THE continued slide in value of the US dollar against most currencies is hurting everyone who is paid in dollars or in a currency that is pegged to the dollar. Filipinos abroad have seen the value of the Philippine peso rise over the past year to astronomic heights. I remember when one dollar bought 55 pesos. Now the exchange rate is only 44 pesos to the dollar.
President Gloria Macapagal Arroyo is not to blame for this, US President George W. Bush is the one to blame for allowing the US dollar to sink to such depths. Imagine that one British pound sterling now gets you more than two US dollars!
Bush is desperate to reduce America’s huge balance of payments imbalance, created by the fact that the US imports much more in terms of goods and services than it exports. By keeping the dollar artificially weak, Bush and his economic team hope to improve their balance books since a weaker dollar makes US exports cheaper. But the increase in exports has still not been enough to redress the imbalance because Americans continue to consume voraciously and have one of the lowest savings rates in the world.
Enter a group of overseas Filipino workers who have started a signature-gathering campaign to ask the Philippine government to establish a peso-stabilization fund for the remittances sent home every month by the estimated 8 million Filipinos working overseas. Click here to sign the petition.
A tumbling dollar has resulted in a rising peso, which means that OFWs have seen the value of their remittances in pesos shrink nearly 20 percent in the past six months. That’s quite a sizeable drop in earning power, something the Philippine government should be taking seriously and not sneer at.
But the government so far has treated the proposal that it establish a stabilization fund for OFW remittances, that would guarantee a $1=P50 exchange rate, as laughable and impossible. Labor Secretary Arturo Brion said that OFWs are already exempt from paying income tax, so why help them anymore, and the Bangko Sentral ng Pilinas has said it believes that free market forces should be allowed to determine the exchange rate, effectively washing its hands of trying to help OFWs.
Saudi-based OFW Ronnie Abeto, of V-Team-Advocacy and Community Service which started the petition for the peso stabilization fund, says that the BSP could in fact do something if it really wanted to.
“There is always a degree of flexibility that the government can have in trying to moderate or stabilize the exchange rate,” Abeto said in an e-mailed statement. “If they can start a $1 billion stabilization fund for Philippine exporters, why can’t they do it for OFWs? It is grossly absurd to say they will ‘let the market determine the exchange rate’ for OFWs and ordinary citizens, while doing the opposite for the more organized and politically-backed exporters.”
Indeed, the Philippine government and governments around the world regularly intervene to stop the slide of their national currencies by having their central banks buy excess dollars on the market, and also by raising interest rates to make savings in their currencies more attractive.
Abeto says that the BSP could make a peso stabilization fund work by entering into sophisticated financial transactions such as forward currency contracts or currency options with financial institutions on behalf of OFWs.
The bottom line is that a strong peso is hurting the 8 million OFWs and their 25 million family members back home. OFWs are having to work longer hours to make the same amount of money (in peso terms) that they used to make just a few months ago. For those not able to work overtime to compensate for the deteriorating exchange rate, they end up sending less money home and their families have to cut costs to make do with smaller remittances. In some cases, the stronger peso is forcing OFWs to extend their work stints abroad in order to make the same amount of money they were making just six months ago.
But the battle for a stabilization fund for OFW remittances, estimated at a huge $12 billion last year alone, is going to be tough. BSP Gov. Amado M. Tetangco, Jr. told GMANews.TV that “in our analysis, excessive volatility in the rate is more undesirable to a broader base of the economy than the absolute level of the exchange rate.”
OFWs really need to push for the fund and organize themselves politically and economically. I doubt the foreign employers will raise the salaries of OFWs to compensate for the rising value of the peso. The Philippine Congress and Arroyo administration need to help their modern day heroes achieve an equitable exchange rate for their hard-earned dollars abroad, at least until 2009 when Bush is out of office and hopefully a Democratic president in the White House will come to her/his senses and stop the slide of the dollar that has been so disastrous to so many people around the globe.