Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Some Positive Effects of Peso Appreciation

Posted by butalidnl on 18 January 2008

The negative aspects of the dollar’s decline vis-a-vis the peso is very much in the news, what with OFW families getting into financial trouble, and exporters complaining about their products getting to be too expensive for foreign buyers. What often gets overlooked is the fact that the dollar’s depreciation also has a positive side, and if one takes a good look at this, it is at least equally important as the negative side to this trend.

Let us name some positive effects of the dollar depreciation.
Increases in the world market prices of imported goods have lesser effect. Oil prices have shot up in dollar terms, and thanks to the increased value of the peso, the actual effect on the prices of oil products have not been as much as otherwise would have been the case. The same could be said of wheat prices, etc. which have also risen.

Dollar-denominated foreign debts can be repaid with less pesos. The Philippine government has saved billions of pesos as a result of the dollar’s drop in value. Philippine companies with foreign debts have likewise benefited.

Capital flight from the Philippines has lessened. The strengthening peso means that it is no longer a wise financial move to move funds to a foreign dollar account. It would be much more profitable to keep the money in pesos. At the same time, there is some kind of poetic justice that corrupt officials with funds abroad suffer from a severe cut in the value of their “loot”.

Skyrocketing real estate prices would be dampened. Many Overseas Filipinos (mostly in the dollar area) have driven up prices of real estate throughout the country. The decreased value of their dollars may result in the cooling down of the buying frenzy for land by OFs.

Increased attention to the domestic market from investors and (former) exporters. Some exporters are coping with the decreased demand for their products in the US by either shifting to other countries or to selling domestically. The increased supply of products to the domestic market would help to lessen prices and improve the product quality of domestically available goods.
At the same time, the value of the local market for foreign investors has increased. Since the peso’s value has increased, the potential sales and profits offered by the domestic market has increased in terms of dollars.

Lower interest rates. The steadily depreciating dollar is pushing the US Fed to decrease their interest rates – in response, countries like the Philippines decrease their interest rates accordingly, in order to avoid the interest rate differential to get too high. Low interest rates are good because it stimulates business, and also consumer spending, both of which are good for the economy.

Lower cost of imported capital goods. For example, the peso value of new airplanes is now much less than it was even a year ago. This is the same for other items e.g. heavy construction equipment, computers, etc. This would help stimulate the economy, and could also lead to decreased prices for consumers.

see also Peso-Dollar Rate

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3 Responses to “Some Positive Effects of Peso Appreciation”

  1. Steve said

    The Matrix…..

    Filipinos have been living in a dream world for some time now like in the film the matrix. The nice homes and malls there are all due to remittances from OFWs only. As filipinos become more engendered into other cultures they will stop caring for their elderly and stop sending these remittances and become totally westernised. That will be the end of nice homes and malls for the Philippines.

    Also filipinos rip off foreigners by trying to charge the maximum they can to them. Foreigners don’t do this to filipinos but we are now starting to do this as a pay back and also we are closing down our businesses and call centers there because of this.

    In 10 to 20 years time the Philippines will be totally bankrupt with derelict malls and a broken society.

  2. Remitter said

    It was quite refreshing to get a rather positive opinion on the whole matter. But can you really justify the case when the prices of basic commodities including rice have gone up? Analysts say the situation is bad for those living below the poverty line and the appreciation of the peso hasn’t done much to them. As for the argument for the local exporters, the Chinese have already captured the market. They are selling low cost commodities all across the world and there production value is much higher. In countries like India and Pakistan the demand for the Chinese goods is at an all time high. The exporters based in the Philippines according to me do not stand to gain much if they try to sell their products in the domestic market because they would first need to compete with their Chinese counterparts.

  3. peter gerard scully…

    [...]Some Positive Effects of Peso Appreciation « Carlo's Think Pieces[...]…

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