Philippine Peso Stability Relies On Duterte’s Infrastructure Success

Recent concerns about peso’s depreciation have been exaggerated. In the most dangerous international environment since the postwar era, there is no room for complacency, however.

In the past, international and domestic critics of the Duterte government have complained that the Philippine peso has fallen "six straight years,” which is seen as a sign of the failure of Duterte agenda.

In March 2017, Bloomberg reported that “Asia's ugly duckling of 2017 is the peso, thanks to Duterte.” At the time, peso’s weakening was explained, oddly enough, by investors who had been spooked by allegations of “unlawful killings and corruption.”

More recently, the peso is said to face an additional threat, “a mid-term election that may compound concerns about its economy.” This time Bloomberg believes that “political uncertainties” pose an added source of pressure.” Yet, recent surveys do not seem to support such speculation.

Still, other reports see “political risks” where such do not necessarily exist while approaching the peso’s weakening as if it was fueled by mainly internal forces.

In reality, most currencies in emerging markets have depreciated since first expectations that the U.S. will start rate normalization and when the actual rate hikes began - about “six straight years” ago, well before Duterte (Figure).

Figure                       

Since the Fed’s signaling of normalization and rate hikes, Philippine peso has depreciated almost in parallel.

Forces behind peso movements

A series of well-known forces have fueled recent peso depreciation. In the fall, inflation reached an intolerable high of 6.7%. It was boosted by a price effect associated with tax reforms (TRAIN), rising oil prices and a failure to manage rice prices. Accordingly, Philippine peso depreciated until early October.

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Disclaimer: Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute ...

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