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Overseas Filipino workers told to shun dollars for pesos

Section: Daily Dispatches

From the "Random Jottings" Column
The Manila Times (Philippines)
Monday, January 21, 2008

Guess none of us ever thought that in our lifetime this sort of financial advice would be imparted by an authoritative voice to overseas Filipino workers. But here we go, folks!

In boldly predicting a bigger peso surge versus the dollar in the weeks ahead, the Trade Union Congress of the Philippines is calling on overseas Filipino workers to forget about the dollar and consider placing their hard earned savings in peso accounts.

"We now see the dollar at 37 to 38 pesos by early summer. We are thus renewing our guidance for overseas Filipino workers and their families here to continue to shun the dollar and keep their savings in pesos," said TUCP spokesperson Alex Agui­lar, whose influential organization is basing its counsel on falling US interest rates that are bound to set off more capital flight out of the greenback.

Aguilar also urged regulators to find ways to compel local banks to reduce their "oppressive and burdensome" remittance charges, in order to help lessen the powerful peso’s jolt on migrant workers and their families -- a call that has also been made by Sen. Loren Legarda through a Senate resolution she tabled four months ago.

Stated Aguilar: "We are now convinced that, amid the lingering subprime mortgage crisis, credit crunch, and housing slump that threaten to drag the broader US economy down, the Federal Reserve will have no choice but to bring its key rate down to as low as 2.50 percent."

The Federal Reserve -- the American central bank -- is widely expected to cut its key rate on January 30 by 50 basis points or one-half a percentage point, from 4.25 percent to 3.75 percent, and then follow this up with more cuts in future meetings in March, May and June.

Already Goldman Sachs, one of the world's leading investment banks, warned of a US recession, and predicted more aggressive rate cuts by the Federal Reserve.

Since September last year, the Federal Reserve has already cut its key rate three times, by a total of 100 basis points, or a full percentage point, from 5.25 percent to 4.25 percent.

Aguilar described as "self-fulfilling" the peso's rise versus the once-mighty US dollar. As the peso continues to advance, the government and the private sector are seizing the opportunity to pay down, or totally get rid of, their dollar-denominated debt obligations.

This has had the effect of diminishing the future need for dollars intended to service debts, thus creating an excess dollar supply going forward.

The TUCP's Aguilar also said migrant Filipino workers are actually sending home more dollars to compensate for the strong peso, thus further bloating the dollar surplus.

"If a family wholly dependent on remittances needs 15,000 pesos monthly to cover living expenses, the head who is abroad has no choice but to now send home about $368 monthly to produce the 15,000 pesos at $1:P40.74, compared to only about $267 four years ago, when the rate was $1:P56," he said.

Aguilar cited a report by the Bank of the Philippine Islands that indicated that prior to the peso's sharp appreciation versus the dollar, Filipino workers abroad sent home an average of $300 to $500 per transaction in 2006.

In 2007, when the peso gained almost 16 percent versus the dollar, the average amount sent home by migrant workers increased to $350 to $550 per transaction, according to BPI, which corners almost one-fourth of the total amount of remittances sent home by migrant Filipino workers every year via the banking system.

The peso was one of the world's best-performing currencies in 2007, gaining nearly 16 percent versus the dollar. The local currency closed at 41.28 to a dollar in 2007, up 15.8 percent from its close of 49.03 to a greenback in 2006.

Curiously, though, big entities like PLDT and Meralco that for decades have been charging customers fees in the monthly billings to cushion themselves from the financial perils of the peso fluctuating against the then mighty dollar do not seem to be rushing to giving customers any respite now that the trend has been seriously reversed.

But that, as they say, is another story -- for a congressional hearing, perhaps?

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