The banner story in today’s business sections of the three major dailies announces the largest Balance of Payments surplus for the Philippines standing at $14.4 billion. Here is what the Inquirer reported
The sustained increase in remittances, higher export earnings and a surge in foreign capital inflows lifted the surplus in the country’s balance of payments (BOP) to an all-time high of $14.4 billion in 2010.
The Bangko Sentral ng Pilipinas on Wednesday said the BOP surplus cemented claims that 2010 was a banner year for the Philippines especially in terms of inflows of dollars and other foreign currencies.
The surplus, the highest ever recorded, was more than double the $6.42 billion registered in 2009.
For December alone, the surplus stood at $1.23 billion, up slightly from $1.22 billion in the same month of the previous year.
The BOP is a record of the commercial and financial transactions of the country with the rest of the world. A surplus, which indicates that the inflows are more than the outflows, adds to the Philippines’ total reserves of foreign currencies or the gross international reserves (GIR), which reflects the country’s ability to pay for imports and services and settle maturing debts to foreign creditors.
The central bank earlier reported that the country’s GIR registered a historic high of $62.1 billion as of the end of 2010 (emphasis added).
To put the last statement in its proper context, our current gross international reserves are enough to pay for a full year’s worth of imports! To show just how far we have come, there was a time in the mid-80s when the country struggled to even pay for a few months’ worth of imports. The forecast in 2011 is for our reserves to climb up to $70B. Because of this some have predicted that the peso could appreciate this year to 40 to a dollar. This would pose serious challenges to our export sector as well as to the workers overseas whose remittances are partly driving up our reserves.
Previously, I had commented in this space about the need for our Bangko Sentral (BSP) to start looking at new policy tools for dealing with this imminent threat. Other countries in Latin America have also been faced with rising currencies and have attempted to deal with them using both traditional and unorthodox means as the Economist has reported this week.
Having quickly shaken off the world recession, many countries in Latin America are prospering again. The region’s economies grew by an average of 6% last year, according to a preliminary estimate from the United Nations Economic Commission for Latin America and the Caribbean. This strong performance, linked in large part to the global commodity boom, has attracted big inflows of foreign cash. With that has come a familiar problem: the region’s currencies have soared in value against the dollar, making life uncomfortable for Latin American manufacturers. They find themselves priced out of export markets or struggling to compete with cheap imports. Worried governments are launching a battery of measures to try to restrain the value of their currencies.
Yet the BSP at the end of last year stated that it was quite happy with the current policy settings saying that the real effective exchange rate of the country (economistic gobbledygook for the prices of our goods that are traded abroad) have risen moderately compared to other countries in the ASEAN region. That may be cold comfort though for the families of overseas contract workers who see their expected earnings in pesos still dwindling nonetheless.
At any rate, the Philippines as always might have to play policy catch-up with its Latin American brethren (as it has with the conditional cash transfers program). Perhaps (and this is where I become a bit speculative) we ought to lend some of our reserves to Ireland or some other struggling European economy (Spain or Greece perhaps?). Expatriation of foreign reserves is not a bad thing. The country can still earn a decent return from its investments while relieving the peso from upward pressure.
Why not? If we remain timid, we might miss the boat once again. As the currency wars rage on, our response needs to be well thought through.