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Wednesday, January 28, 2004
Peso drops to new low of 55.92 v. US dollar
MANILA -- The local currency took a beating Tuesday as Moody's lowered its long-term sovereign ratings for the Philippines on worries over a persistent fiscal deficit and political instability ahead of the May presidential elections.
The peso plunged to a record low of 55.92 to the dollar in early trade, but recovered to levels above 55.80 as the market realized the new ratings were better than a feared two-notch downgrade, analysts said.
The equities markets also rallied, rising 1.12 percent to 34-month highs.
"We're seeing the market improve, unless we have another surprise... There's no plan to intervene. We're OK for now," Bangko Sentral ng Pilipinas (BSP) governor Rafael Buenaventura said.
He said they are closely "watching and waiting" for developments.
For the last three days in the market, the peso has been battered due to pre-election political jitters.
International credit rating agency Moody's Investors Service said Manila has not done enough to contain "fiscal imbalances". It also cited the "unsettled political dynamics" ahead of the May 10 vote.
Film star and high school dropout Fernando Poe Jr. has been leading President Arroyo, an economist, in opinion polls.
Moody's noted that while the government has boosted revenues, the P198.7-billion ($3.6-billion) budget deficit last year was "well above the level" originally forecast in 2002. Public sector debt also remains "at relatively high levels."
Moody's also noted that the country's export performance has faltered and could be linked to falling foreign investments.
The Asian Development Bank (ADB) earlier warned of a possible fiscal crisis over its budget deficits.
An ADB report showed that the stalled economic reforms have rattled investor confidence.
It said fiscal constraints impose "sharp limits on spending, while the lead up to the (presidential) elections in May 2004 is affecting the progress of economic reform."
"There is heightened concern at the size of the consolidated fiscal deficit, primarily due to the rapidly mounting liabilities of the power sector, which offsets the budget gains of the government."
The foreign debt stands at 56.3 billion dollars.
ADB said Philippine debt interest payments are now "financed by debt rather than by internally mobilized funds", citing the Congress' failure to pass key tax laws in the run-up to the elections.
Reacting to the peso's fall, Philexport-Cebu president Allan Suarez said no one was taking care of the economy while the country's leaders were engaged in politicking ahead of the May elections.
He said exporters were doing their part to contribute to the economy but "the market is also not good."
Cebu Chamber of Commerce and Industry president Carlos Co said a weak peso would push up the cost of imports and the prices of goods creating "additional inflation."
On the fiscal problems of government, Co said that on the revenue side, the Customs and internal revenue bureaus were meeting their targets, but there was still the expenditure side to consider. AFP/CTL
(January 28, 2004 issue)
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