Dollar will appreciate only till the end of March 2008

In the last couple of weeks, the dollar has appreciated in relation to the Philippine peso, climbing from about 40.4 in February to 41.40 today. Unfortunately for those Filipinos who are hoping for a stronger dollar, this is a temporary trend (which will end this month). Then, why is the exchange rate behaving so?

In order to understand changes in exchange rates, it is important to note that the real reason behind these changes is the movement of money into, or out of, various currencies. Thus, when a lot more dollars enter the Philippines, than leaves it, this would result in a rise in the peso. When it flows more the other way, the peso value will then go down (and the dollar will appreciate). Knowing this to be the main reason, it would be safe to ignore most of the analysis put forward by bankers, etc. on why the peso appreciated or depreciated in a given period.

Back to the specific situation this March. For many companies, their fiscal year ends in March. This is especially the case for Japanese companies, but many other companies also do this, since it is easier for them to attend to their year-end accounting and reporting at a time when sales etc. are not hectic (unlike in December). For foreign companies whose fiscal year ends this March, closing their books would also entail having to send home any profits which were not yet set during the course of the year. Since the peso had been appreciating most of the time against the dollar, many of these companies wisely decided to wait till the end of the fiscal year before sending home their profits. As a result, many of these companies are now remitting large amounts of money out of the Philippines this month.

For foreign investors in stocks or bonds (portfolio investors) whose fiscal year ends in March, they would be undertaking what is called “window dressing” of their investment portfolio. This means that their riskier or short-term investments would be sold off, and other more prestigious investments (mostly blue chip stocks in developed economies) would be bought. The purpose of this is to have a nice-looking annual report to their stockholders. As a result of these window dressing operations, many foreign portfolio investors in the Philippines will be selling off their Philippine stocks and bonds – resulting in another big amount of outward remittances.

These two factors, the remittance of profits and the window dressing operations, had resulted in the strengthening of the dollar vis-a-vis the peso last December. This was strange, since the peso usually strengthens in December as a result of inward remittances by Overseas Filipinos. We are now seeing Round 2 of this effect this March. The net effect this March (in terms of the dollar appreciation) may be more than what we saw last December, since the inward flow of money from Overseas Filipino remittances is less this time around.

Thus, we are likely to see the peso-dollar rate to reach 42:1 before the end of March. Since this is caused by very specific conditions this March, we will see a continuation of the trend towards peso appreciation starting in April. And this will likely reach 38:1 by November this year.

see also Peso-Dollar Rate

Oil to peak at $200/barrel in about 3 years

With crude oil fetching $106/barrel recently, the question that we often ask is: How high will the price get? Well, a simple answer to this is: about $200/barrel sometime in 2010 or 2011. The price of oil will continue to increase steadily in the next 3 years mainly as a result of the growing need for oil coupled with a limited supply. There is no immediate prospect of new oil fields that will open up in the next couple of years, or of substitute fuels that will somehow replace oil. Add to this the political instability in many of the oil producing countries, and you have a seemingly unstoppable trend for price increases.

While people in the US may think that an oil price of $200/barrel, and thus gasoline at $5/gallon or more, is unthinkable and that “everything will stop” when this happens; perhaps they should realize that in Europe, gasoline prices are now nearing $6/gallon (this is due to the high taxes on oil products). Living with such an oil price is thus possible. Of course, Americans will have to make some lifestyle adjustments to be able to cope with such prices, such as having smaller and more fuel-efficient cars, using public transportation more often, working and doing groceries nearer where they live, etc.

But there is some good news. While there is nothing that can prevent the oil price from rising to $200/barrel in 3 years, this is about as far up as it will go. At this point, even without new oil supplies entering the market, the price will be so high that 2 things will happen: first, serious energy conservation efforts will start to take effect; and second, the cost of renewable energy will then be equal or even cheaper than energy from oil.

Thus, we would be looking at a scenario in 201o or 2011 where the sales of hybrid cars will soar; and where new electrical capacity will be generated by solar or wind energy. But this cannot happen overnight, since many coal, gas, or fuel-oil electricity generating plants are still operational, and it takes time to build new solar and wind energy plants. We can expect oil prices to stay at about $160 – $180 for a few years, and then slowly decrease after that.

Faulty analysis in CoA memo on “Subpar Nursing Schools”

In a Philippine Daily Inquirer report on 22 February, the Commission on Audit is said to have urged the Commission on Higher Education (CHEd) to phase out nursing programs whose graduates perform badly in state licensure examinations. In the CoA memo said that “from 2001 to 2005, only 111 of 263 nursing schools nationwide managed to have 50 percent of their graduates pass the licensure examinations…” It even went on to say that 19 of these schools had failed to pass even a single student.

I decided to try to find out which schools these were (i.e. the 19 where not a single student passed the board exams). I was able to find a report put out by the Philippine Center for Investigative Journalism (PCIJ) in 2005 on the state of nursing education. In this report, which covered the period of 2000 to 2004 and listed 269 schools, 108 of the schools had 50% or more of their students pass the nursing board exam. [the figures are so close to that cited in the COA report, as you may notice ] In the PCIJ list, there were not only 19 but 42 (! ) schools which had not been able to produce a single passing student.

But let us take a closer look at the 2005 study. [ I will be referring here to the PCIJ report, and this may be slightly different from the data that the CoA may have been referring to] Here are some interesting details:

- out of the 269 schools, only 175 had had students taking the board for 5 years or more. Not a single one of these 175 schools had a 0% result.

- 94 schools had a track record shorter than 5 years, and of these 42 had a 0% average. However, out of these 42 schools, 32 schools had fielded only 1 examinee during these .

- among these 42 schools with the 0% “average” in 2001-2004 are Xavier University and the University of the Philipines – Visayas, Tacloban City. These two schools were among the best performing schools in the December 2007 nursing board exams, with passing percentages of 98% and 100% respectively.

- of the 42 schools with 0% average in the study, 27 of them had not fielded any examinees in the December 2007 nursing board exams.

(For your reference, please refer to the PCIJ tables at: Tables 1,2 ,3 )

From the above, it seems that the person who wrote the CoA report did so only based on overall figures, and did not bother to go into details on the specific schools covered. If the CoA’s proposal was implemented on the “0% schools” back in 2005, many quality schools would have been closed, based only on the failing grade of one examinee.

I believe it would be wrong to look solely into the exam results to judge which are the better nursing schools, and which should be phased out. We know that many schools give their students “pre-board” exams; and those who fail in these are not allowed to take the nursing board. This practice makes it more likely to result in higher passing averages, without necessarily ensuring a good quality of the nursing education given. Also, many provincial nursing schools have a disadvantage (as compared with those in the bigger cities) because the students that go to these provincial schools often have had a lower quality high school education.

I believe the CHEd could best improve the quality of nursing schools by setting higher standards on the quality of the courses themselves e.g. the teachers, facilities, etc.