(March 3): Spare a thought for the Philippine peso.
While other Asian currencies have strengthened against the dollar this year, the peso has hit a more than 10-year low and remains locked out of the party. Some analysts say that’s because investors are spooked by simmering allegations that President Rodrigo Duterte was involved in unlawful killings and corruption in his former post, which he denies.
Duterte’s spokesman Ernesto Abella said in a text message Friday that the moves in the exchange rate have been driven by expectations the US Federal Reserve will raise interest rates. The peso is down 1.3 percent this year, while the Korean won leads the pack of Asian currency gainers, rising 4.5 percent.
It could get worse for the peso before it gets better. Technical indicators suggest its decline will continue after it breached a support level of 50 versus the dollar last month. The peso touched 50.395 on Friday, its weakest since September 2006.
Overseas funds have sold net US$122.1 million of Philippine equities this year, wiping out the US$83.4 million inflow seen through 2016, exchange data compiled by Bloomberg show.
“You have a whole bunch of political developments recently that when you put it all together, people outside will probably say ‘wait, let’s be cautious here’,” said Joey Cuyegkeng, a Manila-based senior economist at ING Groep NV. “I expect some recovery in sentiment once all these political concerns are addressed, but it will take a while.”
Further pressure could build in the coming days, with the Philippine Senate due on March 6 to open an inquiry into fresh allegations by a retired policeman that Duterte headed a group that carried out extra-judicial killings when he was mayor of the southern city Davao.
The 71-year-old president has also been accused of illegally amassing two billion pesos (US$40 million), and political opponents say he is attempting to quash dissent after Leila de Lima, a senator critical of Duterte, was arrested on drug-trafficking charges. The now suspended war on drugs launched after he came to power last year has also drawn international condemnation and claimed thousands of lives.
Duterte has retained a high popularity rating domestically. Since he enjoys immunity as president, any allegations into illegal wealth and disclosure failures would need to be raised at an impeachment trial in Congress, which is controlled by his allies.
“There’s clearly some concern,” said Gareth Leather, a senior economist at Capital Economics Ltd. in London, referring to the political developments. The deterioration in the current account over the past year may have undermined the peso as well, he said by phone. “There’s more than just politics at play here.”
Bangko Sentral ng Pilipinas Director Zeno Abenoja in December said the current-account surplus is forecast to narrow to US$800 million this year from the US$2.5 billion estimated for 2016 because imports are growing.
Further losses
Economic Planning Secretary Ernesto Pernia said on Friday the peso’s decline isn’t a cause for alarm, and that a weaker currency benefits families of overseas workers, exporters and outsourcing companies. “Our central bank is doing a great job in managing the currency and managing the sharp fluctuations,” Pernia said.
The peso will be 50.6 to the dollar by the end of September, according to the median estimate in Bloomberg surveys of analysts. Bank of the Philippine Islands, the country’s second-largest lender by assets, forecasts the slide to continue to 52.50 by the end of the year.
Political developments “might be the catalyst to drive the dollar-peso higher,” said Alan Cayetano, Manila-based head of foreign-exchange trading at the bank. “For now, market sentiment seems negative.”