advantageous and disadvantageous.
APPRECIATION
Appreciation describes the increasing value of an asset over time, and is commonly used in reference to increased values of real estate. Comparing the appreciation of different investments can help determine which investment is best. To calculate the average annual appreciation, there’s a need to know the initial price of the investment, the final price of the investment and the number of years the value took to appreciate.
DIFFERENCE BETWEEN APPRECIATION & DEPRECIATION
In finance and accounting, terminology is everything. Depreciation and appreciation are two sides of the same coin. Depreciation is when the value of assets goes down, and appreciation is when the value of assets goes up. Another type of depreciation that can confuse people is asset depreciation. This is an accounting term used to describe a certain type of write-off. (James Collins)
In the world of investments, assets are given a certain value. Market values are given to assets based on demand and supply considerations, and book values are given based on the cost of the asset to the buyer. The profit made on the asset is calculated by subtracting the cost of the asset from the current market value of the asset. The current market value is what you could receive for the asset if you were to purchase it today.
DECLINE OF THE PHILIPPINE PESO
Currency devaluation is an official action on the part of a national government to declare that its currency is worth less than it was previously. A country may decide to do this to make its exports more appealing overseas: foreign dollars can buy more product sold through a devalued currency than sold through a currency whose value is intact. In addition, devaluing a currency makes exports more expensive to people who hold the devalued currency. This encourages spending on domestically made products and helps local industries.
One of the Economic problems that the Philippines face today is the decline of peso in our country. The economic downturn has resulted in the devaluation of the Philippine peso and subsequently, a fall in the stock market. For me, as an ordinary citizen, we can feel the burden of this economic problem that we are in. Prices on markets are all increasing. Feb. 15 (Bloomberg) the Philippine peso strengthened as remittances exceeded the central bank’s growth forecast for 2011, government bonds gained. Money sent home by Filipinos living abroad rose 7.2 percent in 2011, the monetary authority reported today, surpassing its 7 percent growth projection. The transfers account for about 10 percent of the Philippine economy. Remittances of OFWs or Overseas Filipino Workers are of big help for the gains of the Philippine Peso. The economy of the nation also largely depends on the remittances from Filipinos residing overseas and investing in the homeland. However, exports are not evenly balanced by the imports that include heavy electronics, garments, various raw materials, intermediate goods and fuel. Philippine peso is like a wheel or compared to a wheel, why? Because sometimes Peso gains or sometimes declines. It always changing depends on many factors on the economy, locally or internationally.
CAUSE OF THE DECLINATION
In today's foreign exchange market, most national currencies operate under a floating exchange rate, where value is allowed to fluctuate freely against other currencies and financial assets. Many macroeconomic factors can cause devaluation of an individual currency, including central bank monetary policies to increase money supply, excessive national debt and weak economic growth prospects. Economies dependent on manufacturing and exports or those running a trade deficit may pursue intentional policies of currency devaluation to boost exports. Rapid devaluation can occur during a currency crisis, as investors lose confidence due to individual events, government policies or fear of sovereign debt default. (Scott Johnson)
The declination of the Philippine Peso can have many causes, example are the mounting joblessness and slowing remittances from Filipino nurses, sailors like seamen, chef and domestic helpers according to Societe Generale SA and Royal Bank of Scotland Plc. The jump in the unemployment rate reflects pressures on the domestic economy said by Patrick Bennett, Asia Foreign exchange strategies at Societe Generale in HongKong wrote in a research note. Coupled with the slowing inward remittance by the citizens working abroad and slowing of exports products, the Philippine Peso is set to weather further.
The most probable cause of the unemployment in the Philippines is the unavailability of jobs provided in the count with more than 101 million growing population of about an 8 million needed jobs; only few can sure provide one. The lack of investments and business that could provide good jobs for the Filipino is one key factor in the growing unemployment in the country but the government is trying to its best to attract investors to invest more.
Probably, one of the causes of unemployment in the Philippines may the lack of education; with the increasing in the demands of the fast developing world, it is really hard to find jobs if you’re only an elementary or high school graduate because some jobs needs more experience and knowledge but most likely employers need a graduate of particular skill or course. Though the Philippines is a literate country, it’s not enough to be able to reach the qualifications of most in-demand jobs because even mere sales ladies nowadays are required to have at least 1-2 years in college. We are facing a competitive world and it’s a must to reach the norms of development. Thus, a high educational attainment, which most Filipinos lack, is one way to uplift the unemployment rate of the country. At almost twice the level of neighboring countries the rate of unemployment in the Philippines remains high despite relatively fast employment growth in the past decade.
The rapid population growth and increased labor force participation can increase unemployment even if the unemployment rate is growing.
The key policy implications are that higher economic growth and moderation of increases in the real minimum wage are required to reduce unemployment. The more probable cause of unemployment in the Philippines is the unavailability of jobs provided.
With a growing population of about a 8 million, millions needed jobs and only few can sure provide one. The lack of investors and businesses that could provide good jobs for the Filipino people is one key factor in the growing unemployment in the Philippines.
But probably, one cause of unemployment in the Philippines may be lack of education. With the increasing demands of the fast developing world, it is really hard to find jobs when you are not a graduate of a particular skill or course. Though the Philippines is a literate country, its not enough to be able to reach the qualifications of most in-demand jobs because even mere sales ladies nowadays are required to have at least 1-2 years in college. We are facing a competitive world and it’s a must to reach the norms of development. Thus, a high educational attainment, which most Filipinos lack, is one way to uplift the unemployment rate of the country.
Weakness on remittances is one factor also. Let us imagine the Philippines without its overseas Filipino workers (OFWs) and assume there are no temporary and permanent migrants and millions of Filipino families do not receive any remittance from abroad. This would mean that the 5 million to 10 million Filipinos who currently make up our OFWs (temporary, permanent and illegal migrants) are included in the country’s labor force, sharing in the roller-coaster ride of queuing in job fairs, crowding the Metro Rail Transit every morning, and joining the country’s largest-growing industry, the business-process outsourcing sector.
The Philippine peso strengthened as remittances exceed, “Remittances remain supportive of the currency,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. in Manila. “It’s still strong at 7.2 percent growth, better than the government’s target.” He forecast growth this year will also be about 7 percent. The peso advanced 0.2 percent to close at 42.643 per dollar in Manila, contributing to a 2.8 percent advance for this year, according to Tullett Prebon Plc. Overseas remittances rose 10.6 percent in November from a year earlier to $1.78 billion, the central bank reported today. (Clarissa Batino) Money sent home by more than 8.5 million Filipinos living overseas increased 6.2 percent in October. The peso will probably strengthen to the “low to mid 43 levels” by the end of the first quarter, Algarra said. There are still more dollars coming in than flowing out.
Also part of this decline is the lowering of America’s credit rating but many economic indicators may be signaling a second recession is at hand. America somehow could affect the Philippine Peso, if their economy is at worst as well as for Asian countries. If their economy is down, for sure there will be less hiring for jobs and most likely most Filipinos will be jobless that could result to weakness on remittances. A strong dollar improves the lives of American expats living in the Philippines. A dollar with a weaker value can make it harder for those with the smallest of incomes.
EFFECTS OF THE DECLINATION
The positive effects of the declination can improve trade balance, alleviate balance of difficulties and accordingly expand output and employment. The price will fall in the country, the production of goods will increase and a high export quality will be expecting. The industries will expand with production increase, so with employment for the production will be productive. Local output will increases and the importation of goods will reduce; there will be an improvement on the trade balance with the positive balance of payments and there will be a reduce in smuggling. The government taxes will improve and a rise in government expectancy for profit increase. By this it will attract more investors and there will be economic stabilization.
What exporters are afraid of is our finished product will be less competitive in the world market if a strong peso raises production costs. Labor costs will rise because there will be more dollars to be converted to pesos to be spent for labor. What will be affected are the export processing zones. Finished products will be less competitive in the world market. Profits will dive and factories may close. When the peso is strong, there will be less pesos spent acquiring raw material. Then the finished product is sold earning weak dollars. There will be more dollars needed to pay labor in strong pesos.
On the other hand, the quality of the peso in the world market is raised. We will need less pesos to service our external debt in dollars. There will be more investors coming from different countries that will invest because they can earn more than when the peso is weak. Philippine economy will be stronger if there will be more investors coming because the strong peso earned will compensate their efforts most likely. The BSP or Bangko Sentral ng Pilipinas argues that the peso surge is but temporary. Market forces will eventually force the peso to seek its level. Overseas workers are the ones responsible for the strong peso. When remittances slow down the peso will depreciate. There is a tendency for the overseas workers to live permanently in the place where they work if the government of the country will allow.
The sad part of the business is that even if the peso appreciates, it is never felt locally. Local prices will remain the same and the worse will increase. Take for example oil products. If the world market for liquid petroleum gas rises, our local prices rise along with it. If it falls the peso price for Liquefied Petroleum Gas (LPG) will remain the same. Even if the peso appreciates, there is still no roll back in LPG prices. There must be something wrong with our economics.
Perhaps we would be much thankful that the peso appreciates. We are an importing country of different goods. Since birth we have been conditioned to believe that anything imported is excellent, because we do have this colonial mentality in which we patronized products or goods of countries which the country before. Imported wines, whiskeys, cigarettes, chocolates, perfumes and cars are better appreciated than local products. With the appreciating pesos, plus the General Agreement on Trade and Tariff all imported luxuries will now be within the reach of the locals. The incoming dollars will go out again. Our overseas workers will have to stay longer if not forever just to keep our economy afloat. While economy is on the rise, we do not institute measures to keep it up.
THE PHILIPPINE PESO KEEPS ON GETTING STRONGER OR WEAKER?
Experts who give out a fearless forecast predict a 37 to 1 exchange rate by the 1st quarter of 2008. The more conservative ones say it will be P 39 to a dollar by 2008. However most of them agree that it will be in the P 30 +++ level by 2009. There are those who give higher than P 35 production, others lower say it is lower than that.
Most likely, the Philippine Peso will keep on getting stronger because of the reasons according to Zigfred Diaz:
1.) Basic economic principle of supply and demand - More supply of dollars means the dollar becomes cheaper. In the same way the less demand there is for dollars, the cheaper it becomes. What could be the reason why the Philippines has an oversupply of U.S dollars ? The following reasons could provide a clue:
a.) Rise in Overseas Foreign workers (OFW) remittances - Out of the more than 80 million Filipinos, an estimated 8 million, have left the country to seek work overseas. The total number of Filipinos worldwide is estimated to be about 11 million. This trend is likely to continue and as this continues so will the flow of U.S dollars into the country further strengthening the Philippine Peso.
b.) Influx of more foreign capital - According to the Central Bank, foreign direct investments (FDI) from January to September 2007 aggregated to US$1.9 billion. This is higher by 22.3 percent compared to last year's US$1.6 billion (In the same period). Most Investors now see that the Philippines is good place due to the following reasons, effective Fiscal reforms implemented by the government, strong economic fundamentals, our growing business process outsourcing potential and liberalization of mining laws. Most of the foreign investments in the country went to mining, real estate and manufacturing. This is the reason why the stock market remains to be bullish, the inflation rate is low, and the GDP is high etc. This results to a good business environment for investors. More investors are expected to come in as this trend continues. As more "hot money" flows into the country, the supply of dollar continues to increase.
c.) Increase in Tourists spending - The Department of Tourism reports that Tourist arrival increased 8.6 percent from a year earlier. This translates to 2.5 million additional tourists. Tourists spend a lot of money while they are in the country. This helps increase the supply of U.S dollars in the country.
d.) Export earnings - Exports has also grown despite the appreciation of the Peso. However the growth in this sector is led by Business Process Outsourcing business and not the traditional business. The Philippines remain to be one of the favorites when it comes to Business Process outsourcing.
e.) Political stability - People are tired of political bickering, political mudslinging and engaging in activities that call for the resignation of the president. It cannot be denied that the existing administration has maintained its grip and influence creating a somewhat stable political environment.
2.) A weaker U.S dollar - While it is true that our strong economic fundamentals helped push the Peso upwards, it also cannot be denied that the Peso got a little help from the weakness of the U.S dollar. The economic problems of the U.S due to the subprime mortgage crises have been causing the U.S dollar to further weaken. This factor helped push the Peso upward.
The year 2007 closed with the Peso being named as the best performing currency in Asia. It is said to have gained about 18 % against the U.S dollar. This trend is more likely to continue and a stronger peso is very much more likely in the month or even years to come.
Dollar to Philippine Peso - USD to PHP
Dollar $ 1
$ 5
$ 10
$ 50
$ 100
$ 200
$ 500
PH Peso Php 42.97
Php 215
Php 430
Php 2149
Php 4297
Php 8595
Php 21487
CONCLUSION
The effects of devaluation can be complex and far-reaching. In theory, a weaker currency means that exports from the affected country will be cheaper relative to prices in other countries, and that imports will be more costly. These conditions may provide a boost to an economy that has undergone devaluation, but typically there are negative consequences as well, both internally and externally. And depending on the nature of a country's trading structure, the benefits may never materialize at all.
For large international corporations, devaluations often translate into lost revenue and decreased profitability in the affected country (assuming the company isn't based there), as companies usually can't raise their prices enough in competitive markets to make up for the losses stemming from the lower exchange rate. Moreover, since devaluations frequently coincide with broader economic turmoil such as inflation, instability in the financial markets, and recession, spending is likely to be tight in countries whose currencies have been devalued, further eroding sales. On the other hand, for companies with substantial export-oriented operations in countries whose currencies have been devalued, the business may be able to enjoy some cost advantages in its labor and materials, enhancing its competitive position abroad.
For me the declination of the Philippine can have positive and negative impacts on the country. Before this value of the Peso on Marcos regime with US Dollar is one is to one which our economy has the stabilization. Even the exchange of Dollar to Peso is somewhat higher at least there’s economy stabilization in the country.
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