Wednesday, April 02, 2008 Exporters worry over hedging
AS the Bangko Sentral ng Pilipinas (BSP) touts hedging as a strategy to protect dollar-earning companies from the weakening of the greenback, some local exporters remain hesitant to take on the central bank’s recommendation.
The BSP conducted a conference in Cebu City last Friday as part of its nationwide information drive on hedging products.
Exporters are urged to avail of available hedging products offered by banks, which allow them to lock in their dollars at a certain price to protect themselves against foreign exchange volatility.
Hedging is considered as a strategy that reduces the risk of adverse movements of prices of certain assets, like dollars, said Glenn Jao, assistant manager for foreign exchange and foreign exchange derivatives sales of the Rizal Commercial Banking Corp. (RCBC).
Since most exporters are paid in US dollars, their earnings are reduced when the greenback depreciates against the peso. Exporters have been lamenting over the weakening of the dollar or the strengthening of the peso; in late 2006, the exchange rate was about P50 to the dollar, but the local currency’s value has hovered around P41 to the greenback since late last year.
Lito Lerin, an exporter of fashion accessories, said many local exporters don’t even have $10,000, the minimum contract amount offered by the state-owned Development Bank of the Philippines (DBP) to small and medium exporting companies.
Lerin, during the open forum of the hedging conference, stressed the need to improve the competitiveness of local exports instead.
Ma. Cyd Tuano-Amador of the BSP said the peso has risen by about 20 percent from 2001 to March 2008.
She said the peso’s rise has been caused by positive investor sentiment, high remittances from overseas Filipinos, entry of foreign investments, steady export earnings and a weakened dollar.
While the peso’s rise against the dollar helps minimized price increases and lowers debt payments, Amador admitted that the local currency’s appreciation has adversely affected exporters, dependents of overseas Filipinos, the tourism and business process outsourcing industries.
Reza Baqir, resident representative of the International Monetary Fund (IMF), said hedging can be among the near-term measures to cope with foreign exchange movements.
Not the only factor
He, however, stressed the need for “more structural and longer term measures” such as enhancing productivity and quality of products.
Baqir said that foreign exchange is not the only factor affecting export performance. Productivity, quality of product, technology and market size also affect export performance, he added.
Aside from the Philippines, he said, other countries’ currencies, like those of the Czech Republic, Estonia, Hungary, Thailand and South Korea also experienced similar growth rates like those achieved by the peso. Yet their exports continued to grow as well, he added.
He cited South Korea, whose export performance continued to improve with its decision to specialize in higher value-added products.
He said Thailand, on the other hand, sustained its export performance by diversifying from agricultural goods to high-technology products, finding new markets other than the US, and shifting from US dollars into other currencies—like the euro—for its export invoice payments.
Although hedging products have been in offered by banks for some time, the BSP acknowledged that there is a need for more information about these type of financial management solutions.
BSP capital markets specialist group head Mary Jane Chiong said during the conference that the central bank has a set of regulations to protect investors and asset managers or banks involved in hedging.
She said prudential regulations of the BSP ensure that banks implement sound and ethical sales and marketing practices to protect their customers. (LAP)
